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1、1The K-Pop Industry:General Overview and OutlookFall 20232Industry Overview3Competitive Dynamic5Financial Overview7Valuation Overview8Industry Trends and Outlook9Agenda3 3Industry Overview Business Model Creates Global Superstars and Valuable ContentThe K-Pop industry consists of a network of record
2、 labels that specialize in systematically scouting,developing and managing musical talent on an international scale.Compared to other entertainment segments,higher degree of involvement and value-add in creating valuable performers/content with measurable fan base and associated ARPU dataSongwriting
3、ManagementVideo ProductionPR/MarketingArtist&ProductProduction Cycle of a K-Idol Group(a)Industry-wide shift from“Single-Producer”to“Multi-Label”business model now complete at all four major labelsSingle-Producer ModelMulti-Label Model ExampleSole Executive ProducerProduction departments consolidate
4、d at the company levelControl over creative vision,unified aestheticFounder risk,one-hit wonder risk(Year transitioned)(2023)Label 1Tier 1 Korean Girl Group with international fanbaseLabel 2Korean Boy Group with large Japan presence+Japanese R&B duo Label 3Recently-acquired US label with multiple si
5、gned rap artistsParent organization holds several independent genre-or artist-focused labels in a portfolio of assetsEach label has its own exec.producerGreater flexibility for adopting new trends,acquiring overseas labelsReduces over-reliance on specific artists e.g.HYBE Q1 23 revenue rose 44%YoY d
6、espite BTS absenceCasting/TrainingProductionManagementMarketingScouting,auditions,and developmentExpedited and monetized in recent years via televised talent competitionsFinalization of group genre and themeTrainee contract ends,artist contract signedComprehensive management of artists production th
7、roughout careerAdditional revenue generation through merchandising,advertising,appearances,etc.Avg.34 yearsApprox.7 years*after a 7-year maximum,contract can be renewed or terminatedHQ(a)As described by former SM Entertainment chairman Lee Soo-man;specifics differ by agencySources:Lee Soo-man,Minist
8、ry of Culture,Sports and Tourism,SM Entertainment,HYBEMaintain specialized teams for core assetConsolidate production teams based on genre/geography/sizeFacilitates cross-border strategic acquisitions(2020-21)(2016)4 4Industry Overview Revenue ModelRevenues are generally classified as either artist-
9、direct or artist-indirect revenue(a)Indirect revenues,e.g.from merchandise and video content,have grown over timeAlbum Sales(Physical,Digital,Streaming)Concert TicketsAdvertisementsAppearances(TV/Events)Merchandising&LicensingContents(Comics,Games,Film,YouTube)Fan Club Services(e.g.HYBEs Weverse)Dir
10、ectRequires artists immediate participation IndirectInvolves monetization of artists IP and branding45%9%11%28%7%Album&Digital SalesAds,Appearances,Management and EventsConcertsMerchandising/Licensing/ContentsOthersAverage Revenue Profile of a“Big 4”Record Label(b)(a)Terminology from HYBE,may differ
11、 by agency;for example,SM uses“primary”and“secondary”IP revenue(b)Revenue-weighted average of the Big 4 labels sales mix,1Q 23Sources:DART,SM Entertainment,HYBESM Entertainments Indirect Revenue Contribution Increasing84%16%2020A83%17%2021A77%23%2022A71%29%2023E65%35%2024E60%40%2025EDirectIndirect23
12、3326396551761932(%,millions of$)5Market Overview Competitive Dynamic 52001420198.4200227.410.816.922.824.641.757.174.2CAGR+33%(a)As of Jan 15,2023Sources:Circle Charts,Korea Customs Service,Spotify,Yuanta Securities 20142021220.9204.42016231.42019 2020202230.8 29.1 2
13、9.944.274.6136.2CAGR+29%PhysicalTotal Value of K-Pop Album Exports(Millions of$)Digital/StreamingGross Albums Sold,Domestic(Physical units,millions)700M+65%4.5M+K-Pop Streaming Metrics(a)Total streams on Spotify,2022Growth since K-Pop Hub launchNew Followersin 2022K-Pop Album Sales Market Share(2022
14、 Est.,%)The K-Pop industry is rapidly growing both domestically and abroadand the Big 4 dominate the Korea market20.4%JYPYGHYBE29.3%SMOther6.0%15.6%28.7%Big 4-signed artists accounted for:14 of the top 15 artists by album sales in 202272%of the top 50 individual tracks in 202271.3%6 6Summary of the
15、Big 4 LabelsHYBE(a)As of September 15,2023Sources:FactSet;DART filings(assumed exchange rate of 1,288 KRW=1 USD);Media ReportsJYP EntertainmentYG EntertainmentSM Entertainment Founded by Bang Si-Hyuk in 2005;rebranded as HYBE in 2021 HYBE,along with JYP,was a pioneer of the multi-label model startin
16、g in 2021 HYBE plays a leading role in exploring new K-Pop monetization avenues Its social media platform Weverse provides merchandising and streaming services focused on direct fan engagement;9.3M active users in Q1 23 Merged with Ithaca Holdings in$1B transaction in 21;acquired QC Holdings for$300
17、m in 23;in process of raising$380m for further US acquisitions(June 23)Future M&A activity anticipated with failure of SM takeover(see below)Founded by brothers Yang Hyun-suk&Yang Min-suk in 1996 One of the original Big 3,artists produced by YG have found domestic and international success and made
18、an outsize impact on K-pops image abroad BLACKPINK,BigBang and Psy(departed 2018)have all brought K-pop to the global mainstream YG and HYBE have a strategic relationship through the latters 17.9%equity investment into YG PLUS,which also makes merchandise for the Weverse platform Yang Hyun-suk retur
19、ned to Exec.Producer role in Jan 23 following scandals in 18 Founded by Park Jin-young in 1996;Park is CCO and Exec.Producer First to adopt the multi-label model in 16;distinguished from peers by its streamlined organizational structure resulting in strong EBITDA margin Historically known for produc
20、ing highly successful girl groups,such as Wonder Girls(07),Twice(15)and ITZY(19)However,boy band Stray Kids is also finding success,topping the Billboard 200 charts for the third time in June 23 Founded by Lee Soo-man in 1995;Lee was Exec.Producer until 2023$184.13Stock Price$7,700mMarket Cap27.3xLT
21、M EV/EBITDABTS,TXT,NewJeans,Ariana Grande,Justin BieberMajor Artists$57.38Stock Price$1,109mMarket Cap12.9xLTM EV/EBITDABLACKPINK,Treasure,G-DragonMajor Artists$99.60Stock Price$2,390mMarket Cap17.7xLTM EV/EBITDAAespa,NCT,Red Velvet,SHINee,Super Junior Major Artists SM is notable for its implementat
22、ion of media/technological innovations,including:Signing a partnership with Binance to expand its NFT ventures;Operating the Bubble social platform,which sells simulated 1:1 chats with artists In Feb 23,Founder Lee was targeted by activist investors and stepped down Lee sold his equity to HYBE,which
23、 used its position to launch a tender offer;however,Kakao launched a competing bid and ultimately prevailed Kakao became largest shareholder with 39.9%stake;HYBE reduced to 8.8%$80.78Stock Price$2,763mMarket Cap23.5xLTM EV/EBITDAStray Kids,Twice,NMIXX,ITZYMajor Artists7 7P/L Highlights(2Q 23,million
24、s of$)Historical Revenue Growth(millions of$)120221721Financial Overview Big 4 Labels P/LSince 2019,HYBE and JYP have outperformed on revenue growth;JYP had strongest EBITDA margin4728789-32RevenueEBITDANet IncomeFree Cash FlowSources:FactSet5046751,0971,3751,674200222023
25、E4-yr CAGR+35%5644900222023E4-yr CAGR9%2402120222023E4-yr CAGR18%8442200222023E4-yr CAGR+35%8Valuation MetricsAs of September 15,2023$millions USDCompany NameShare PriceMkt Cap Net DebtEVLTM2023E2024ELTM2023E2024ELTM2023E2024ELTM2023E
26、2024EHYBE Co.,Ltd.184.4076.4%$7,700.2($197.4)$7,649.65.0 x4.6x4.0 x27.3x25.9x22.4xnm37.8x33.9x48.1x31.8x34.1xJYP Entertainment Corp83.4272.6%2,763.6(117.3)2,650.17.3x6.0 x5.1x23.5x18.2x15.6x35.6x26.4x22.8x51.8x41.6x46.3xSM ENTERTAINMENT CO.Ltd.101.9783.6%2,390.0(331.4)2,212.03.1x2.7x2.4x17.7x14.3x12
27、.0 x42.6x26.9x22.1x22.8x18.4x19.5xYG Entertainment,Inc.59.8181.7%1,109.2(131.8)1,065.72.4x2.4x2.3x12.9x12.4x11.8x19.7x22.0 x21.3x17.4x10.6x8.5xLow$1,109.2($331.4)$1,065.72.4x2.4x2.3x12.9x12.4x11.8x19.7x22.0 x21.3x17.4x10.6x8.5xHigh7,700.2(117.3)7,649.67.3x6.0 x5.1x27.3x25.9x22.4x42.6x37.8x33.9x51.8x
28、41.6x46.3xMean3,490.8(194.5)3,394.34.5x3.9x3.4x20.4x17.7x15.4x32.6x28.3x25.0 x35.0 x25.6x27.1xMedian2,576.8(164.6)2,431.04.1x3.7x3.2x20.6x16.3x13.8x35.6x26.6x22.4x35.4x25.1x26.8x%of 52-wk HighEV/RevenueEV/EBITDAPrice/EarningsPrice/FCFValuation Overview Domestic Big 4 K-Pop Labels8(a)HYBEs LTM P/E tr
29、eated as outlierSources:FactSet(a)Financial MetricsAs of September 15,2023$millions USDCompany NameLTM2023E2024ELTM2023E2024ELTM2023E2024ELTM2023E2024ELTM2023E 2024ELTM2023E 2024ELTM2023E 2024ELTM2023E 2024EHYBE Co.,Ltd.$1,519.6$1,679.4$1,902.2$280.7$295.2$342.1$40.5$196.5$224.6$159.1$240.6$224.614%
30、11%13%18%18%18%3%12%12%57%81%66%JYP Entertainment Corp362.9444.1527.4113.2146.6170.652.2110.6125.861.4100.8125.870%22%19%31%33%32%14%25%24%54%69%74%SM ENTERTAINMENT CO.Ltd.710.9807.7941.6125.1154.8185.561.993.4113.697.2120.3113.621%14%17%18%19%20%9%12%12%78%78%61%YG Entertainment,Inc.419.8420.3452.5
31、79.382.487.026.055.757.251.263.757.255%0%8%19%20%19%6%13%13%64%77%66%Low$362.9$420.3$452.5$79.3$82.4$87.0$26.0$55.7$57.2$51.2$63.7$57.214%0%8%18%18%18%3%12%12%54%69%61%High1,519.61,679.41,902.2280.7295.2342.161.9196.5224.6159.1240.6224.670%22%19%31%33%32%14%25%24%78%81%74%Mean753.3837.8955.9149.6169
32、.8196.345.2114.1130.392.2131.3130.340%12%14%22%22%22%8%15%15%63%76%67%Median565.3625.9734.5119.2150.7178.046.4102.0119.779.3110.5119.738%12%15%19%19%19%7%12%12%61%77%66%FCF MarginFree Cash FlowRevenue GrowthEBITDA MarginNet Income MarginRevenueEBITDANet Income9Strategic Trends Globalization and Gloc
33、alization9The K-Pop industrys plans for global expansion can be separated into three phasesPhase 1:Cultural Export of Korean ArtistsPhase 2:Multicultural K-PopPhase 3:Glocalization1990s 2010sUtilize innovative IP to export contents and generate interest in Korean culture&K-Pop as a genreUnidirection
34、al;focuses on selling albums,concert tickets2010s 2020s Cultivate&incorporate outstanding Asia/regional talent into a Korean-speaking groupMultidirectional;creates a worldwide conversation around K-PopFurther boosts groups popularity in different culturese.g.Lisa from BLACKPINKLate 2010sForming JVs
35、with local partners to develop and debut new idol groups formed entirely of local talentEmphasis on exporting the systems and business models behind K-Pop while expanding into new markets and genres(e.g.C-Pop)BoA(active 2000)First Korean artist to place#1 on Japans Oricon ChartBigBang(active 2006)Fi
36、rst Korean album to chart on Billboard 200Lisa(Thai rapper,BLACKPINK)First album by a K-Pop soloist to reach 1B Spotify streamsNCT(active 2016)11/20 members hold non-Korean citizenshipJYP-Republic RecordsA2K Project auditionsHYBE-Universal/Geffen RecordsUnnamed Girl Group auditionsJYP and Tencents B
37、OYSTORY debuted in 2018 with an all-Chinese lineupSources:HYBE,YG,SM,JYP,Spotify,Billboard,Lee Soo-man50607020000212022U.S.JapanChinaStrategic Trends Globalization and Glocalization(cont.)10Receiving Share of K-pop Album Exports(by Destination,%of Value)Un
38、official ban from 2H 161H 23In 2H 16,China began unofficially banning Korean music and entertainment from its mediaHowever,completely Chinese artists such as JYPs BOYSTORY still allowed to performGlocalization serves a double purpose:In US/EU/etc.,creates groups that can operate natively in several
39、cultures/marketsSimultaneously,insulates label from potential regulatory risks in regions like ChinaCommentarySources:Circle Charts,Korea Customs Service,JYP Entertainment,KB SecuritiesThe shift towards Glocalization was partially driven by lessons from Chinas 2016 ban on K-Pop1111HYBE Weverse Users
40、(Monthly Active,millions)Export Sales to Major Asia Markets(ex-China&Japan,thousands of$)YoY Growth Rate in Album Exports(%)K-Pops Future Outlook:Key Strategic IssuesPotential HeadwindsSources:FactSet,Circle Charts,Billboard,HYBE,DearU Bubble.(All valuation based on LTM as of 9/15/23,excluding UMG w
41、hich reported FY22)Future Evolution of K-Pop Premium Valuation Sustainable?K-Pop may face new challenges in an increasingly competitive global environmentThe continued expansion of K-Pop will hinge on(1)discovering new revenue streams and(2)exporting K-Pops production modelBig 4 labels trade at mass
42、ive premiums to both legacy Korean media companies as well as global music publishersHYBE Chairman Bang pointed at low export growth rate between 2122 as evidence of possible slowdown Exports to major Southeast Asian markets(excl.Vietnam)all decreased from 2122 Circle Charts voiced concerns on the s
43、taying power of K-Pop in critical emerging markets Potential competitive threats:Growing popularity of non-Asian ethnic music(e.g.Latin,Afrobeat)Non-Korean companies adopting the K-Pop model Diminishing contractual control model of artistsAverage Valuation MetricsEV/EBITDA0246802220239.3m
44、+57%Potential explanations include:Greater level of ownership and value-add regarding artists and IPs compared to other media;therefore,valuation fully incorporates both earnings stream and asset value of performers/content Viewing the Big 4 Labels as mixed Entertainment/Tech plays given recent expa
45、nsion of new revenue streams Pricing in higher growth rates and taking market share from the international majors Korean retail investors continue to be major drivers of pricingOwnership of social media platforms allows companies to explore new IP monetization streams Monetization of fan relationshi
46、ps:high potential reward,low unit cost,inelastic/consistent demand SMs Bubble lets fans pay for simulated“1:1”chatsMixed-media:high investment costs but strong opportunities for IP development through film,comics,etc.Drive for glocalization may reduce Korean artists market share overseas in the shor
47、t run;however,expansion of addressable market size likely to make up for the differenceP/E20-2121-2262%5%Big 4 LabelsKoreanMedia(a)Major Intl Publishers(b)20.4x32.6x17.4x5.0 x31.5x15.8x202020212022VietnamTaiwanPhilippinesIndonesiaThailand(a)Includes CJ ENM,SBS Co.,KT Skylife,Daiwon Media,and CJ CGV(b)Includes Warner Music,Universal Music Group,Sony,and Tencent Holdings