K-pop giant HYBE has been expanding internationally in recent years, with notable acquisitions in the US and the Latin music market.
But it seems HYBE’s plan isn’t to just acquire labels and leave them on autopilot. On the company’s latest earnings call, execs hinted at an ambitious agenda: changing the nature of fan culture, presumably to make it more like the carefully produced and highly lucrative world of K-pop fandom.
Speaking about the recent launch of KATSEYE – the international girl group that HYBE developed with Universal Music Group imprint Geffen Records – HYBE CEO Jason Jaesang Lee said the development of KATSEYE is “part of the efforts to revitalize the enthusiastic fandom culture that sort of disappeared in the US after the 1990s.”
That’s certainly an interesting perspective; some would argue that fandom culture didn’t quite disappear, but rather evolved into something new (and decidedly more online).
Yet Lee was likely referring to the popularity of boy and girl groups in the 1990s — think the Spice Girls or the Backstreet Boys. HYBE’s Korean business relies on carefully constructed, mass-appeal acts, and it seems it will try to apply that formula outside South Korea.
That’s certainly been the case with KATSEYE, which began – like many K-pop acts – with a broad talent search, followed by an elimination competition that – again like many K-pop acts – was filmed and turned into a reality show.
“[KATSEYE is] part of the efforts to revitalize the enthusiastic fandom culture that sort of disappeared in the US after the 1990s.”
Jason Jaesang Lee, HYBE
HYBE sees similar potential in the Latin music market as well. Talking about HYBE Latin America, the new division formed out of HYBE’s acquisition of Exile Music, Lee said HYBE LatAm is “preparing to debut a localized band, which can mark a starting point of [the] fandom business in Latin America, where consumption of Latin genre music can be developed into a more complex culture.”
Translation: Get ready for K-pop-style fandom in the world of Latin music.
Can it work? At the very least, we can say HYBE is being realistic about the effort in that they don’t expect fandoms worldwide to respond to the same things as K-pop’s fandom and are therefore prepared to alter the formula to reflect market realities.
“There are many… differences in terms of characteristics of fans and the kinds of consumption and content that they prefer depending on countries,” Lee said in response to an analyst’s question about the ongoing effort to monetize superfans.
“The number one market is North America, and second is Japan. And for Japan, their characteristics are quite similar to those of K-pop fans. But for the US and Europe, the markets are very different,” Lee added.
He noted that HYBE had “completed an analysis of fan behaviors and their content preferences… for the US and Latin market.”
In the coming months and years, HYBE may give the music industry a strong sense of just how well the K-pop model can be adapted to other regions and musical styles.
HYBE’s earnings call came in the wake of a less-than-stellar quarterly earnings report from the company, which reported a 2% YoY decline in revenue in the quarter ended September 30.
Revenue dropped 15.5% YoY in the “artist direct involvement” segment, which includes recorded music and concerts. That was partly offset by the “artist indirect involvement” segment, which includes the Weverse fan platform, merchandising and licensing, where revenues jumped 31.8% YoY.
The company’s operating profit fell by over a quarter year over year, and EBITDA shrank by 16.4% YoY.
HYBE’s execs shared insights on the rapid shift in the company’s revenue mix and other interesting tidbits about its operations and future plans.
Here are four other things we learned on HYBE’s Q3 2024 earnings call…
Only 30% of HYBE’s recorded music revenue comes from streaming…
During a breakdown of HYBE’s recorded music revenues, CFO Kyung-Jun Lee revealed that “streaming revenue is about one third, or about 30% of total recorded music sales.”
If that sounds low, it is. Globally, more than two-thirds of recorded music revenue came from streaming, both subscription and ad-supported, according to the IFPI’s report for 2023.
At Universal Music Group, the world’s largest music company, streaming revenues accounted for 63.3% of all recorded music revenues in Q3.
HYBE’s low share of streaming revenue is a reflection of the fact that streaming hasn’t had as much uptake in East Asia as it has in other regions.
In Japan, for instance, streaming revenues accounted for just 31.3% of recorded music revenue in 2023, according to the Recording Industry Association of Japan (RIAJ) – JYP ¥105.6 billion out of a total of ¥337.2 billion.
However, as HYBE internationalizes, we can expect to see a larger share of its revenue come from outside East Asia, and therefore a larger share coming from streaming. In Latin America, one of HYBE’s target regions, streaming accounts for 86.3% of recorded music revenues, according to the IFPI.
And speaking of HYBE’s internationalization…
2025 will be the year HYBE’s international investments will start paying off..
“2025 will be a year [in which] various businesses that we have been investing for several years will start to produce tangible results,” CFO Kyung-Jun Lee told analysts on the earnings call.
“We expect good earnings results from our diversified music portfolio that has been built through the multi-label strategy, our solutions business – designed to offer new and unique entertainment experiences for our fans – as well as the platform game and AI business.”
That gives us a timeline as to when we can expect to see HYBE’s earnings start to reflect the not insignificant investments the company has been making outside Korea.
There is, of course, HYBE’s famed 2021 acquisition of Scooter Braun’s Ithaca Holdings for more than $1 billion, giving the Korean company a solid foothold in the US.
“2025 will be a year [in which] various businesses that we have been investing for several years will start to produce tangible results.”
Kyung-Jun Lee, HYBE
Last year, HYBE expanded into the rapidly growing Latin music market with its acquisition of Exile Music, which formed the foundation of the new HYBE Latin America.
Most recently, as part of its new HYBE 2.0 strategy, HYBE launched a label services business in the US and a new division called HYBE MUSIC GROUP APAC, which oversees all of its music label businesses based in Korea and Japan.
All of that investment has been hard to see in HYBE’s earnings this year, as the company continues to feel the drag from its biggest act, BTS, being out of the game while its members carry out their mandatory military service.
In other words, those global acquisitions have yet to make HYBE a truly international firm that is not dependent on any one market for its overall health.
That may start to change next year.
Declining stock prices and a weak US dollar relative to the won were behind HYBE’s weak net income in Q3…
HYBE’s quarterly net income was one of the most disappointing numbers in the report, disappearing almost entirely in the quarter – down 98.6% YoY to KRW 1.4 billion (USD $1.03 million at the average exchange rate for the quarter).
That number was dragged down “due to the recognition of non-operating losses, including valuation losses on equity stakes as well as FX losses on the back of the depreciation of the US dollar,” CFO Lee said on the call.
There certainly was a slide in the value of the US dollar against the Korean won during Q3, making HYBE’s US-dollar earnings less valuable in won, the currency in which HYBE reports.
In fact, from the beginning of Q3 on July 1 to the end of quarter on September 30, the US dollar fell by 5.2% against the won. But this should prove very temporary: Since the start of October, the dollar has strengthened against the won to its highest levels in around three years. All else being equal, that should make for better numbers in HYBE’s next quarterly report.
The decline in the value of equities owned by HYBE is a less predictable problem. HYBE owns a little under 10% of SM Entertainment, the rival K-pop company over which HYBE lost a bidding war against Kakao Corp. last year.
Like other South Korean entertainment companies, SM Entertainment’s share price has been under downward pressure this year, and is down nearly 29% year on year, as of November 6.
Something similar can be said for HYBE itself: Its stock price is down 6.3% over the past year. However, markets reacted relatively positively to HYBE’s latest earnings report, and its stock was up 9.6% since the start of the trading week.
HYBE isn’t threatened by potential competition for Weverse
HYBE’s fan platform, Weverse, is one of the most closely-watched experiments in monetizing superfans, and it’s one many in the industry hope will succeed – including recent Weverse investor Universal Music Group.
That said, it’s not the only effort underway to monetize superfans, that segment of the music audience willing to pay more for better access to their favorite acts, exclusive music releases, and merch.
Warner Music Group is working on its own superfan app; Spotify is working on a new subscription tier for superfans; and then there are all the startups out there hoping to become the platform for superfans.
So is all this competition a threat to HYBE’s strategy? Not at all, CEO Jaesang Jason Lee says – in fact, it’s a benefit to HYBE’s efforts.
“Right now, Spotify and Amazon Music and other superfan business platforms are growing. And I believe that this is very positive because [it’s] contributing to expanding the superfan business model and market around the world.”
Jason Jaesang Lee, HYBE
“There are a number of tech giants and point players both in Korea and overseas, cooperating and forging partnerships and launching diverse services [for superfans],” Lee said. “And my conclusion is that this type of tendency and trend is favorable for Weverse.”
Lee said that the content and product offerings on Weverse “are not really mature yet,” and the involvement of other major players in establishing a superfan market can help.
“Right now, Spotify and Amazon Music and other superfan business platforms are growing. And I believe that this is very positive because [it’s] contributing to expanding the superfan business model and market around the world.”
Lee said Building Weverse will mean more analysis, such as the recent analyses of fan behaviors in the US and Latin markets that HYBE completed.
“These are the kinds of analysis that are needed to understand what types of content needs to be offered, in what sequence we can convert a general music listener [into] a superfan.”
Keeping the cultural differences in mind, HYBE is working on a list of services for non-Korean artists on Weverse so that they can “secure superfans and strengthen their fandom,” Lee said.
Weverse has grown quickly, hitting 10 million monthly active users (MAUs) within a few years of launch, but growth hit a rough patch over the past year. The number of MAUs fell to 9.2 million in Q1 2024, but has since recovered to 9.7 million in Q3.
Average revenue per paying user (ARPPU) has also declined year over year in the past few years, but HYBE has a plan to fix that: A new higher-priced membership tier that will come with exclusive content and announcements from artists.
According to news reports, some record labels were frustrated with HYBE’s insistence that all labels sign up for the new “digital membership,” from which HYBE will take up to 60% of revenue.
When asked about this on the earnings call, CEO Lee didn’t deny those news reports, noting only that Weverse users will still have access to many services if they choose not to sign up for the new tier.
HYBE is also upping Weverse’s game in terms of ad-supported revenue. Lee noted that Weverse rolled out in-app ads earlier this year, and plans to expand ad placement to include the app’s home page.
Starting in Q4, video ads will be shown during livestreams and on video-on-demand streams.
“Along with the new monthly subscription membership service to begin in the fourth quarter, the profitability of Weverse is expected to improve in 2025 through new digital business models,” Lee said.Music Business Worldwide
