HYBE IS STILL OVER DEPENDENT ON BIGHIT, ILLIT OUTPACING GROWTH OF OLDER GROUPS

• The Good And The Bad In A Multi-Label System - 'Tuition Fee' Is Unclear

• Hybe is still dependent on Big Hit

Big Hit Music, a core affiliate of HYBE that represents BTS, maintains the highest sales among domestic affiliates despite the limited activities of its artists due to military service. HYBE continues to rely on BTS's enduring popularity, with Big Hit Music recording the highest internal transaction sales with HYBE among its affiliates, thanks to HYBE’s extensive expansion of BTS-related business ventures.

However, as HYBE prioritizes synergy with Big Hit Music, some voices suggest that support for other rapidly growing labels is comparatively lacking. Industry insiders argue that clear standards should be established to leverage the multi-label system's strengths, particularly by promoting support and collaboration based on specific performance metrics, such as sales.

BTS' Dominant Status

Big Hit Music’s standalone sales for the first half of the year were 164.7 billion won, a 41.2% decrease from the same period last year (280.1 billion won). Net profit also dropped 36.6% to 48 billion won from 75.7 billion won in the first half of last year.

This decline in sales is largely attributed to the military enlistment of BTS members, which has impacted all revenue streams, including album sales, broadcast appearance fees, and intellectual property (IP) licensing operations, as individual activities for all members are restricted.

Despite this, Big Hit Music continues to lead in sales among HYBE's domestic labels, followed by Pledis Entertainment with 158.3 billion won, ADOR with 61.5 billion won, Belift Lab with 55 billion won, Source Music with 35.2 billion won, and KOZ Entertainment with 15.8 billion won.

Big Hit Music’s status is also evident in internal transactions with HYBE. Last year, Big Hit Music accounted for 134.8 billion won in internal transactions, 24.4% of its annual sales of 552.3 billion won, marking the largest internal transaction volume among HYBE’s domestic labels. Other domestic labels showed much lower internal transaction volumes, including Pledis Entertainment (29.3 billion won), Belift Lab (9.3 billion won), Source Music (3.5 billion won), ADOR (3.1 billion won), and KOZ Entertainment (200 million won).

Limited Opportunities Hindering New Artists' Growth

Apart from Big Hit Music, all domestic labels pay HYBE fees for services such as music distribution and artist training. For instance, ADOR, managing New Jeans (debuted in 2021), paid 15.7 billion won in fees last year, more than five times its internal transaction sales (3.1 billion won). Source Music, representing Le Sserafim (debuted in 2022), paid 11 billion won, nearly three times its internal transaction sales (3.5 billion won).

Belift Lab, which debuted ENHYPEN in 2020 and debuted ILLIT this year, paid 14.4 billion won in service fees, slightly more than its internal transaction sales (9.3 billion won). Despite having the highest fees due to its newer artists, its collaboration revenue with HYBE outpaces that of ADOR and Source Music.

Label revenue performance also varies. ADOR, just three years after its founding, achieved 110 billion won in sales last year, showing significant growth compared to the previous year's 18.6 billion won. However, it also had the highest ratio of internal transaction purchases relative to internal transaction sales among domestic labels. Source Music’s sales last year rose sharply to 61.1 billion won, though only half of ADOR's. Still, HYBE received more in service fees from Source Music (3.5 billion won) than ADOR (3.1 billion won), while charging Source Music less in fees (11 billion won) than ADOR (15.7 billion won).

Belift Lab, which factored ENHYPEN’s activities into its 91.3 billion won in revenue last year, showed solid growth from 59.9 billion won the previous year. Although it trails ADOR in total sales, its internal transaction revenue from collaborations with HYBE is more robust.

An industry source explained, “HYBE recognizes revenue from providing services like album production and distribution to its affiliated labels and incurs costs when mobilizing their artists for HYBE’s broader projects.” The source added, “BTS’s achievements, such as topping the Billboard charts, have created an unmatched value for HYBE, which is reflected in the higher costs HYBE incurs to utilize them in its business.”

Critics argue that HYBE's reliance on Big Hit Music could hinder the growth of other labels. There is concern that labels with high performance receive relatively fewer group-level opportunities, reducing overall momentum for HYBE's multi-label strategy.

An industry insider remarked, “The multi-label system was intended to foster mutual growth through support from HYBE, independent management, and fair competition, but this original vision appears to be fading.” They added, “This unclear management approach led to tension with ADOR’s Director Min Hee-jin and highlights an issue HYBE must address. Compensation for utilizing human resources should be fair, but the current standards are vague.”

On August 1, HYBE announced its ‘HYBE 2.0’ strategy to strengthen its multi-label operations. This initiative, including the creation of the ‘HYBE Music Group APAC’ to oversee multi-label management in Korea and Japan, aims to resolve existing issues in label operations.

Financial Dependence on Big Hit Music

Big Hit Music also incurred the highest fees for HYBE’s services, paying 38.6 billion won, about 10 billion won more than the second-highest payer, Pledis Entertainment (29 billion won).

This year, HYBE’s reliance on Big Hit Music is expected to remain high. Big Hit Music's internal transactions with HYBE from the second quarter through the end of the year are anticipated to reach 71.5 billion won, with anticipated purchase costs recognized at 24.7 billion won.

NOTE: 

In this article, "internal transaction" refers to business activities and financial exchanges that take place between HYBE and its affiliated labels, such as Big Hit Music, Pledis Entertainment, ADOR, and others. These transactions include fees and payments made within HYBE’s corporate structure, usually for services like:

• Music distribution: Handling and managing the distribution of music produced by these labels.

• Service fees: Covering various operational supports, including production, marketing, and logistical services provided by HYBE to its labels.

• Collaborations and mobilization: Using artists from these labels for broader HYBE projects or collaborations that benefit the entire HYBE organization.

These internal transactions measure how much each label depends on HYBE’s infrastructure and services, revealing both the financial relationships and the level of operational integration within HYBE's multi-label structure. The high level of internal transactions for Big Hit Music, for example, highlights HYBE’s reliance on BTS-related revenue and activities, as well as the resources HYBE allocates to support Big Hit Music in its operations.

source: https://dealsite.co.kr/articles/130731/075023