Is HYBE Ready for the Challenge of BTS’ Military Service?

For months, South Korean politicians have been scrambling to find a solution to the forced breakup of BTS, the biggest cultural export their country has known over the last several decades. 

On Monday (Oct. 17), the boy band’s label Big Hit Music, a subsidiary of HYBE, appeared to put an end to the handwringing, saying that each of the BTS members would, in fact, serve their mandatory military service. That means, before long — Jin turns 30 in December — the group will not be able to perform with its full seven-member lineup until 2025.

While the timing will vary for the members — Jin, RM, J-Hope, Suga, Jimin, V and Jungkook — based on their age, the departures will create yet another challenge for Seoul-based HYBE. The company, which went public on the South Korean Stock Exchange in October of 2020, has been working to diversify its roster and silence financial analysts who said the company had the look of a one-hit wonder with BTS, the act that has landed six No. 1 songs on the Billboard Hot 100.

HYBE had already been dealing with the stress put on the company by the act’s joint announcement in June that it was taking an undetermined break from group activities to pursue solo projects. But no amount of lobbying by politicians or HYBE itself has helped BTS avoid the responsibilities that all able-bodied South Korean males from 18 to 28 have to serve at least 18 months in the military, though the length of service may vary. In December of 2020, the South Korean National Assembly passed the so-called “BTS law” to allow K-pop entertainers to postpone required service until the age of 30 with a recommendation from the culture minister.

For now, the market seems to have priced in the reality that either through military service or their own desire to work on their solo careers, this version of BTS would not be able to stay together for much longer.

HYBE’s stock, traded on South Korea’s stock exchange, fell 2.54% to 115,000 won ($80.40) on Monday, with other K-pop companies’ stocks staying within 1% of their Friday closing price. 

Mandatory military service issue has been a divisive issue in South Korea in recent years as K-pop’s popularity has grown worldwide. While many, including some lawmakers, say the musicians’ contribution to the country’s global recognition should qualify them for an exemption, others that include the defense ministry have opposed the move.

In a country that has superpower neighbors such as China and Russia, as well as a saber-rattling North Korea, many South Koreans believe that the military requirement serves as a social equalizer. And attempts to avoid mandatory service have suspended or derailed the careers of several entertainers and other public figures. Boy bands such as 2 PM and Bigbang have significantly limited their public appearances or paused group activities after its members entered the military. 

Jin, who at 29 is the group’s eldest member, said he expects to start his military service by the end of the year after completing his solo material, if no sudden amendments are made to the country’s compulsory draft legislation. Jungkook, BTS’ youngest member, is 25 years old.

For HYBE, the big question remains: Has the company done enough to diversify its artist roster to account for a potential drop in revenues from a less-active BTS. Since acquiring Scooter Braun’s Ithaca Holdings in April 2021, the share of HYBE’s revenue BTS accounts for, which was 85% in 2020, has fallen to about 60% in 2021, according to one analyst estimate.

Bernie Cho, owner of Seoul-based DFSB Kollective artists and label services agency, says HYBE “has silenced naysayers by rolling out a deep K-pop artists roster that goes beyond BTS.” Three boy bands — Seventeen, TXT and ENHYPEN, which debuted between 2015 and 2020 — accounted for 7.7 million album unit sales in 2021 — more than half of HYBE’s total K-pop album sales worldwide, according to company filings. And this year, two girl bands – Le Sserafim and NewJeans – have joined their male labelmates as “some of the best-selling artists of the year,” Cho says.

Nevertheless, earlier this month, NH Investment & Securities, one of South Korea’s largest securities firms, lowered its target stock price for HYBE by 19% to 250,000 won ($177) citing a “delay in growth even after acquiring Ithaca Holdings.” 

BTS fuels tremendous merchandise sales in Korea, along with physical CDs and is essentially the flagship act for a growing global K-pop industry. Attention around BTS helps generate some $3.54 billion in visits from foreigners and exports of consumer goods like clothes, makeup and food, according to the Hyundai Research Institute. One Korean politician, Sung-Il-jong of the ruling People Power Party, has estimated that a No. 1 song on the Billboard charts can create a halo effect that generates an economic boom of $1.38 billion for the South Korean economy.

Twelve full months of revenue from HYBE America — which houses artist management and Big Machine Label Group, which manages top international acts like Justin Bieber and Ariana Grande — are expected to further strengthen HYBE’s income statement. 

The company also will try to cobble together BTS-like sales and streams from BTS solo projects. In July, J-Hope was the first to release solo material with the album Jack in the Box, which featured singles “MORE” and “Arson.”

The members, for their part, seem to want to try to stay together as BTS. At a special free concert on Saturday in Busan, South Korea, where 55,000 fans attended, Jin teased a solo project as the members pledged to carry on group activities well into their careers. “We will continue for 30 years,” Jimin said, “and even perform when we are 70 years old.”

But it was J-Hope, the first to open up about the group’s future, who seemed to signal that military service was looming — and that the group could be entering a challenging period. “I think we’re in a phase where we need your trust,” he said.

Additional reporting by Jeyup S. Kwaaak