K-pop message boards are where Korean boy band fans go to swap stories with fellow travellers.
Last week, a pressing new subject emerged: how to get your money back if you are regretting your investment in South Korea’s most famous music agency, which listed earlier this month. “How do I get a refund on the shares I bought?” asks one desperate investor. “I still have the receipt.”
Questions like this have been shared across message boards by retail investors that piled into the Big Hit Entertainment listing. The initial public offering of the agency behind worldwide pop phenomenon BTS had been among the most hotly anticipated of the year. It did not take long for disappointment to set in.
By the end of the first day of trading, shares had peaked and were on their way down. Institutional investors and foreign funds sold off stock amounting to nearly half the total outstanding amount in the first two days and, by a week in, Big Hit’s fourth-biggest shareholder, a private equity firm, had sold half its holding, or 4.5 per cent of outstanding shares. As for retail investors, many of them were caught off guard.
The $50bn retail share lottery
There were signs before the IPO that market sentiment would prove out of step with economic reality. An army of BTS fans joined millions of retail investors in putting down deposits of more than $100,000 each for the chance to win an allocation of just two shares in a lottery. The central bank was sufficiently alarmed about the resulting huge money flows into brokerages — a combined total of more than $50bn — that it kept a close eye.
But then it also appeared that hard-headed institutional investors had been converted into believers. BlackRock and GIC were among the 1,400 institutional funds that flocked to be allocated shares in the IPO.
In the event, when trading began, the stock nearly doubled — from the IPO price of Won135,000 ($115) to Won270,000 ($236). From there they rose another 30 per cent as the retail investors who had missed out on the lottery drove a trading frenzy. But by 9.15am, a downward march had begun. Big Hit shares are currently trading at about Won156,000.
A one-hit dependency
Big Hit’s up-down IPO aside, K-pop is a growing economic force. The combination of catchy tunes, synchronised dance routines, perfect skin and considerable social media savvy has brought in big money.
South Korean exports of cars and petrochemicals have fallen this year but one K-Pop song — ‘Dynamite’ by BTS released in August this year — added $1.5bn in exports from album sales and other merchandise.
The pandemic has also thrown up new opportunities. More than 7m fans tuned in to two online concerts held by the band this year after world tours were cancelled. Merchandise sales linked to these performances were more than double what would be expected from a physical concert.
But one of the snags for Big Hit is that its future rests on the shoulders of just one band — the seven members of BTS, who accounted for more than 97 per cent of the agency’s sales last year.
Two of the seven are due to disappear for up to two years of compulsory military service in the next couple of years. When this has happened to other bands, they have struggled to recover.
There is now talk of allowing K-pop stars to delay their time in the military but it would have to happen soon to prevent a partial break-up of BTS.
New music, older business model
Perhaps this explains why Big Hit has recently become keen to advertise itself as a “platform” business, touting in particular growing sales on its online app where fans watch BTS videos, pay membership fees and shop for merchandise.
Yet its business model is anything but high tech. Almost all its cash is made in a traditional music agency way. Concerts brought in about a third of total revenues last year. Most of the rest comes from sales of fan merchandise, licensing and albums.
It is also struggling to build a pipeline of new pop groups. The barrier to entry is not high for competitors. There are more than 2,000 entertainment agencies in South Korea, with over 1m signed pop trainees. Just over a decade ago, Big Hit was struggling after a string of failed bands and was on the brink of bankruptcy. Its fortunes changed when RM, the rapper in BTS, approached it with a homemade demo tape.
“To be fair, the formula to making a hit band is not something that can be bottled up. No one knows if a band is going to make it until it does,” said Mr Lee, a Seoul-based rival music producer with 24 years experience in the industry. “But some agencies have a better batting average than others.”
Local rival JYP Entertainment is one of them, having consistently created hit groups with at least two years of overlap between each one.
Big Hit, on the other hand, has not managed to find the next BTS yet — despite having 105 signed trainees. Instead, it has tended to buy in musical talent by acquiring smaller local agencies.
The agency’s problems are amplified by local laws that limit K-pop group contracts to a maximum of seven years. Once popular, many members trade themselves, like Premier League footballers.
Even if members stay signed with the same agency, the revenue split agreement tends to change in favour of the band with the new contract, severely denting agency profit margins. Add to that, the popularity of most K-pop groups has tended to peak after five years and then tail off. BTS has now been around for seven, and is two years into its second contract with Big Hit.
Can the mega-valuation be justified?
Kihoon Lee, an analyst at Hana Financial Investment, believes Big Hit has a strong story to sell nonetheless. “Investors are being too pessimistic about lost concert revenues. Online concerts — which require no additional expenses to air — are becoming a whole new revenue stream.”
He added that the market should not overlook the potential of the platform business either. “It’s growing into a place for content, ticket and merchandise sales and not just for BTS. That potential is significant.”
The industry does have an impressive record of market success. Investors who bought stocks in two of Big Hit’s largest rivals, SM and JYP Entertainment, have enjoyed spectacular windfalls. During the best years, investors will have had a more than 23-fold return on their initial investment.
However, even before a single Big Hit share changed hands, its IPO price already represented a valuation of nearly 60 times forward earnings. SM traded at 13 times the same measure in its first year of listing; JYP at just four times in its early years.
“Blockbuster [Korean] listings this year have followed a pattern, with shares hitting the first trading day’s limit of 160 per cent,” said Hoonsik Min, a research analyst at Credit Suisse. “Some investors are assuming that is the new norm. But the problem is Big Hit is starting out at a much higher level than its predecessors. Those levels are not sustainable.”
Big Hit’s big valuation is also at odds with its declining profitability. Rivals have managed to keep operating margins consistently high — more than 40 per cent for JYP in the first quarter. At Big Hit, margins have fallen to less than half that, as it has invested heavily in its platform business. The question is would that platform still have the same potential without BTS.
“Looking back at the last two decades or so of K-pop bands, every time a band was at its peak, it felt like that fame would last for ever, sometimes even to me,” said the music producer Mr Lee. “For younger fans, BTS is like their first love, so it can be blinding. Fame is a powerful drug, not just for the artists but also for the fans. There always is a comedown.”
Taiwan seizes chance to host foreign reporters kicked out of China
Taiwan is courting journalists fleeing China, spotting an opportunity to boost its visibility and build international support as concerns mount that Beijing is flirting with the idea of invading the country.
Last year, more than 20 journalists made the journey across the Taiwan Strait from China. Many had published articles critical of human rights abuses against the Uyghur Muslim minority in Xinjiang and the government’s early handling of the coronavirus outbreak in Wuhan.
They came at the invitation of the Taiwanese government, a move that has infuriated China, which claims the island as part of its territory.
Jojje Olsson, a freelance journalist living in Taipei since being denied re-entry to Beijing in 2016, said that Beijing’s reaction to critical reporting carried risks for the regime.
“China is shooting itself in the foot by expelling lots of journalists,” he said. When reporters come to Taiwan, he argued, “they are exposed to views that don’t reflect well on China”.
Steven Butler, the Asian head at the New York-based Committee to Protect Journalists, said that “Beijing is surely very unhappy about journalists moving to Taiwan”.
China, he added, was sensitive to the foreign media being in Taiwan, citing a case two years ago involving a prominent newspaper that was warned against setting up a regional headquarters in Taipei.
Beijing said the newspaper’s offices in the Chinese capital would be forced to close if it went ahead with its expansion plans.
Michael Smith of the Australian Financial Review, who was forced to leave China in September after being questioned by state security officials, said Taiwan’s consulate officials in Sydney “made it very clear that we [journalists] were welcome”.
He declined the invitation but many others accepted.
Last year, journalists from The New York Times, The Wall Street Journal and The Washington Post arrived in Taiwan after being expelled from China, which Beijing said was a response to Washington’s blacklisting of its state media reporters.
They were joined three weeks ago by RTÉ’s Yvonne Murray and her husband John Sudworth of the BBC following threats of legal actions over his reporting on Xinjiang.
Taiwan’s Ministry of Foreign Affairs and China’s Ministry of Foreign Affairs did not respond to requests for comment from the Financial Times.
Hong Kong had been the city of choice for journalists covering the Chinese state from afar. Western journalists booted out of China after Mao Zedong came to power in 1949 decamped to the British colony, leaving behind reporters from the Soviet bloc.
Seventy years later, Olsson said Taiwan was assuming Hong Kong’s former role. The introduction of China’s sweeping national security law on Hong Kong last year meant that the territory no longer afforded protection from Beijing.
“There is no other place in the world that follows developments in China as closely as Taiwan,” argued Olsson, adding that finding out what the Chinese Communist party was up to was a matter of existential concern for the Taiwanese.
Taipei’s early detection of the pandemic is a case in point. Taiwanese officials were alerted to the novel coronavirus circulating in Wuhan through close monitoring of Chinese social media and introduced containment measures before any other foreign government.
Taiwan boasts expertise in China across its government and private sector, and shares a language and timezone. But reporting from across the Taiwan Strait has its limitations. Journalists have experienced difficulties securing interviews and personal stories that present a more nuanced picture of China.
Their jobs have been additionally complicated by the absence of news assistants — China-based journalists and researchers employed by international media — who face more severe legal consequences and lack the privileges of a foreign passport.
Reporters have also been forced to operate without the support of a bureau, as media executives are wary of provoking China by opening offices in Taiwan. Deutsche Welle, the German broadcaster, was the last foreign media outlet to do so in 2018. Tokyo and Seoul are viewed as alternative east Asian headquarters, industry insiders said.
The size of Taiwan’s economy is another factor that has given foreign outlets pause. Despite being home to some of the world’s most important technology companies, only a handful of news organisations provide consistent coverage of the Taiwanese market, which is often overlooked by foreign investors.
But China’s escalating military posturing towards Taiwan has kept the island in global headlines, as the two sides battle to dominate the international narrative around its contested status.
Beijing has used its economic and political might to entice Taipei’s few remaining diplomatic allies to switch recognition, undermining Taiwan’s sovereignty with promises of investment deals.
But by welcoming foreign journalists, the Taiwanese government has also exposed itself to critical coverage of the marginalisation of its aboriginal communities and migrant workers as well as a sluggish vaccination rollout. Journalists, after all, as one Taiwanese politician joked to the FT, “are hard to control”.
Defund the police: how a protest slogan triggered a policy debate
Eleven months ago “Defund the police” was a slogan that appeared on placards at protests; now it is being debated by American city councils.
Polls show only a small portion of Americans support the idea of defunding the police, a flexible phrase that can mean redirecting funds to social services or outright elimination of the department. Yet as lawyers prepare to deliver closing arguments on Monday in the trial of the officer accused of murdering George Floyd in Minneapolis, and in the wake of yet more deaths at the hands of police, what was previously a fringe concept has become part of mainstream US political discussion.
Minneapolis has three proposals to diminish the police department’s power that supporters are attempting to place on the ballot in November. Two would replace the police department with a department of public safety, with the police as one division of it. The third would place the police department under the control of a 13-member civilian commission, with the power to hire the police chief and discipline officers for misconduct.
Austin, Texas cut its police budget in August by 35 per cent, with 5 per cent taking immediate effect. Seattle cut the police budget by 20 per cent in December. City councils have cut police budgets in nearly two dozen other cities, although mostly because the pandemic has battered municipal finances.
“People will look back at this year and say this was a real turning point,” said Alexander Weiss, a consultant who has advised police departments in Chicago and New Orleans, in reference to police accountability.
Floyd’s death last May set off protests around the world at the disproportionate number of people of colour killed by police. A key demand for many activists was to abolish police departments entirely, or cut their funding and redirect it to social services. In Minneapolis, nine city council members stood on a stage and pledged to defund the police. When Washington, DC Mayor Muriel Bowser ordered that the words “Black Lives Matter” be painted on a city street blocks from the White House, demonstrators used the same yellow paint to add: “Defund the Police”.
With more people killed by police in the past three weeks, the demands to defund have escalated. Chicago community organiser Rey Wences told non-profit news outlet Democracy Now! that following the killing of 13-year-old Adam Toledo last month by a Chicago police officer: “What we’re asking for is the same thing we’ve been asking for years . . . Defund the police and invest in our communities.”
In 2017, state and local governments around the US spent $115bn on police — some 4 per cent of state and local direct general expenditures — according to the Urban Institute. That share has stayed constant for the past four decades, even as the rising cost of healthcare means other big-ticket items, such as elementary education, now constitute a smaller portion of municipal budgets.
Most of the money is used to pay salaries and benefits to police officers, so cutting more than 15 per cent of a department’s budget often means cutting the size of the force, Weiss said.
Police officer pay has increased as police unions have grown in power and unions are some of the defunding movement’s most dedicated opponents. After Austin City Council in August voted to cut the police budget by $150m, the Texas Municipal Police Association put up a billboard outside the city, saying, “Warning!!! Austin Police Defunded Enter at Your Own Risk”.
Critics have warned that crime will rise if police budgets are cut. The number of homicides did rise in most US cities last year. Although the reasons are unclear, that increase seems to be unrelated to police budget cuts, which in most cases had not yet taken effect.
Some Democrats have been critical too. President Joe Biden said in a meeting with civil rights leaders that talk of defunding the police was how Republicans “beat the living hell out of us across the country” in the November elections.
An Ipsos/USA Today poll released last month found that 18 per cent of Americans support defunding the police, and only 11 per cent support abolition. About 57 per cent support fully funding their own local police department, while 43 per cent support redirecting some of that money to social services.
Richard Auxier, a tax and budget expert at the Urban-Brookings Tax Policy Center, said that since police budgets were set by local governments: “there are literally thousands of them across the country, . . . and they all have their own politics”.
The politics have been particularly intense in Minneapolis. Three of the councillors who took the pledge in June backed away from it. The Minneapolis Charter Commission, a previously obscure body, killed an attempt last year by council members to place a proposal on the ballot that would replace the police department with a new public safety agency. The Minneapolis City Council launched a second attempt in January.
Activist Antonio Williams is a canvas director for the Yes 4 Minneapolis coalition, which is trying to land an initiative on the ballot that is similar to the city council’s. (A third group, Twin Cities Coalition for Justice 4 Jamar, also is pursuing a ballot initiative.) So far more than 20,000 residents have signed the Yes 4 Minneapolis petition.
Williams said some of the residents he had spoken to thought the petition’s language went too far, while others thought it did too little. He sees all those conversations as a first step in the process of persuading someone to sign, then to show up at the polls in November to support the initiative.
For him and other activists, the killings of Daunte Wright by a Brooklyn Center police officer, or of Toledo in Chicago, add no urgency to their cause, because it has always been urgent. But perhaps for some, the fact that Wright’s death occurred while former police officer Derek Chauvin is being tried for Floyd’s death, when the world is watching Minneapolis, underlines “a dire need for some change”.
“It’s going to continue to happen all over the country until policing as we know it and see it is done away with,” said Williams.
Certainly Floyd’s death “galvanised” the city’s residents on the issue of police misconduct, Williams said. He doubts the signature drive could have succeeded 11 months ago. “The conversation could have been had for sure, but the next step, the commitment, the action part of it?” he said. “I don’t see it happening.”
UK business groups call for mandatory reporting of ethnicity pay gap
A duty for large companies to publish the pay gap between staff of different ethnicities would be a straightforward step to tackle racial inequality in the workplace, according to UK business groups and economists who accuse the government-commissioned race report of downplaying the extent of problems in the labour market.
A storm of criticism greeted the report by the Commission on Race and Ethnic Disparities (Cred), after it concluded last month that the UK was not “rigged” against minorities and that “very few” disparities were linked to racism. But the main complaint from business groups was its failure to recommend a statutory reporting obligation of the kind in place since 2017 for gender pay disclosure.
The report said there had been a “broadly positive story” on ethnic minorities’ place in the labour market over the past 25 years, with “a gradual convergence on the white average in employment, pay and entry into the middle class”.
But Jonathan Portes, professor at King’s College London, said Cred had relied on “crude sleight of hand” in presenting statistics to back up its narrative.
A headline gap of 2.3 per cent between the hourly median pay of all minorities and white British employees hides a much bigger gap for certain groups — with those of Bangladeshi and Pakistani ethnicity at particular disadvantage, and black men suffering a far bigger shortfall than black women.
Alan Manning, a professor at the London School of Economics, said that after adjusting the data for personal characteristics such as age, qualifications and family status, there was “no evidence for pay gaps being smaller . . . than they were 25 years ago”, and that while the ethnic penalties for some groups had improved over time, “the overriding impression is of stasis”.
These persistent pay disparities partly reflect occupational segregation, with many ethnic minorities clustered in low-paid jobs with little chance of progression. Andrea Barry, an analyst at the Joseph Rowntree Foundation, notes Bangladeshi men are three times as likely as white British men to work as chefs and waiters, while Pakistani men are more than 10 times as likely to work as taxi drivers.
But they also reflect the barriers to career progression in professional life. Ethnicity pay gaps are largest in managerial, professional and skilled occupations — and when employers examine pay differentials within their organisations, they generally find ethnic minority employees are concentrated in frontline roles, and under-represented at senior level.
A growing number of employers — from law and accountancy firms to local authorities and large companies such as Sainsbury and Network Rail — now report ethnicity pay gaps on a voluntary basis.
Cred endorsed this voluntary approach, arguing that there were statistical “pitfalls” in trying to impose the framework used for gender pay to report outcomes for many ethnic groups.
However, business groups have repeatedly urged the government to introduce a mandatory reporting requirement, modelled on gender pay disclosure, arguing that practical difficulties can be overcome.
Matthew Fell, CBI chief UK policy director, said pay gap disclosure was “one of the most transformative steps a company can take to address race inequality at work”.
Peter Cheese, chief executive of the Chartered Institute of Personnel and Development, criticised Cred for a “missed opportunity” to press for mandatory disclosure, adding: “Racial equality at work is not just about participation in employment but also about progression into more senior roles. Pay reporting can highlight organisations and sectors where this is not happening.”
Sandra Kerr, race director at the charity Business in the Community, which has campaigned for mandatory reporting, said that while disclosure was not a “silver bullet”, it prompted companies to examine where people were sitting in their organisation, and was a way of “ensuring that the conversation is had at the top table”.
BITC has found that barely one in 10 large companies reports on its ethnicity pay gap voluntarily, and points to a sharp drop-off in gender pay reporting last year, when the pandemic led to a suspension of the usual requirement to disclose the pay gap between male and female staff.
The government consulted in 2018 on options to introduce a mandatory requirement, and has tested possible approaches to reporting with various businesses, but it has not yet taken further action. The Department for Business, Energy and Industrial Strategy said that it would respond to the consultation “in due course”.
Ethnicity pay reporting is more complicated than for gender. One issue is disclosure: many companies hold only patchy data because employees do not have to disclose their ethnicity and some are reluctant to do so — or unable to find a box to tick that matches their heritage.
A bigger issue is sample sizes. Ideally, employers would give a detailed breakdown of outcomes for different ethnic groups, but it is not always possible to do this while preserving anonymity. Cred argued that many employers recruiting from predominantly white areas do not have enough ethnic minority staff for a median pay comparison to be meaningful.
But business groups say these issues are manageable, if companies also put the headline figures in context and explain how they plan to close pay gaps.
Network Rail, for example, has published figures showing the pay gap for black employees is much bigger than for Asian colleagues, based on disclosure by 90 per cent of staff. With more than 100 nationalities among its staff, it collects more granular data to inform internal policy but does not publish figures where the sample size is too small to be reliable.
Sainsbury, meanwhile, has published figures showing that median pay for black employees is higher than for white colleagues — explaining that more black staff work in London stores with a higher pay weighting. Mean pay for black employees, who are under-represented at senior level, still lags.
Without an accompanying narrative of this kind, a pay report is “not worth the paper it’s printed on”, Kerr said.
The complexity of reporting ethnicity pay data is no reason not to report it, as Andy Haldane, the Bank of England’s chief economist, has argued.
“Published pay gaps are a starting point for corporate and national accountability and explanation, not an end point,” he said in 2019. “No single metric can perfectly summarise all dimensions of diversity. But publication of a single metric can, and has, served as the catalyst for an explanation and action.”
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