MBW Explains is a sequence of analytical options during which we discover the context behind main music trade speaking factors – and counsel what may occur subsequent. Solely MBW+ subscribers have limitless entry to those articles.
What’s occurred?
HYBE has signaled a significant enlargement into video video games.
Final week, the South Korean-headquartered firm issued particulars about its new strategic course, HYBE 2.0, and singled out video games as one of many elements of its enterprise it desires to speed up.
In a letter to shareholders final week, CEO Jason Jaesang Lee defined that gaming “is poised to play an important position in the way forward for HYBE’s leisure ventures”.
“We imagine that the experience HYBE has developed within the music fandom enterprise might be successfully tailored to the gaming trade as nicely.”
Jason Jaesang Lee, HYBE
He additionally defined the widespread traits between followers of video games and music.
“Though gaming followers and music followers might have completely different traits and pursuits, each realms are united by their very important connection to mental property and the communities that cherish and luxuriate in it,” he mentioned.
“HYBE has listened attentively to the voices of followers and has strived to maximise the worth of the experiences we provide. We imagine that the experience HYBE has developed within the music fandom enterprise might be successfully tailored to the gaming trade as nicely.”
Just some days after HYBE 2.0 was unveiled, the corporate’s video video games unit, HYBE Interactive Media, raised $80 million to broaden its sport improvement and publishing efforts.
Makers Fund led HYBE IM’s funding, with further funding from IMM Funding and guardian firm HYBE.
Talking with analysts on HYBE’s earnings name on Wednesday (August 7) CEO Jason Jaesang Lee reiterated that HYBE desires to “broaden [in] the sport enterprise in earnest”
He added that HYBE plans to make use of the funding “to strengthen [its] competitiveness within the world gaming market and diversify [its] enterprise by way of sport publishing and improvement to safe capabilities as a full-service sport firm.”
What’s the context?
HYBE has been increasing past music and into video games to diversify its IP portfolio for a number of years.
In 2022, HYBE acquired a stake in sport developer Flint, maker of the favored Dragon Blaze sport.
Final summer time, as reported by Enterprise Beat, HYBE and its gaming arm HYBE IM invested$21.8 million in South Korea-based developer Aqua Tree and one other $1.45 million into South Korea-based Motion Sq. earlier this yr.
On Thursday, in its shareholder letter outlining HYBE 2.0, HYBE recognized gaming as a possible goal sector for added “discreet investments” below the brand new technique.
HYBE CEO Jason Jaesang Lee defined to analysts on the corporate’s earnings name this week that “together with music and platform enterprise, HYBE has been making ready for various technology-based future development companies for a very long time”.
He added that these ventures “have began to provide precise outcomes.”
He cited the sport ASTRA: Knights of Veda – which, he famous, is the primary sport printed as HYBE IM. It was developed by Flint and launched in April throughout a number of world platforms, together with Google Play, Apple‘s App Retailer and Steam.
“Such a world simultaneous launch and launching on multi-platforms requires subtle technological and organizational capabilities,” Lee mentioned. “I like to emphasise that HYBE IM efficiently demonstrated wonderful operational capabilities and reliability by servicing the sport in the course of the first week with none main downtime.”
Since launching in 2022, HYBE IM has additionally launched widespread video games franchises primarily based on the IP of the corporate’s celebrity artists, together with Rhythm Hive and BTS Island: Within the SEOM.
In accordance with Enterprise Beat, HYBE IM employs a sizeable workforce of 240 folks, in contrast to guardian firm HYBE’s 790 workers.
What do HYBE’s traders take into consideration its aggressive gaming technique?
Why is HYBE, an organization whose bread and butter is recorded music, investing a lot in video games, and the way is gaming impacting its core enterprise?
These had been a number of the key questions analysts needed to know the solutions to on HYBE’s earnings name this week. Kim Do Hyoung, Fairness Analysis Analyst at CLSA, grilled HYBE’s management about this.
Initially, Kim needed to understand how a lot income the division generated in Q2. HYBE doesn’t get away gaming or HYBE IM in its stability sheet. HYBE CFO Kyung-Jun Lee responded that the corporate “has not disclosed this determine but” and wasn’t in a position to share a quantity “at this time limit”.
Lee added, nevertheless, that what he can say “is that in comparison with the primary half of final yr, the sport gross sales tripled for the primary half of this yr on a year-over-year foundation”.
He additionally confirmed that “the affect of game-related bills and bills associated to technology-based development enterprise altogether had a adverse affect on [HYBE’s] working revenue margin by 4 share factors”.
“Followers of video games and followers of music might behave otherwise. However in the case of the brand new launch and their calls for and desires, there’s loads of commonality.”
Jason Jaesang Lee, HYBe
CLSA’s Kim Do Hyoung’s subsequent query was about HYBE particularly, however it was additionally existentially related to the broader music enterprise.
Kim requested if HYBE is “pursuing different companies, akin to [games], since you see that there are limitations on the room for development in your principal music enterprise due to the market state of affairs?”
This time, CEO Jason Jaesang Lee responded. “Why [are we] aggressively pursuing the gaming enterprise? Is that as a result of the music trade is stagnant? Properly, it’s a legitimate query,” he mentioned.
“And once you have a look at the music trade, [there is] nonetheless low value-added globally. So there’s [a lot of] headroom for development from the [music] trade perspective.”
Lee additionally honed in on the similarities between followers of gaming and music and the way HYBE believes it might use its expertise within the latter to develop a profitable gaming enterprise.
“Gaming and music are all primarily based on IPs,” he mentioned. “And HYBE has good capabilities and know-how in using IP-based companies.”
He added: “Followers of video games and followers of music might behave otherwise. However in the case of the brand new launch and their calls for and desires, there’s loads of commonality.
“For example, when there’s a brand new sport replace and when there’s a brand new album launched by artists, followers will behave in sure methods, and HYBE has a great understanding of fan wants and the way we are able to reply to their wants by means of advertising and different occasions. So we are going to apply the identical capabilities for video games.”
Trying to Sony Company‘s ‘One Sony’ idea as a case examine for cross-media success with video games and music…
On HYBE’s earnings name, CEO Jason Jaesang Lee conceptualized HYBE’s strategic marriage of music, gaming and different applied sciences like voice AI as ‘The Subsequent Leisure’.
Lee argued that know-how “goes to be the long run driver of [HYBE’s] development” and the corporate will “discover and perceive technological traits, how they’re altering and the way our society is altering”.
He added: “We imagine that the patterns of consuming leisure content material will proceed to alter. Subsequently, it’s essential to discover new enterprise alternatives and put together for what we name, The Subsequent Leisure.”
He additionally revealed that HYBE is already “partaking in discussions to type partnerships with main gamers in every of those domains”.
“It’s not nearly collaborating with artists or sport titles, however relatively it’s extra on the built-in stage.”
“It’s not nearly collaborating with artists or sport titles, however relatively it’s extra on the built-in stage.”
Jason Jaesang Lee
For gaming and music particularly, Lee argued that “there shall be loads of merger and integration” between the 2 codecs down the highway.
He added: “Once we perform conversations with world gamers, they see that HYBE has good competitiveness as a result of we do each sport and music enterprise.
“So whereas we proceed to pursue gam[ing] as an unbiased pillar of enterprise, we are going to proceed to make the most of our capabilities in different areas and mix gaming capabilities collectively.”
HYBE’s cross-media method to gaming, music and different applied sciences is paying homage to an idea pursued by one other world leisure large.
About 5 years in the past, Sony Group Corp’s music division floated the idea of “One Sony” – the concept that Sony Music is uniquely related to Sony Corp’s different divisions akin to Sony Footage (motion pictures and TV) and Sony Sport & Community Companies (together with PlayStation), and may cross-collaborate on tasks.
In October 2019, MBW instructed that “One Sony” may lastly have develop into a inventive actuality, following Sony Music’s lively position within the action-adventure Ps 4 online game Demise Stranding.
The official soundtrack to Demise Stranding was launched as a standalone album, entitled Demise Stranding: Timefall, by RCA Data, whereas celebrity Sony-signed artists akin to Khalid, Alan Walker and Deliver Me The Horizon contributed unique recordings to the sport.
Additional proof of the inventive realization of the “One Sony” idea arrived in 2021 when Sony Music began constructing a group “devoted to reimagining music by means of immersive media” utilizing Fortnite maker Epic Video games‘ Unreal Engine
The next January, Sony Company of America unveiled a Los Angeles-based subsidiary known as Sony Immersive Music Studios, centered on “creating immersive music experiences by means of the facility of creativity and know-how”.
Sony Music’s cross-media technique in video games and music has continued. In January, for instance, it launched what it known as ‘subsequent technology immersive music experiences’ for Fortnite and Roblox on the CES convention in Las Vegas.
For Tokyo-headquartered Sony Group Corp, Sony Music’s guardian firm, gaming is its greatest income driver.
In Sony Group Corp’s calendar Q2 2024 (fiscal Q1 2025), the corporate generated USD $5.5 billion (864.9 billion Yen) from its ‘Gaming and Community companies enterprise (which incorporates three models: Digital Software program and Add-on Content material, Community Companies {Hardware} and Others).
Sony’s world music rights operation – throughout recorded music and music publishing – generated USD $2.54 billion within the three months to finish of June 2024.
what occurs nexT?
Now we have to level out that HYBE isn’t the one music firm to have recognized gaming as an avenue to develop their digital income.
Main report firms Sony Music, Common Music Group and Warner Music Group have all been lively individuals within the convergence of the music and gaming sectors lately with tasks throughout platforms like Roblox and Fortnite.
Roblox additionally counts WMG amongst its traders (and Sony Corp is an investor in Fortnite maker Epic Video games).
Simply final week, on Common Music Group’s Q2 earnings name, UMG’s Boyd Muir (Government Vice President, CFO and President of Operations), pointed to gaming as a possibility: “Over an extended time horizon as we proceed to see the secular migration of the advert financial system to digital codecs and because the alternatives for music content material monetization proceed to broaden into new avenues, like gaming and well being and wellness, we stay assured within the development of our digital income,” he mentioned.
For HYBE, which has a devoted and well-funded interactive media division, gaming will evidently proceed to be a giant precedence for the corporate and its new CEO, Jason Jaesang Lee. Zooming out to take a view of the broader market, it’s not exhausting to see why.
One of many highest-grossest leisure merchandise ever is a online game, Grand Theft Auto 5, which has bought over 200 million copies globally and generated over $8.5 billion in worldwide income.
The worldwide online game trade is estimated to be value over USD $500 billion yearly by the top of 2025.
“HYBE is excellent at detecting future traits and making ready upfront in a proactive method for brand spanking new enterprise fashions.”
Jason Jaesang Lee, HYBE
With plans to put money into gaming firms (and different applied sciences like generative AI, audio/voice know-how, and extra), HYBE might nicely be seeking to emulate the long-term success of legacy cross-media firms like Sony Corp because it plans its personal highway map.
“HYBE is excellent at detecting future traits and making ready upfront in a proactive method for brand spanking new enterprise fashions,” CEO Jason Jaesang Lee mentioned on the corporate earnings name on Wednesday.
He added: “Our final objective is to have extra unbiased gaming capabilities and produce significant earnings outcomes for HYBE. Within the music trade, we’ve got been constructing a really robust world community with main labels, DSPs, promoters and companies.
“Likewise, we want to proceed to broaden our community within the gaming trade and the worldwide content material producers in order that we are able to create and be a frontrunner in The Subsequent Leisure group globally.”Music Enterprise Worldwide
