MBW Explains is a series of analytical features in which we explore the context behind major music industry talking points – and suggest what might happen next. Only MBW+ subscribers have unlimited access to these articles.
What’s happened?
HYBE has signaled a major expansion into video games.
Last week, the South Korean-headquartered company issued details about its new strategic direction, HYBE 2.0, and singled out games as one of the parts of its business it wants to accelerate.
In a letter to shareholders last week, CEO Jason Jaesang Lee explained that gaming “is poised to play a crucial role in the future of HYBE’s entertainment ventures”.
“We believe that the expertise HYBE has developed in the music fandom business can be effectively adapted to the gaming industry as well.”
Jason Jaesang Lee, HYBE
He also explained the common traits between fans of games and music.
“Although gaming fans and music fans may have different characteristics and pursuits, both realms are united by their vital connection to intellectual property and the communities that cherish and enjoy it,” he said.
“HYBE has listened attentively to the voices of fans and has strived to maximize the value of the experiences we offer. We believe that the expertise HYBE has developed in the music fandom business can be effectively adapted to the gaming industry as well.”
Just a few days after HYBE 2.0 was unveiled, the company’s video games unit, HYBE Interactive Media, raised $80 million to expand its game development and publishing efforts.
Makers Fund led HYBE IM’s investment, with additional investment from IMM Investment and parent company HYBE.
Speaking with analysts on HYBE’s earnings call on Wednesday (August 7) CEO Jason Jaesang Lee reiterated that HYBE wants to “expand [in] the game business in earnest”
He added that HYBE plans to use the funding “to strengthen [its] competitiveness in the global gaming market and diversify [its] business in terms of game publishing and development to secure capabilities as a full-service game company.”
What’s the context?
HYBE has been expanding beyond music and into games to diversify its IP portfolio for a few years.
In 2022, HYBE acquired a stake in game developer Flint, maker of the popular Dragon Blaze game.
Last summer, as reported by Venture Beat, HYBE and its gaming arm HYBE IM invested$21.8 million in South Korea-based developer Aqua Tree and another $1.45 million into South Korea-based Action Square earlier this year.
On Thursday, in its shareholder letter outlining HYBE 2.0, HYBE identified gaming as a potential target sector for additional “discreet investments” under the new strategy.
HYBE CEO Jason Jaesang Lee explained to analysts on the company’s earnings call this week that “along with music and platform business, HYBE has been preparing for diverse technology-based future growth businesses for a long time”.
He added that these ventures “have started to produce actual results.”
He cited the game ASTRA: Knights of Veda – which, he noted, is the first game published as HYBE IM. It was developed by Flint and released in April across multiple global platforms, including Google Play, Apple‘s App Store and Steam.
“This type of global simultaneous release and launching on multi-platforms requires sophisticated technological and organizational capabilities,” Lee said. “I like to emphasize that HYBE IM successfully demonstrated excellent operational capabilities and reliability by servicing the game during the first week without any major downtime.”
Since launching in 2022, HYBE IM has also launched popular games franchises based on the IP of the company’s superstar artists, including Rhythm Hive and BTS Island: In the SEOM.
According to Venture Beat, HYBE IM employs a sizeable workforce of 240 people, compared to parent company HYBE’s 790 employees.
What do HYBE’s investors think about its aggressive gaming strategy?
Why is HYBE, a company whose bread and butter is recorded music, investing so much in games, and how is gaming impacting its core business?
Those were some of the key questions analysts wanted to know the answers to on HYBE’s earnings call this week. Kim Do Hyoung, Equity Research Analyst at CLSA, grilled HYBE’s leadership about this.
First of all, Kim wanted to know how much revenue the division generated in Q2. HYBE doesn’t break out gaming or HYBE IM in its balance sheet. HYBE CFO Kyung-Jun Lee responded that the company “has not disclosed this figure yet” and wasn’t able to share a number “at this point in time”.
Lee added, however, that what he can say “is that compared to the first half of last year, the game sales tripled for the first half of this year on a year-over-year basis”.
He also confirmed that “the impact of game-related expenses and expenses related to technology-based growth business altogether had a negative impact on [HYBE’s] operating profit margin by 4 percentage points”.
“Fans of games and fans of music may behave differently. But when it comes to the new release and their demands and needs, there is a lot of commonality.”
Jason Jaesang Lee, HYBe
CLSA’s Kim Do Hyoung’s next question was about HYBE specifically, but it was also existentially relevant to the wider music business.
Kim asked if HYBE is “pursuing other businesses, such as [games], because you see that there are limitations on the room for growth in your main music business because of the market situation?”
This time, CEO Jason Jaesang Lee responded. “Why [are we] aggressively pursuing the gaming business? Is that because the music industry is stagnant? Well, it is a valid question,” he said.
“And when you look at the music industry, [there is] still low value-added globally. So there’s [a lot of] headroom for growth from the [music] industry perspective.”
Lee also honed in on the similarities between fans of gaming and music and how HYBE believes it can use its experience in the latter to grow a successful gaming business.
“Gaming and music are all based on IPs,” he said. “And HYBE has good capabilities and know-how in utilizing IP-based businesses.”
He added: “Fans of games and fans of music may behave differently. But when it comes to the new release and their demands and needs, there is a lot of commonality.
“For instance, when there’s a new game update and when there’s a new album released by artists, fans will behave in certain ways, and HYBE has a good understanding of fan needs and how we can respond to their needs through marketing and other events. So we will apply the same capabilities for games.”
Looking to Sony Corporation‘s ‘One Sony’ concept as a case study for cross-media success with games and music…
On HYBE’s earnings call, CEO Jason Jaesang Lee conceptualized HYBE’s strategic marriage of music, gaming and other technologies like voice AI as ‘The Next Entertainment’.
Lee argued that technology “is going to be the future driver of [HYBE’s] growth” and the company will “explore and understand technological trends, how they are changing and how our society is changing”.
He added: “We believe that the patterns of consuming entertainment content will continue to change. Therefore, it is crucial to explore new business opportunities and prepare for what we call, The Next Entertainment.”
He also revealed that HYBE is already “engaging in discussions to form partnerships with leading players in each of these domains”.
“It’s not just about collaborating with artists or game titles, but rather it is more on the integrated level.”
“It’s not just about collaborating with artists or game titles, but rather it is more on the integrated level.”
Jason Jaesang Lee
For gaming and music specifically, Lee argued that “there will be a lot of merger and integration” between the two formats down the road.
He added: “When we carry out conversations with global players, they see that HYBE has good competitiveness because we do both game and music business.
“So while we continue to pursue gam[ing] as an independent pillar of business, we will continue to utilize our capabilities in other areas and combine gaming capabilities together.”
HYBE’s cross-media approach to gaming, music and other technologies is reminiscent of a concept pursued by another global entertainment giant.
About five years ago, Sony Group Corp’s music division floated the concept of “One Sony” – the idea that Sony Music is uniquely connected to Sony Corp’s other divisions such as Sony Pictures (movies and TV) and Sony Game & Network Services (including PlayStation), and can cross-collaborate on projects.
In October 2019, MBW suggested that “One Sony” might finally have become a creative reality, following Sony Music’s active role in the action-adventure Playstation 4 video game Death Stranding.
The official soundtrack to Death Stranding was released as a standalone album, entitled Death Stranding: Timefall, by RCA Records, while superstar Sony-signed artists such as Khalid, Alan Walker and Bring Me The Horizon contributed original recordings to the game.
Further evidence of the creative realization of the “One Sony” concept arrived in 2021 when Sony Music started building a team “dedicated to reimagining music through immersive media” using Fortnite maker Epic Games‘ Unreal Engine
The following January, Sony Corporation of America unveiled a Los Angeles-based subsidiary called Sony Immersive Music Studios, focused on “developing immersive music experiences through the power of creativity and technology”.
Sony Music’s cross-media strategy in games and music has continued. In January, for example, it launched what it called ‘next generation immersive music experiences’ for Fortnite and Roblox at the CES conference in Las Vegas.
For Tokyo-headquartered Sony Group Corp, Sony Music’s parent company, gaming is its biggest revenue driver.
In Sony Group Corp’s calendar Q2 2024 (fiscal Q1 2025), the company generated USD $5.5 billion (864.9 billion Yen) from its ‘Gaming and Network services business (which includes three units: Digital Software and Add-on Content, Network Services Hardware and Others).
Sony’s global music rights operation – across recorded music and music publishing – generated USD $2.54 billion in the three months to end of June 2024.
what happens nexT?
We have to point out that HYBE isn’t the only music company to have identified gaming as an avenue to grow their digital revenue.
Major record companies Sony Music, Universal Music Group and Warner Music Group have all been active participants in the convergence of the music and gaming sectors in recent years with projects across platforms like Roblox and Fortnite.
Roblox also counts WMG among its investors (and Sony Corp is an investor in Fortnite maker Epic Games).
Just last week, on Universal Music Group’s Q2 earnings call, UMG’s Boyd Muir (Executive Vice President, CFO and President of Operations), pointed to gaming as an opportunity: “Over a longer time horizon as we continue to see the secular migration of the ad economy to digital formats and as the opportunities for music content monetization continue to broaden into new avenues, like gaming and health and wellness, we remain confident in the growth of our digital revenue,” he said.
For HYBE, which has a dedicated and well-funded interactive media division, gaming will evidently continue to be a big priority for the company and its new CEO, Jason Jaesang Lee. Zooming out to take a view of the broader market, it’s not hard to see why.
One of the highest-grossest entertainment products ever is a video game, Grand Theft Auto 5, which has sold over 200 million copies globally and generated over $8.5 billion in worldwide revenue.
The global video game industry is estimated to be worth over USD $500 billion annually by the end of 2025.
“HYBE is very good at detecting future trends and preparing in advance in a proactive manner for new business models.”
Jason Jaesang Lee, HYBE
With plans to invest in gaming companies (and other technologies like generative AI, audio/voice technology, and more), HYBE could well be looking to emulate the long-term success of legacy cross-media corporations like Sony Corp as it plans its own road map.
“HYBE is very good at detecting future trends and preparing in advance in a proactive manner for new business models,” CEO Jason Jaesang Lee said on the company earnings call on Wednesday.
He added: “Our ultimate goal is to have more independent gaming capabilities and produce meaningful earnings results for HYBE. In the music industry, we have been building a very strong global network with major labels, DSPs, promoters and agencies.
“Likewise, we would like to continue to expand our network in the gaming industry and the global content producers so that we can create and be a leader in The Next Entertainment community globally.”Music Business Worldwide
