CJ ENM Co Ltd

KOSDAQ:035760

Earnings Call Transcript 2024-Q3

[Operator]

Good morning and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the Fiscal Year 2024 Third Quarter Earnings Results by CJ ENM.

This conference will start with a presentation, followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2024 third quarter earning results by CJ ENM.

[Kay Choi, executive]

[Interpreted] Good afternoon. This is Kay Choi from CJ ENM's IR. I thank the shareholders and analysts for their time despite their busy schedules.

Now we will begin Q3 2024 earnings results presentation by CJ ENM. Please note that the financial and management results presented today have yet to undergo an independent auditor's review and could be subject to changes upon such review.

We have here with us CFO, Deuk-su Hwang and heads of different business divisions. From Media, we have Ki-Sung Hong; Film, [ Jun Hee Won ]; Music, [ Chong Han Shin ]; Global [ Chun Op Ken ]; Commerce, [ Songbae Pak ]; Studio Dragon, [ Kwang Seokbo ]; TVING, [ Chu Hee Chae ] and from CJ ENM Studio we have CEO, Yong Soo Ha.

First, CFO Hwang will brief us on management plans and goals.

[Deuk-su Hwang, executive]

[Interpreted] Good afternoon. This is CFO Deuk-su Hwang. Despite external conditions such as a slower advertiser market and seasonality, CJ ENM continued to fortify its business competitiveness with continued content sales in the global market.

Difficulties continued in the media and content-producing industries and the recovery is not as fast as expectations. But CJ ENM based on hit ratio of its content, is enhancing the synergy between channels and OTT platform.

The company realized a turnaround on a Y-o-Y basis with its stance of strengthening profitability since last year and is continuing to outperform competitors in the market.

Popularity of Korean content increased in Q3 with simultaneous global airing of dramas and non-scripted entertainment programs, including Love Next Door, No Gain No Love and Jinny's Kitchen 2. Results strengthened in the cinemas and OTT platforms with movie content such as I, the Executioner and Uprising.

The audience is enthusiastically receiving drama and entertainment content in Q4 as well with programs including Jeong-Nyeon: The Star is Born and Three Meals A Day Light.

We will continue this success with Kinky Boots, the musical and movie Harbin. The company is focusing on improving profitability of each business division. TVING will continue its improvement of profitability through premium content and sports library. Music will expand profit leverage through girl group izna debut and global concerts of ZEROBASEONE, JO1 and INI.

Commerce will maximize business results of a high season with growth in mobile live commerce and launch of new brands.

[Audio Gap] strategy of expanding business models and new markets. Based on our strong basis as the dominant player in the domestic market, we will seek success of Korean contents and K-pop in the global market as well, continuing our success. I deeply thank the shareholders and analysts and conclude my presentation. Thank you.

Next, the results presentation. Quarterly and yearly results presentations are based on K-IFRS and is on a consolidated basis. Divisional operating profit has not eliminated internal transactions.

Now we will hear Q3 2024 results presentation.

[Unknown Executive]

[Interpreted] Good afternoon. This is [ Jin Yong Kim ] from Finance. Consolidated revenue of CJ ENM for Q3 2024 stood at KRW 1.1246 trillion, which is a 1.2% Y-o-Y increase. Operating profit at KRW 15.8 billion saw an increase of 113.8%. Entertainment recorded a revenue of KRW 790.7 billion with KRW 6.7 billion operating profit. Commerce recorded a revenue of KRW 333.8 billion with KRW 9.2 billion operating profit.

However, the company recorded a net loss of KRW 531.4 billion with one-off events, including loss on disposal of PPE with LiveCity contract nullification, other losses of KRW 24.6 billion and corporate tax of KRW 130.5 billion.

Media platform will continue to enhance channel viewership and TVING traffic growth with competitive content in Q4. Pictures and drama will focus on profitability improvement with expanded production and distribution.

Music will continue its efforts to build on album activities and live concerts. Commerce hopes to ride the high season and enhance profitability with sophisticated one-platform strategy and category specialized mobile live commerce content.

Please refer to the presentation deck for details. Thank you.

[Deuk-su Hwang, executive]

[Interpreted] Now we will be hearing from Studio Dragon.

[Unknown Executive]

[Interpreted] Good afternoon. This is CFO, [ Kwangsuk Oh ] from Studio Dragon. I will present the company's Q3 2024 results.

Aired episodes in Q3 stood at 59, which is a decrease by 21% Y-o-Y. With sluggish presales of new titles with the exception of Love Next Door and slow library sales, our revenue stood at KRW 90.3 billion with an operating loss of KRW 900 million.

On a different note, we were able to expand our domestic channel with ENA original To My Haeri. Other businesses, including OST sales had good results, too.

The lineup and presales will continue to see some decrease in the second half and the company will focus on viewer ratings recovery and portfolio optimization.

Currently, Jeong-Nyeon: The Star is Born is getting good viewer ratings. We will see recovery of viewership as the #1 domestic player with improved hit ratio for individual IPs.

Furthermore, in 2025, with portfolio optimization with [ SMA level ] tentpole titles and small and medium titles, we will address the needs of different platforms and enhance partnership and thus overcome the difficult market conditions. Thank you.

[Deuk-su Hwang, executive]

[Interpreted] Now we will move on to our Q&A session.

[Operator]

[Interpreted] [Operator Instructions] The first question will be given by Hoi Jae Kim from Daishin Securities.

[H.J. Kim, analyst]

[Interpreted] Yes, I have 3 questions. The first one is related to LiveCity. Is the loss impact from the cancellation of the contract over? Or will we be seeing more numbers be reflected in the future? And would there be any reversal of the already paid amount to your books later on? And that was my first LiveCity-related question.

And my second question goes to Fifth Season. Well, could we know about the revenue numbers and operating profit numbers for Fifth Season? And I see that your delivery schedule saw some glitches. So how do you foresee things unfolding in Q4? And could you give us a guidance for year '25?

And my third question goes to TVING. How is your subscriber bases growing? And could I also get the revenue number and operating profit number for TVING?

[Unknown Executive]

[Interpreted] Yes. This is [ Kim ] from Finance addressing your first LiveCity-related question. So our disposal of tangible assets related to this project amounts to KRW 320 billion. And we've also some contributed acceptance to the Gyeonggi Province and we also saw losses with our assets in construction amounting to KRW 260 billion. And with the return of land to Gyeonggi Province, our disposal loss stood at KRW 61.8 billion.

And in treating land-related losses, we have already reflected the losses related to Lot A6-2, which we have yet to return to Gyeonggi Province. So going forward, we do not see any large amount being reflected in our books.

So we've already given out a disclosure in October related to contributed acceptance of our Arena project and should we decide in a later stage to actually go back to the Arena project, that would lead to some differences in our calculation as well. And should there be any lawsuits, legal lawsuits going forward, there could be some minute changes to the in and out numbers, but not in a big way.

So now on your TVING and Fifth Season questions. TVING's revenue recorded KRW 121.3 billion with an operating loss of KRW 7.1 billion. For Fifth Season, the numbers are revenue of KRW 108.4 billion with an operating loss of KRW 23.2 billion. [Interpreted] Yes. This is [ Junyop Kim ] from Global addressing your added question to Fifth Season. Well, our numbers saw some difference to our projection because of the delayed delivery of Severance Season 2. It was scheduled to be delivered in the third quarter. It has been delayed to fourth quarter. And in the fourth quarter, with the delivery of that title, we will be seeing some recognition of revenue numbers.

Yes. Well, our TV series numbers, they were really influenced by the delay in the delivery of Severance Season 2. So on a Y-o-Y basis, that impact stood at 47.3%. So it was decreased by 47.3%.

Last year, we delivered a title called Life in Bed and that added to our numbers. But in '24, our only title to be delivered was Severance. And with the delay of that project, we saw some influence to our numbers. And we would be working on the distribution of our library titles. And as you're well aware, there were some impacts from the strikes, the writers and the guild strike, which led to some impact. But with that being more or less dissolved, we hope to see some improvements. [Interpreted] So TVING continues to see its paying subscriber bases grow on a Y-o-Y basis. That's a growth by 55%. So if I may put it more accurately, our revenue has seen an increase by 55%. That was mainly led to our subscriber base's growth, which saw a 40% increase. And even on a Q-o-Q basis, we saw a growth by 5% to 10%.

And we're also seeing ad sales contribute to our overall revenue. And this quarter, we saw our operating loss numbers go below KRW 10 billion. We recorded KRW 7 billion loss, which is first ever under KRW 10 billion number. I believe it's all thanks to our effective operation and also economy of scale realization.

[Operator]

[Interpreted] The following question is by Eun Jung Shin from DB Financial Investment.

[Eun Shin, analyst]

[Interpreted] Yes. I have 3 questions. The first goes to TVING. Well, the KBO season has ended and I do believe there would be some attrition related to end of season. And how much of magnitude do you expect from the end of season of KBO? And well, even with the season you saw negative numbers. So how are you going to improve the numbers now the season is over? Could you please brief us on your Q4 and year 2025 strategy? And when do you think you will be seeing a break-even point? That was my -- those were my questions for TVING.

And my second question goes to your Music division. Well, the revenue number, the sales numbers were okay in '24, but your operating profit did not really match your stronger revenue numbers. What's the reason behind it? And could we get some guidance on your expectations for next year '25?

And my last question, the third one goes to Studio Dragon. Well, in your presentation deck, I read that you plan to deliver 7 tentpoles titles and you're going to see presales of 8 titles. Well, the numbers, are they fixed? And how many titles are you thinking of delivering in year 2025?

[Unknown Executive]

[Interpreted] So yes, this is [ Te Zing ] addressing your question. Well, now that the KBO season is over, the baseball season is over, we're closely monitoring the changes to our traffic. Well, every Monday, there were no ball games. And the traffic as of today is similar to what we have seen on Mondays during the baseball season. So it's about 10% to -- or 5% to 10% influence.

So in the months of February and March, we did not air our baseball games. And compared to those months, our daily average user has seen an increase by 10%. And as you have mentioned in your question, we are embracing ourselves to prevent any attritions of baseball fans. We could see in the worst case about a 20% attrition of the baseball watchers. So we are preparing diverse contents to address and cater to the needs of the baseball fans. So we will be airing WBSC Korea and Cuba team live match, baseball match. And we are also preparing various original baseball-related documents. And we are also thinking of basketball airing -- matches airing.

So we did spend some amount to invest for our KBO programs. And now that the investment is over, we are going to see some decrease in our loss numbers. And we have built up a good track record of attracting new subscribers. And going forward, we will be starting with this healthier subscriber bases. And with that, I believe that we will be able to reach our goal of a break-even point somewhere in the end of this year.

Yes. Now next year's strategy, we will continue to strengthen our content with sports program and others. And with that, we hope to attract more traffic. And with added traffic, we're going to monetize it through advertisement packages. And we're also going to offer differentiated service within TVING and build diverse business models.

Now on the account sharing, well, Netflix with their account sharing program, we're able to add 15% to 20% to their numbers. We have yet to do that and we could see better results. [Interpreted] Yes. Now I will address your Music question. You've asked why our operating numbers were not as strong as our revenue numbers. Well, the operating profit that comes from in-house artists and our Japanese in-house artists, they're quite good and strong. However, when it comes to KCON that we had across different regions, they are associated with a higher production cost as are the artists that are not in-house.

And also the follow-up season of our Mnet seasonal TV shows did not really perform to our expectations, leading to a lower income associated with our advertisement. And how are we going to address these situation going forward in Q4 and year 2025? Well, we're going to enhance our efforts with our in-house IPs. We're going to have concerts and conventions with in-house artists, we're going to strengthen that effort and we would also be adding new competitiveness to the newer contents on Mnet. With that, we hope to enhance our operating numbers so that they match our stronger revenue numbers. And we do have expected debut of a new girl group izna on the 25th of this month. We also do expect to see in-house activities of ZEROBASEONE, INI and JO1, our in-house artists. [Interpreted] Yes, this is Studio Dragon addressing your questions on tentpole titles and the pre-buys or presales numbers. So the lineup for the second half of 2025, it's not yet firmly fixed. It's a little bit liquid or -- but the numbers for captive, it's pretty much assured that 3 to 4 titles. And for OTT bound, it's also about 3 to 4 titles. So we're in the midst of negotiating and finalizing the numbers. But the progress has been there when it comes to discussions. And for OTTs, such as Netflix and Disney+, we are working with them very closely. So this could be a more firmer number.

And now on the pre-buys or the pre-sales, we have talked to Amazon, Netflix and Disney+. We are currently coordinating with the numbers. But I do see that the company will be able to pre-sell or pre-buy 8 titles.

[Operator]

[Interpreted] Currently, there are no participants with questions. Currently, there are no participants with questions. [Operator Instructions] The following question is by Yong Hyun Choi from KB Securities.

[Yong Hyun Choi, analyst]

[Interpreted] Yes. Your loss numbers, well, the loss numbers were there, but I do believe that you have seen some improvement when it comes to your financial structure with improvement in your borrowings. Is it to do with PRS with Netmarble stocks?

[Unknown Executive]

[Interpreted] Yes, it's true that through the PRS contract with our Netmarble shareholdings, we have seen some improvements in our financial structure. We have used the proceeds from our PRS deal to pay back our borrowings. But it wasn't only that. We added more efficiency to our production and we see an optimization of our production and development capabilities. With that, our operating cash flow increased and with this cash flow, we were also able to service back some of our borrowings.

[Operator]

[Interpreted] Currently, there are no participant question. [Operator Instructions]

[Deuk-su Hwang, executive]

[Interpreted] Since there are no further questions, I would like to end today's earnings release session here. I do believe that you were rather disappointed in our lower-than-expected numbers due to many of our one-off influences. But as we've communicated with the market, we have been on a turnaround stance since the first half of this year. And as you're well aware, the media environment, the media industry as a whole, the whole value chain is experiencing much difficulties and [indiscernible] external environment.

But as the #1 leader and the #1 player in the industry, we are continuing to improve ourselves and develop the process even further. So you may have seen somewhat of a lower-than-expected numbers. But as has mentioned, we are on an improvement path going forward and we will be delivering more detailed information during our road show that is scheduled for next week. Thank you.

I once again thank you for your attendance. And with that, we will be ending Q3 2024 earnings release by CJ ENM.

[Operator]

[Interpreted] This concludes the fiscal year 2024 third quarter earning results by CJ ENM. Thank you for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]