Good morning, and good evening. First of all, thank you all for joining this conference call. Now we'll begin the conference of the fiscal year 2024 second quarter earnings results by CJ ENM. This conference will start with a presentation, followed by a divisional Q&A session. If you have a question, please press asterisk and one, that is asterisk one on your phone during the Q&A. Now, we shall commence the presentation on the fiscal year 2024 second quarter earnings results by CJ ENM.
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Good afternoon. This is Kay Choi from CJ ENM's IR department. I thank the shareholders and analysts for taking time out of your very busy schedules.
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Now, we will begin the earnings release session for CJ ENM Q2 2024. 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.
[Foreign language]
We have here with us CFO Duk Soo Hwang, and heads of different business units. From media, we have Ki Sung Hong, from Film, Ko Kyoung-bum , Music, Shin Hyung-kwan , Global, Sung Woo Jo, and from Commerce, we have Sung Bae Park, and from Studio Dragon, we have Kwang Seok Oh . From TVING, we have CEO Joohee Choi, and from CJ ENM Studios, we have CEO Yong Soo Ha.
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First, CFO Duk Soo Hwang will deliver the company's management plans and goals.
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Good afternoon. This is CFO Duk Soo Hwang. CJ ENM continued its effort to further enhance platform competitiveness and premium IP. As a result, entertainment succeeded a turnaround, and commerce continued its profitability recovery despite continuing difficult market conditions. Platform revenue and overseas sales growth stood out in Q2. Since revenue grows based on business competitiveness, the company will focus more on profit growth in the second half.
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Paying subscriber of TVING rapidly grew at 29% YoY. Both subscription and advertisement revenue performed well, leading to a rapid revenue growth of 41%. CJ On Style of Commerce also saw rapid growth in mobile channel and live commerce GMV. Both entertainment and commerce businesses further strengthened their platform competitiveness.
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Music enhanced international revenue with new album releases and artist debuts. Overseas revenue continued its growth momentum with 29% YOY growth. INI, JO1, and ME:I's album sales contributed much to the revenue growth. Concert revenue is to increase in the second half, with activities including ZEROBASEONE' s Asia concert.
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The company continued to strengthen overseas content sales, focusing on premium IPs. Fifth Season saw a pronounced recovery of revenue. Queen of Tears, Lovely Runner, The Midnight Romance in Hagwon, showed strong sales in different regions. With recovering content production and delivery, Fifth Season's revenue increased 106% YoY.
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The company is continuously strengthening profit-focused management stance. This stance will continue into the second half of this year. We are also working on the improvement of midterm business strategy and structure, which will in turn fortify each business division's competitiveness. I thank the shareholders and analysts. This concludes the presentation. Thank you.
[Foreign language]
Next is the results presentation. CJ ENM quarterly and yearly results presentation is mainly based on K-IFRS and is on a consolidated basis. Year-on-year comparison is on a pro forma basis, and business unit operating profit includes internal transactions. Now we will be hearing Q2 2024 company-wide management results.
[Foreign language]
Good afternoon, this is Jin Young Kim from Finance. Consolidated revenue in 2024 Q2 stood at KRW 1.1647 trillion, which is an 11% increase over the previous year. Operating profit at KRW 35.3 billion saw a turnaround. Revenue for entertainment recorded KRW 792.8 billion, with operating profit of KRW 7.8 billion, and commerce revenue stood at KRW 371.9 billion, with operating profit of KRW 27.5 billion.
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Paying subscribers to TVING continue to increase, and MAU passed 7.56 million mark, continuing its growth. The company is going to further enhance traffic in the second half, focusing on premium content. Fifth Season aims for production, delivery, and global distribution expansion. Music business will continue expanding artist, album activities and live concerts, including the debut of a new girl group, izna. Commerce will further enhance its profitability by strengthening its mobile capacity and content commerce energy or synergy. Please refer to the presentation deck for details of different business units. Thank you.
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Now, we will be hearing from Studio Dragon.
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Good afternoon, this is CFO Kwang Seok Oh from Studio Dragon. I will brief you on Q2 management results. Despite the 49.4% decrease YOY of aired episodes in Q2 2024, with big titles such as Sweet Home 3, increase in overseas ASP and diversification of IP, our revenue recorded KRW 137.1 billion, which is about a 16% decrease over the previous year, minimizing the impact from decrease in aired episodes.
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Even with some glitch in revenue and added depreciation burden from the previous quarter's big titles such as Queen of Tears, the company well defended its operating profit that recorded KRW 10.5 billion, with increase in overseas revenue from library titles and strengthened production settlement processes.
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There will continue to be difficulties in the second half, but as a leading company, we hope to lead the new paradigm in the drama industry.
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Rapid growth of OTTs after COVID led to a boom of K-drama and the company too, but was also accompanied by side effects such as tougher competition and rising production costs.
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With management change, the company hopes to enhance its corporate value. First, we will produce quality contents by securing human IP and creative binding. We will concentrate on securing new growth engine with improved profitability through the establishment of production guide and process, and also by creating new business opportunities both home and abroad.
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Thank you.
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Now, we will move on to Q&A. In light of time constraints, please limit your questions to three per person, centering on core issues.
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Now Q&A session will begin. Please press asterisk one, asterisk and one if you have any question. For cancellation, please press asterisk two, that is asterisk and two on your phone.
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The first question will be given by Kim Hoe-jae from Daishin Securities. Please go ahead.
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Yes, I will give you the translations to the three questions. First question is on the progress of your Live City project. Is it a complete stop? And how will it reflect in terms of finance? And when will the financial numbers be out? And now on to the second question. The company has recently witnessed management change, both in CJ EN M, and also Studio Dragon. Does that mean that there is an overall change in your media content strategy? And now on to the third question. Well, I see that you still are in a loss situation when it comes to your pictures and drama business. Could you please give a carve out of the Fifth Season numbers, plus your other new movie and drama numbers?
[Foreign language]
Yes, if I may address your first question, which was on the situation of our Live City project. Yes, we've been notified by Gyeonggi Province that they will be nullifying our basic contract, but we in objection, and we are continuing our discussion. Well, our asset in construction, it amounts to KRW 260 billion in our consolidated balance sheet, and our payment guarantee reaches about KRW 480 billion. The maturity is long out and stretches until 2026, and the amount is spread over until 2026. All the mentioned numbers have been reflected in our financials. Therefore, we will be feeling no further burden to our numbers. Should there be any other situations that arise, I think we are fully prepared to respond to them.
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Let me elaborate further. Well, to fuel the operation costs for Live City in the second half of 2024, and also for servicing purposes, there is a possibility that the company goes for a capital increase amounting to somewhere around KRW 100 billion.
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And if I may elaborate more on the answer that was provided, as was released in the disclosure, our asset in construction amounts to somewhere around KRW 260 billion, and we have yet to write off this amount because as was mentioned in the previous answer, we're still in the negotiation process and the amount mentioned could be changed. And they're all tangible assets, so it's most likely that the numbers sees a decrease. And as for a payment guarantee, well, it comes with different timing, and should we service it back, well, it's all spread out.
[Foreign language]
Yes, now to address your second question, as you have asked, we've seen some changes in our leadership. CJ ENM has seen a change of CEO and, also more recently, the CEO of Studio Dragon has been changed too. As you're well aware, the previous CEO has resigned for personal reasons. Mr. Koo has resigned because of personal reasons. In his position now we have a new CEO, Yoon. We did communicate to the market that we hope to become a global IP powerhouse centering on content, and this mission still stands. We hope to provide the market with well-made content, and through that, we hope to enhance our profitability. So this is still our basic stance.
As for the change in leadership of Studio Dragon, well, we've seen an appointment of a new CEO, Mr. Jang, and he has a very strong background when it comes to drama and the content industry. This is once again an illustration on how focused the company is on enhancing its content competitiveness.
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Yes. If I may give you the numbers for Fifth Season, their revenue stood at KRW 157.2 billion, with an operating loss at KRW 20.2 billion. And, as for pictures, there weren't that much noticeable releases in the domestic market, but we did get much international success, which was enough to cover our fixed expenses and giving us an operating profit of KRW 3.4 billion.
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Next question, please.
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The following question is by Shin Eun-jung from DB Financial Investment. Please go ahead.
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Yes. I have three questions. First is on your profit numbers. I see that they stand quite strong. So were there any non-operating profits that the company has witnessed? So that's my first question. Now my second question, could you give us the revenue number and operating profit number for TVING? And third question is also on TVING. You've attracted a lot of traffic, KBO, and how are you going to maintain it? Well, you've acquired through KBO, and how are you going to maintain that traffic going forward? And if you're going to maintain this level of traffic through providing more originals, that could lead to a greater number when it comes to write-offs, which in turn could lead to bigger loss numbers.
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Yes, this is Kim once again from finance addressing your question. Well, the biggest non-operating gain that we've witnessed is through our equity method. Well, we've gained KRW 42.2 billion through our investments, and on a YOY basis, that's an improvement by KRW 53.7 billion Korean won. And our interest expense stood at KRW 40.7 billion, whereas our interest income stood at KRW 9.4 billion.
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And, now on to your second question, which was on numbers for TVING. Our revenue for TVING stood at KRW 107.9 billion, and our loss really saw a big decrease to a KRW 11.7 billion level.
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Yes, this is CEO Choi addressing your retention-related questions. Yes, even from our earliest planning stage onwards, we thought about what we could do to prevent attrition after the KBO season. Starting November, we do expect to see some natural attrition with the baseball season off. But we have in place a plan to minimize this number, and we will be doing this through several content. We will be working with KBL, the Korea Volleyball League, to attract the attention of the baseball lovers to other sports similar to baseball. And also we are going to work with documentary, documenting how baseball players do off season. And also we are going to provide training video, and footage of different teams.
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Next question, please.
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Currently, there are no participant question. Please press asterisk one, asterisk and one to give your question.
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Once again, if you have a question, please press asterisk one, asterisk and one.
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Since there are no follow-up questions, we will now conclude the earnings session of CJ ENM. Should you have any other follow-up questions in the future, please don't hesitate in contacting our IR team.
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The following question is by Lee Gi-h un, by Hana Securities. Please go ahead.
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Yes, I have actually two questions. First one is a follow-up of the previous question. You talked about the equity gain amount, but from where did this gain come from? So I would like to know where this gain came from. And my second question is on the subscription fee increase of TVING. I do remember that was somewhere around June that you saw a subscription fee increase. And, in your previous answer, you've mentioned a loss decreased by about KRW 1 billion from the second quarter. And, well, if this trend continues, even with the write-off or the discontinuation of the baseball season, well, do you think you will be able to reach a BEP point soon?
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Yes, a short answer to your first question, the equity method gain came from Netmarble Holdings. Now from TVING.
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Yes, this is CEO Joohee Choi from TVING, addressing your question. Well, we've seen the number increase of our paying subscribers. We've also witnessed traffic increase, and there was a subscription fee increase for new customers in the first half. And for existing, also be an adjustment. There have been an adjustment in June, and we've also seen improvements when it comes to our advertisement revenue, leading to a decrease in our operating loss numbers. And we believe that this trend will continue to be, with which we could hope for a turnaround in the second half.
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Next question, please.
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The following question is by Choi Yong Hyun from KB Securities. Please go ahead.
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Yes, it seems certain that you will be seeing a strong turnaround soon, but there continues to be an increase in your debt numbers. So going forward in the second half, how are you going to address this? And, I believe that you have sold off some of your position in Netmarble Holdings, and with this amount, will you be servicing back your outstanding debt?
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Yes. This is Mr. Kim from Finance. Once again, addressing your question, yes, in 2024, we will continue to work on our debt level, leading to more healthier financial numbers. We will continue with this goal. As to the second part of your question, yes, we did use our Netmarble shares in servicing back our outstanding debt. Keeping a keen eye on the market conditions going forward, we will continue to securitize our long-term businesses. If we refer to the deck that we've given you, well, you'll see that our cash equivalent number in Q2 has seen some adjustment as our debt number. Our debt, net debt level remains the same, but you will be able to identify what kind of adjustment there have been made.
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Next question, please.
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The following question is by Korea Investment Securities, Ahn Do Young. Please go ahead.
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Yes, I have a question for Fifth Season. I see that there were more deliveries in second quarter compared to the first one. So however, so why is it so? And will the delivery for the second half be on time?
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Yes. In the second quarter, Fifth Season were to deliver 4 episodes for Severance, and this has seen a little push back to the third quarter. And, starting January seventeenth next year, well, Severance 2 will air on Apple TV +. So delivery for the third quarter and fourth quarter, I do not foresee any major issues outstanding. And, well, the production and delivery situation, well, it's seeing normalization after the strike that took place. So in second half, we're seeing more or less of a normalization, and we are working in line with the changing content industry in the market. And, as for the premium drama, well, we have plans for 8 deliveries this year, and we believe that we could meet this goal.
We have some big titles which we will be regaining the distribution rights in the third quarter. With this regained distribution right, we believe that we will be seeing more value adds.
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Currently, there are no participants question. Please press asterisk one, asterisk and one to give your question.
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The following question is by Choi Yong Hyun by KB Securities. Please go ahead.
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Yes, my question goes to Studio Dragon. I see that your growth is somewhat slowing and cash is piling. Well, would you seek for added growth through additional investments, or would you focus more on profitability or perhaps shareholder return?
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Yes, this is Mr. Oh from Studio Dragon, providing you with the answer. Well, the domestic market is seeing much of a rationalization, a consolidation, if you would say, and for the domestic business, more focus will be on profitability. And, well, we have our captive market, but we... Well, even within this captive market, down the road, we will be seeking more growth opportunities. And, other than the existing global OTTs, we will also work on finding new OTT opportunities. And, we have experience in joint planning and remakes in the US and the Japanese market, and we will be replicating our success in these markets in other regions.
For the time being, as was mentioned, we will be focusing on profitability, but we will be seeking additional growth from, probably in the next year. And, we're currently in a discussion with our new CEO to add more substance to our given plan. And, if things are finalized, we will be communicating it through IR or other sessions.
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The following question is by Lee Hyunji from Eugene Investment & Securities. Please go ahead.
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Yes, sir. This is a question for TV. Well, you've seen an improvement in the profit numbers. Is it because the decrease in depreciation amount, or is it simply because that you have seen an increase in paying subscribers? And in last presentation, you told us that the subscribers who actually watch ads, they amount to about 20% of your overall subscriber basis. Does that number remain the same? And could you please elaborate more on your ad revenue?
[Foreign language]
Yes, as was mentioned in the presentation, well, we've seen very strong growth in the number of subscribers on a YY basis. The number grew by 30%, and the QoQ numbers are also very strong, leading to an improvement in our profit and also, of course, the bottom line. Now on to the second part of your question, which was on ad watching viewers. Well, the number of ad watchers, they grow the fastest at about 30%-40%. And if you look at the overall subscriber basis, they account for about 20%. And our ad revenue, it will, I believe, reach about KRW 10 billion, which would approximately be around 10% of our overall revenue.
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Next question, please.