Today, we have with us the CFO Duk Soo Hwang, and heads of different business divisions, including Mr. Hong Ki-seong from Media Platform, Ko Jeong-beom from Film and Drama, Oh Yong-joo from Music, and Jin Wook Seo from Commerce. From Studio Dragon, we have Jang Seong-mo , and from TVING, we have CEO Choi Ju-hee . From Global Business, we have Steve Jang, and from CJ ENM Studios, we have Yoon Jang Shin, and also, we have our CSO, Yoon Hong Kim, with us.
First, CFO Duk Soo Hwang will brief you on our midterm business strategies. Good afternoon, this is CFO Duk Soo Hwang from CJ ENM. Despite the sluggish market conditions and tough competition in the first half, CJ ENM enhanced its core business competitiveness.
The numbers were lower than market expectations, and there were highlights and lowlights from different business units. The company enhanced its content competitiveness in the global market and fortified competency as a platform business, beginning our leap towards being a global IT powerhouse.
CJ ENM greatly enhanced its content influence in the global market in the first half. TV ad sales decrease was inevitable with slow domestic ad market, but the company recorded global OTT viewing rates of 28.8%, and our overseas content sales increased 30.8% Year-on-Year, continuing our content IP power enhancement. With our content library, paying TV subscribers increased 69.2%. Overseas sales contributed to 39.3% of the music business sales, with continuing growth momentum.
The business environment seems to have passed the trough. CJ ENM is pulling all its efforts to realize a more meaningful growth in the second half and 2024. We are optimizing content investment and enhancing platform competitiveness of TVING through diversification of business models. Studio production synergy will be strengthened with higher hit ratios and more sophisticated process in place.
Pictures business concentrates on select and focus strategy and is waiting OTT optimized content. Music business will expand global Human IP, including ZEROBASEONE and I-LAND 2. With more advanced fandom platform, the business will continue its growth in the global market. Fifth Season will enhance its production and distribution fundamentals despite the issues in the US territory, to focus on profit structure improvement and a turnaround. Commerce business will focus on profitability through expansion of one platform strategy. The company will further improve financial stability through cash flow improvement and asset securitization.
I deeply thank our shareholders and analysts for your continued support. CJ ENM, as a representative domestic content company and as a growing global player, will enhance our results going forward. Thank you.
Next is our results presentation. CJ ENM's quarterly and yearly results are based on K-IFRS combined environment. Yearly comparison is on a pro forma basis. Internal transaction numbers have not been eliminated from different businesses' operating results. Now, we will hear the company management results for Q2 2023.
Yeah. Good afternoon! This is Sang-muk Hwang from CJ ENM Finance. Consolidated revenue in Q2 decreased 12% YOY at KRW 1.489 trillion, with an operating loss of KRW 30.4 billion. Entertainment recorded revenue of KRW 702.1 billion and operating loss of KRW 49.1 billion. With decrease of loss from Fifth Season and with cost efficiency efforts of channel business, the business decreased the level of loss compared to the previous quarter. Commerce revenue stood at KRW 345.7 billion, with operating profit of KRW 18.7 billion. The business showed improved profitability than the previous quarter, with higher profit portfolio programming.
Content investment efficiency measures will continue in the second half, and the company will focus on profit improvement with expanded global distribution. Content results will be maximized with platform-integrated operations strategy between channels and TVING. Production cost rationalization will be enhanced. Please refer to the material for detailed information. This concludes the presentation.
We will continue with the presentation from Studio Dragon.
Yes, good afternoon. This is CFO Seong-mo Jang from Studio Dragon. I will brief you on our management results for Q2 2023. Revenue for Q2 rose 3.8% YOY at KRW 163.5 billion. Studio Dragon continued its growth with global OTT-bound originals and sophisticated new titles, overseas sales strategies. Despite the sluggish industry trends and the decrease in air titles, we were able to achieve this result. Our operating profit recorded KRW 16.3 billion. Even with the high baseline effect that came from last year's one-off library sales, the company proved its capability to generate profit with higher new title ASPs.
Studio Dragon will focus on mid to long-term content strategy to preemptively address changes in the media environment and complete our global studio model. We will present a portfolio blueprint that tailors to the global drama market, with tentpole titles including Doona!, Gyeongseong Creature , The Uncanny Counter 2, and Sweet Home 2, and with quality season programming and also presenting content production system. The company will focus on profitability improvement with quality individual IPs and higher to prepare for the bigger leap towards being a global studio. Thank you.
Now we will be entertaining your questions. In consideration of time, please keep or limit your questions to see each centering around core issues.
Now Q&A session will begin. Please press star one, star and one, if you have any questions. For cancellation, please press star two, that is star and two on your phone. The first question will be given by Choi Min-ha of Samsung Securities. Please go ahead, ma'am.
Thank you. [Foreign language] .
Yes, I will give you the translation to the three questions. All of the questions are addressed to CJ ENM. First is on the TV ad sales. I've seen slight improvement in the Q2 numbers. It's because of the seasonality. Q2 seems to have been higher season, but we do expect to see a lower season in Q3. What is your outlook or forecast for the overall TV ad sales market in the second half? This is the first question, and the second question is related to your Fifth Season business. It seems that the loss has somewhat decreased, but could you please give us more color on it, or maybe perhaps in the form of numbers? Could we also get your number wise results for TV as well? The third question is also related to Fifth Season.
It was guided that titles, the number of titles to be delivered by Fifth Season for this year as a whole, was somewhere between 24 to 28 titles, and I believe 3 titles have been delivered in the first half. If possible, could you break, give us a breakdown of how many titles will be delivered for different quarters? If that's possible, could you give us a guideline as to how many new titles could be delivered in the second half?
[Foreign language] .
The 1st question will be addressed by Mr. Hong Ki-sung from Media Platform and studio, the Fifth Season question. The 3rd question actually will be addressed by Mr. Calabrese from Fifth Season.
[Foreign language] .
Yes, on the ad market for year 2023 as a whole, it's true that in general, the Q3s are lower season for ad market. Well, on a YOY basis, as you've mentioned, we've seen a slight improvement in the Q2 .
[Foreign language] .
Well, I cannot give you a concrete expectation or forecast when it comes to the domestic ad market, but I believe that there are many companies that are readying themselves with new campaigns that are seeking to 4. Well, this has been confirmed by many ad agencies as well. I cautiously look forward to an better Q4
[Foreign language] .
Yes, now on the revenue for TVING, it was at $76.7 billion, with an operating loss of $47.9 billion. The numbers for Fifth Season, it's $76.2 billion, with an operating loss of $32.6 billion.
[Foreign language] .
Ms. Calabrese, I will be hearing your answer now.
Actually, Casey is having some audio difficulties. This is Steve Chung, head of global division for CJ ENM, and I will answer this question.
[Foreign language] .
In terms of guidance for the number of titles for the second half of this year, as you may know, we are actually under a historical time in that we have 2 labor unions on strike, the writers union and the actors union. This is the first time in 60 years that the 2 unions are striking at the same time. Our company hopes that we will resolve this, you know, quickly with a positive outcome for all parties involved. But at this time, given that the 2 labor unions are concurrently on strike-
It is difficult to guide how many titles will actually be delivered, because many of them still need to be sort of finished in terms of its complete production for delivery. At this time, it's very difficult to give guidance on the actual numbers that we will be able to deliver. As you know, and as you alluded to in your question, the majority of the titles were scheduled to be delivered in Q3 and Q4 this year. As soon as we get clarity on the situation, we'll be able to let sort of guide to what, what the final number will be. At this time, that will be difficult to do. Thank you.
[Foreign language].
The following question is by Kim Hoe-jae of Daishin Securities. Please go ahead, sir.
[Foreign language] .
[Foreign language].
The Fifth Season. I'm not sure if I understood exactly the question, but I think the... As I understand it, the question is, in our earlier comments, we talked about strengthening the production and the fundamentals of the business, and what we will do in the second half. If that's indeed the question, I think there are a few things that we are doing. Obviously, number one, from a interest sort of rate perspective on the macro situation, we are making sure that any new projects that we undertake have a sort of a profit margin that we believe will be sustainable.
In every aspect of our operation, we are taking into account all the different factors that contribute to profit margins of our projects. That's one from a financial perspective. Secondly, while the strikes are going on, we are making sure that our team continue to focus on making progress with development, both at studios and at networks, to continue to further the projects that we have in the pipeline. With each of those efforts, when the strikes are over, we believe that we will be in a position to really be in a position to take advantage of the situation and emerge stronger once the strikes are over.
There's a lot of other efforts underway to make sure that we are looking at every expense while the strikes especially are underway and to make sure that we have fiscal discipline in terms of managing our cost basis. Those are some of the efforts that we are underway that again, we're undertaking now. In terms of, as I said in my previous answer, because it is an unknown when the strikes will end-
.I t's very difficult to give any guidance financially on the outcome of what we expect the second half to be. When that changes, obviously we'll hopefully be able to share more with everybody. Thank you.
[Foreign language] .
[Foreign language] .
[Foreign language] .
Yes, now on the new terms and new favorable terms and conditions with global OTT, the Studio Dragon, that new, more favorable terms and conditions will apply from 2023 for the pre-buys. Despite a rather slow domestic Q2 numbers proved steady. For the originals, the new terms and conditions will be applied starting in 2024.
[Foreign language] .
Yes, on our global project, well, there is the mentioned writers and actors that strike in the U.S. market, but that had little influence on our business. The Big Door Prize Season 2 has completed crank up, and now we're working on the details.
[Foreign language] .
On our planning and production, Crash Landing on You and developers, these are titles that have been written by a Korean writer. The U.S. strike had little influence on these projects. With the situation in the U.S. market, I think it's an opportunity for us to increase the presence of Korean content there.
[Foreign language] .
As for business in Japan, the actors have finished reading together the script, and production will begin in August, and it's slated for release in year 2024. The project will be simultaneously see through local channels and global OTT.
[Foreign language] .
[Foreign language] .
... yes, this is Yongju, Oh Yong-joo from Music business, addressing your question. Well, as you know, we've made a decision with the BELIFT LAB. It was to enhance our IP related to our artists. As you're well aware, Mnet has its planning capacity and also capacity when it comes to live concerts, and HYBE excels in production. Well, our work together had led to the birth of ENHYPEN, ENHYPEN, and that was a great result for both parties, and it was a good chance to learn from each other and also to cooperate based on each other's merit. With this collaboration, we have seen Boys Planet do well as the teaser release for I-LAND season two in July.
This, the production of it was done by our star producer called Teddy, well, all these efforts have been in place to enhance our in-house IP. We've had in-depth discussions with Hybe, and our needs actually cooked together in making this ultimate decision. We're going to focus on enhancing our artist IP, plus, the various IPs held by Mnet. [Foreign language].
[Foreign language].
The next question is from Shin Eun-jeong of DB Financial Investment. Please go ahead, ma'am.
[Foreign language].
Yes, the first question is re- for TVING. There have been many press reports about a possible merger with WAVVE. Will that be a likely possibility? Well, do you have any thoughts on that? This is my first question. My second question also goes to TVING. You talked about diversifying profit and what kind of model are you going to pursue in diversifying your profit sources? Now the third question is on divestment of assets, especially that of Netmarble shareholding. What is your plan with your shareholding in Netmarble? Will there be actually a sales of your shareholding?
[Foreign language].
[Foreign language] .
Yes, this is CEO Ju-hui Choi, addressing your diversification related question. Well, we will be working with enhancing the number of paying subscribers and also the subscription model. As you're well aware, and as we have discussed in the future, we will be working together with the channel to enhance synergy. We will be working on IP-based content. We will also be intensifying our digital marketing activities. With that, we hope to provide and improve the service as well, when it comes to more personalized curation and search and easier to use UI and UX. Well, this being implemented will add to our platform competitiveness. Well, other than the simple subscription model, we could also work with ad watch models. We could also introduce new pricing zones for diversity.
[Foreign language] .
Yes, now on your divestment question, well, we have been making efforts to divest and securitize our non-operating, non-core assets. We are currently looking into various possibilities, and we do understand that the market has some concerns over our financial stability. It's true that we have to unwind some of our asset holdings, but, having said that, we also have to pay attention to the given market conditions to maximize our divestment results. In the first half, we looked at the various possibilities, and we sold off our stakeholding in Samsung Life and LG HelloVision. Although it was not a big amount, this is the executive divestment effort, and we are currently studying other ways to give you a more meaningful result in the second half. There will be tangible results, hopefully in the second half.
As to the actual holdings of specific companies, please understand that we are not at liberty to disclose such information.
[Foreign language]
[Foreign language] .
[Foreign language] .
[Foreign la .
The following question will be given by Lee Hyun-ji of Eugene Investment & Securities. Please go ahead, ma'am.
[Foreign language] .
Yes, I have 3 questions. First, is also, 2 in season. Well, I believe that you have delivered 3 titles in this quarter, well, even with the, if the 3 titles delivered to the loss numbers that you have reported today, well, this means you must have quite a hefty fixed cost. My calculation gives about KRW 35 billion. Could you please elaborate on that? My second question is with 2 TVING. You did mention that the number of paying subscribers had grown significantly, but compared to your 21 numbers, the loss has deepened. Is it because of amortization reasons, or is it because of your ASP? I would like to hear more color on that. Now my third question is on your divestment and digitization efforts.
Once again, what's this level of borrowing that the company has and what is the level of cash to service that borrowing?
[Foreign language] .
Thank you for the question. I think two parts to it. First of all, on the revenue for Q2 , we had some titles that were originally slated for, you know, delivery and also revenue generation in Q2. We had decided, based on the market conditions, especially in the film and documentary titles, that it would be more beneficial to wait to be able to sell or license those titles. The 2Q numbers sort of reflect that today.
To the second part of the question of, in terms of our expenses and fixed costs, as I said in my previous answer, we are working very closely with the Fifth Season management team, to look at all expense line items, and to make adjustments as necessary, and closely monitoring the situation of the strikes, so that the business can be nimble and, and, and, you know, at the, at the appropriate expense, levels to deliver on to our financial goals and our business performance. Those activities are undergoing actively, to look at every expense line item, to make sure that we remain fiscally responsible and disciplined.
[Foreign language] .
[Foreign language] .
es, it's true that our loss has somewhat increased in the Q2. It's because we have big tentpole titles or the originals, including Island 2 and Duty After School, that was shown in the first half.
Well, amortization of these IPs, it coincided, they coincided in the Q2, and with that, our numbers, the loss numbers have somewhat widened. It's not because of a lower RP that we have seen an increase in our loss numbers. It's just because of the coinciding amortization period. Going forward in the second half, we will be allocating or releasing the original titles in a more timely fashion. With that, our numbers will most likely see an improvement. We will also be looking to co-production opportunities with drama channels in order to enhance the profitability.
[Foreign language] .
If I may add to the amortization-related question about the amortization of our intangible assets. If you look at our costs, if you refer to the materials that we have distributed, our cost is at 8.9%. That's a significant decrease on a year-on-year basis, and our amortization cost, it was at KRW 205.7 billion at a rate of 30%. Last year, that same number was over 20%. It means we have seen much improvement when it comes to efficiency and programming. As was mentioned in the previous answer, there was a overlap of amortization periods for the two large tentpole titles. Once again, it would be more even without going forward.
[Foreign language] .
[Foreign language] .
Yes, now on the borrowing question, your third question, well, as of end of June, on a consolidated basis, our total borrowings stand at KRW 3.4 trillion, with KRW 1.6 trillion being short term borrowings. That's about 38%. Our cash, on a consolidated basis stands at KRW 900 billion. That leaves us, our net borrowing at KRW 2.5 trillion. As was mentioned, we will be engaging in earning democratization efforts in the second half, and we will be servicing back our borrowings through our securitization efforts. Well, the efforts will mostly focus on the short term borrowings.
Should we not be able to service the maturing debt, we would have no issue with refinancing our short term borrowings, because the short term borrowings they lie mostly with ENM or Studio Dragon or overseas subsidiaries that were guaranteed by ENM. We have no issues refinancing them.
[Foreign language] .
[Foreign language] .
The next question is from Choi Yong-hyun of KB Securities. Please go ahead, sir.
[Foreign language] .
Yes, yes, I think that's in terms of the TVING. As of today, you're the number 2 platform. And what is your thinking on, on your ads and perhaps the possible attrition? My second question goes to Fifth Season. There have been reports of Fifth Season receiving equity investment. What is the progress to date?
[Foreign language] .
Yes, well, with increasing in our in our approval, could there be some attrition of our subscribers? Well, it's natural that you consider this, but we have weighed the risks and the benefits, and our conclusion is that the benefits far outweighs the associated risk, because we have seen proven loyalty and stickiness with our subscribers. With strong content provided by CJ, we have witnessed a strong loyalty and stickiness of our subscribers, and we would also be actively engaging in marketing activities, including promotions and marketing. With that, we have safely concluded that the benefits included associated with our increase in our pool far outweighs the risk.
[Foreign language] .
Yes. Now, once again, back to Fifth Season, it's true that the business is in a difficult environment, but I do not foresee any operational cash flow related issues with that business. It's true that the business is looking ways to realize the turnaround, but at this given point in time, I cannot give you any comments on the mentioned external equity investment.