Good morning and good evening. First of all, thank you all for joining this conference call. Now we will begin the conference of the fiscal year 2026 second quarter earnings resulted 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 session. To ensure a smooth presentation following the conference call and to minimize noise, we kindly ask you to keep quiet. We kindly ask you also to be mindful of the noise when turning pages. We shall commence the presentation on the fiscal year 2026 second quarter earnings resulted by CJ ENM.
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Good afternoon. This is Woo Won-sung from CJ ENM's Investor Relations Team. I thank the shareholders and analysts for their attendance despite your busy schedules.
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We will begin 2026 Q2 earnings session of 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.
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We have here with us Chief Financial Officer Kim Jin-young and heads of different business divisions. From platform, we have Lee Nam-joo. From Media BU, Park Sang-hyun. From Media Solution, Lee Sang-mu. From Film, Ms. Jung Hyun-joo. From Content Distribution, Kim Do-hyun. From Global Business Management, Kim Joon-yup. From Music, we have Ms. Ko Seo-hyun. From Commerce, Seo Jin-wook. From Studio Dragon, we have Ms. Lee Hye-mi. From TVING Business Management, we have Ms. Jang Young-kyung. We have CJ ENM Studios Chief Executive Officer, Hwang Deuk-soo with us.
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First, Chief Financial Officer Kim Jin-young will present on our major results and business strategies.
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Good afternoon. This is Kim Jin-young. In Q2, the company continued to further refine our growth structure by diversifying revenue generation methods for content and artist IP, while continuously expanding the foundation of our platform businesses, including TVING, Mnet Plus, and Commerce. As a result, our operating profit in the second quarter increased by 17% year-over-year.
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First, our content business. CJ ENM is continuing to transition to a high-efficiency, profit-expanding IP business structure that expands a single IP into various businesses alongside production efficiency improvements. A representative example is "The Legend of Kitchen Soldier," where we reduced production costs through efficient casting and the use of AI-based CG and VFX. At the same time, we expanded our revenue model through the release of album by the Taste Boyz, or Migak Boys, the boy band in the drama, and the commercialization of convenience store lunchboxes based on in-drama recipes, and Virtual PPL that uses AI technology to naturally insert products and brands into the video during the post-production editing stage. We are strengthening our profitability-oriented production system through close collaboration between the content production and advertising sales department, starting from the planning stage.
We will continue to enhance the revenue generation capabilities of our IP in the future.
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The music business is strengthening its mid to long term revenue base through the advancement of its Human IP Portfolio or HIP. It has rediscovered the value of existing HIPs by successfully rebooting the highly successful groups of the past, Wanna One and I.O.I. Furthermore, while the new Human IP group, MODYSSEY, made a successful debut, Produce 101 Japan Season 4 also saw high popularity and commercial success, with its concept album reaching number one on the Apple Music Top 200. The group KOIKI, selected through this process, is set to debut in the second half of the year and is expected to contribute to Lapone's earnings alongside existing artists such as JO1 and INI.
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Next, on the platforms. In the case of TVING, platform-based expansion for digital transformation is well underway. Driven by the success of KBO and original content, the number of subscribers continues to increase, and customer base growth has continued too, with MAU recording 9.7 million. Advertising revenue continued its high growth trend, increasing by 52% YoY.
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Mnet Plus is evolving into a platform that connects global fandom traffic beyond content viewing and engagement to paid consumption. Through the strengthening of fan interactive features, such as paid content business models like digital IP101:GO, content pass, and the earnest launch of digital fandom business, including ALD1 Japan Fan Club, Mnet Plus revenue continued its high growth rate of 167%.
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Amid the sustained high growth of mobile live commerce, the commerce business is steadily expanding its customer base. By organically integrating short form content, live broadcast, and creator commerce to increase traffic from external platforms and convert it into actual product purchases, the transition to mobile-centric platform is accelerating. Consequently, not only is the transaction volume of mobile live commerce increasing, but the number of app downloads and monthly active users is also rising.
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CJ ENM will continue to strengthen its competitiveness in these content and platform sectors, through this, we will strive to achieve revenue growth and improve profitability in the second half of the year onwards. We would like to thank our shareholders and analysts for their support of CJ ENM, this concludes my presentation.
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Next is the company's results. CJ ENM's results are based on K-IFRS consolidated numbers, divisional operating results have not carved out internal transactions. The company's 2026 Q2 results.
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Revenue was KRW 1.2033 trillion, a decrease of 8% YoY, while operating profit was KRW 33.4 billion, an increase of 17% year-over-year. I will now go over the changes in operating profit by business segment based on figures prior to consolidation adjustments. The entertainment business saw profit growth driven by factors such as continued revenue growth of TVING, despite disruptions in the Fifth Season TV series and the impact of investment in music, HIP, and platform. The commerce business achieved growth both in revenue and profitability due to the sustained high performance of mobile live commerce and strategic product operations, including category mix optimization. Starting from page five, I will present the performance by business segment and give you the outlook for the second quarter.
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While TV advertising revenue experienced negative growth in the media platform sector due to the continued contraction of the market and selective advertising execution during the World Cup season, earnings were driven by sustained net TVING subscriber growth with the success of KBO and original content, high growth in digital advertising revenue, and robust overseas sales, including the branded zone. TVING is expected to face a slightly increased cost burdens in the second half of the year due to content procurement, we will respond by continuously expanding subscribers and viewership based on original dramas and anchor non-scripted formats, specifically by maximizing advertising revenue during the KBO postseason and peak season in the fourth quarter.
For channels, the company will strengthen advertiser-tailored bundled ad product campaigns, centering on core IPs and stronger cooperation between content production and advertising business, and expansion of AI-based advertising products to secure more advertising sales and improve profitability.
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Overall performance in the film and drama sector declined despite increased sales to leading local platforms, robust growth in branded zone sales, overseas sales of non-scripted formats and production cost efficiency improvements due to the impact of the delivery gap in drama series from Fifth Season. In the second half of the year, we will continue to strengthen our competitiveness in overseas sales based on Anchor IPs by reinforcing volume deals and individual sales in existing key markets such as Japan, Southeast Asia, and North America, while simultaneously seeking out new partnerships in local markets including India, the Middle East, and South America, and expanding the supply of dramas and variety shows to global OTT platforms and terrestrial broadcasters.
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Music sector sales grew steadily with strong performance of MODYSSEY's debut album and with the activities of current and new artists such as INI and ZEROBASEONE Season 2. Although investment costs increased for the growth of Mnet Plus and the debut of new artists, profitability was partially defended through global live events such as ALD1 Fan-Con Tour, JO1 Dome Tour, and KCON Japan. In the second half of the year, growth momentum is expected to become more pronounced as album releases and tours by labels artists like JO1 and INI increase and activities of new Human IPs, including the debut of [Non-English content] and album release by ALD1 and MODYSSEY enters full orbit.
We will continue to strengthen our competitiveness through the diversification of Mnet Plus's Anchor IPs and business models, alongside the success of Street World Fighter: Directors' War, and the advancement of global events such as KCON LA and MAMA.
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Sales increased in the commerce sector as mobile live commerce transaction volume continued its high growth trajectory, driven by increased social media sales and new customer acquisition through the quantitative and qualitative expansion of short-form content, as well as robust growth in the premium travel and kids categories. Simultaneously, we demonstrated improved profitability by expanding our programming centered on high margin categories such as health supplements and beauty. In the second half of the year, business will expand its external customer base by establishing a collaboration system with on-staff partners, including influencers and brands, and by further enhancing our creator commerce model. Additionally, we will steadily expand our customer base by increasing customer influx and loyalty through differentiated IP collaborations and membership programs, while building a customer lock-in system through advanced CRM and notification. For further details, please refer to the materials. Thank you.
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Now, we will hear from Studio Dragon.
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Good afternoon. This is Chief Financial Officer Lee Hye-mi from Studio Dragon. I will report on our business performance for the second quarter of 2026.
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In the second quarter, Studio Dragon strengthened our growth trajectory despite a challenging environment based on the advancement of business strategies such as production efficiency, content diversification, and success of our major works.
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Major titles such as 'Teach You a Lesson,' 'The Legend of Kitchen Soldier,' and 'Yumi's Cells 3' recorded overwhelming performances across their respective platforms. In terms of profitability, the reflection of production cost efficiency and expanded sales led to improved earnings.
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Revenue grew 26.9% year-on-year to KRW 145.3 billion, operating profit turned positive at KRW 15.4 billion. The operating profit margin improved by 13.2 percentage points year-on-year to 10.6%, confirming a trend of profitability recovery.
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Starting from Q2, we changed the criteria for the useful life of intellectual property rights to reduce quarterly earnings volatility and enhance predictability.
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In the second half, we will continue the growth momentum of our core business based on the lineup of blockbuster titles and expanded pre-sales. We will expand our viewer influence through highly anticipated titles such as Four Hands, 100 Days of Deception, and Tantara, respond to changes in the external environment by expanding our IP business and optimizing production costs. We will simultaneously strengthen the profitability of our core business and our foundation for mid-to-long-term growth. Thank you.
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We will now be entertaining your questions. Given the time constraints, please limit your questions to three each, focusing on core issues.
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Now, the Q&A session will begin. Please press asterisk one, asterisk and one if you have any questions. For cancellation, please press asterisk two. That is asterisk and two on your phone.
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Currently, there are no participants with questions. Please press asterisk one, asterisk and one to give your question.
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The first question will be given by Lee Ki-hoon from Hana Securities. Please go ahead.
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Yes, I have three questions. First is on the TV ad business. You, in your presentation mentioned that you had some environmental or seasonal difficulties in the first half because of low seasonality, especially with the World Cup games. Since Korea was eliminated from the World Cup games rather earlier than anticipated, how did it impact your ad business? I would also like to hear the impact from the happenings with JTBC. I am told that there won't be much production activity going on with JTBC after the fourth quarter. Could it actually be a positive factor to CJ ENM as you may gain some of their ad revenue? Could this possibly be a positive thing for the company? My second question on merger between TVING and Wavve. I know that there are issues, the KT issue and SI issue.
Could you give us more color or some more information on how the integration work is going on? My third question goes to Studio Dragon. You've mentioned in your presentation about the changes in the amortization method of your intellectual property. Could you give us more color on what's happening there?
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Yes. First, answering your advertisement industry-related question. Yes, as you rightly mentioned, the first half of the year was a difficult half. Starting in the second half of this year after the World Cup games, we believe that things will see a turnaround. For the company, CJ ENM, we do expect to see an upsell of over 30%. It's because we're the only entity that has a full integrated lineup of TV broadcasting advertisement to digital advertisement to also include DOOH. Because of this integration, expect to see better results for CJ ENM. We also have high expectations for sponsorships and PPL. We expect to see about 26% growth on a YoY basis.
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Now to your second point related to the disturbances at JTBC. I cannot give you an exact answer to this question, but we are seeing some revenue decrease on the part of JTBC starting from the month of August. It has influenced some of the terrestrial players plus the company as well. As to how much or to what degree, I cannot give you a concrete answer today, but we are seeing some pick up in our market share.
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To address your TVING and Wavve integration or merger related question, while we are currently discussing with KT on advertisement and content activities, we believe our discussion will enter into a more full orbit starting in the second half, and by then we will be sorting out how things go with SLL and the merger process.
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Yes. Thank you for that and answering your useful life amortization question. Well, we have made the adjustments to the useful life amortization process with our copyrights. Well, for conventional dramas, it used to be 18 months of amortization of a production cost. For OTT pre-sales, it was over six months. It really did not reflect our revenue generating period, and the amortization process was rather lengthier than the actual revenue generating period. Because of this, there was some added volatility to our profit numbers. We had made the necessary adjustments to more fully reflect the real revenue to our schedule. For general dramas, it will be amortization of copyrights over 48 months, but it would be on an accelerated basis for the first seven months. About 54% of the amortization will be done in the first seven months. It's an accelerated process.
For the pre-sale titles to the OTTs, the amortization period has been decreased from six months to four months, which will, of course, lead to more accurate predictability on the part of the analysts and shareholders, and it will lessen the volatility associated with our numbers. For example, our Q1 numbers for this year, because of the spillover of amortization process from Q4 last year, our profit numbers were rather smaller than what you might have anticipated. To address this situation, we have made the necessary adjustment to our amortization process.
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Next question, please.
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Currently, there are no participants with questions. Please press asterisk one asterisk and one to give your question.
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The following question is by Choi Yong-hyun from KB Securities. Please go ahead.
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Yes, I have three questions. The first is on the Q2 results for TVING and Fifth Season. My second question is on the recent information leakage of TVING. Will it really have a tangible financial result on TVING? I've recently seen that your MAU ranking has deteriorated so much privacy leakage or breach issue. My third question is related to the company's overall share prices. While the valuation is quite low, the stock price is rather underperforming. I've heard that the government will soon be announcing something related to low PBR companies in the second half. Do you have any measures to address the situation of share prices?
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Yes. To address your first question related to the revenue and operating numbers of both TVING and Fifth Season in the second quarter. The revenue for TVING stood at KRW 140.7 billion with an operating profit of KRW 6 billion. For Fifth Season, it was a revenue number of KRW 50.4 billion with an operating loss of KRW 8 billion.
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On to your second question related to TVING's privacy breach issue. There could be two impacts on our financials because of the privacy information breach incident. First would be our compensation package to the customers. We could come up with a compensation package, and that could lead to some financial impact. The second impact that we could feel on a financial term would be the penalty and fine imposed by the government according to their decision. Currently on the first part, which is the compensation by the company, we are currently working on it to develop a compensation package. The information could be given out to the market probably by September or October. We will be making sure to communicate the message to the market.
In coming up with compensation to our customer, we will make sure that it gives good value to our customers and has a controlled impact on our financials. Now on to the second part, which is on the penalty and the fine imposed by the government. Currently, the investigation body is looking into it, as is the privacy-related organization. As you're well aware, the penalty and fine, it's calculated based on the revenue, the sales number of the company, so it may differ company by company. Now to the second part of your second question, which is on our recent decrease in our MAU. If you look at the MAU rankings or MAU numbers from January to May, it actually was boosted by the KBO season, which started in April, and with hits of our original content in May.
With that, we saw a really strong growth in MAU, monthly average user numbers. When the original content came to a closure, we saw a very short-term, slight decrease in our MAU, but we cannot definitely say that it was due to the privacy leakage issue.
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To your last question, which was on our share valuation. As was mentioned during the presentation and our previous answers, the advertisement market had rather been slow, and we've been seeing some delays in our profitability improvement measures. Also there was a market situation which led to a slower than expected valuation recovery. The company will work on improving our profitability, and we will be well in line with what the government has to offer as its policy. We may once again look into our dividend policies as well as shareholder return policies.
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Next question, please.
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Currently there are no participants with questions. 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 and asterisk and one, please.
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The following question is by Jang Ji-hye from DS Investment & Securities. Please go ahead.
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I have two questions. First is on TVING. You've seen a turnaround. That's been very encouraging. Do you expect the trend to continue in the second half? My second question is related to Fifth Season. How do you view the second half of the year for Fifth Season? Could you give us some color on it?
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Yes, this is TVING answering your question. As was mentioned in my previous answer, our revenue stood at KRW 140.7 billion with an operating profit of KRW 6 billion. That was the number for it. This number was possible thanks to the good KBO season and the hit of our original content, 'The Legend of Kitchen Soldier' and 'Yumi's Cells 3.' The original content hit led to a rise in the net subscriber numbers and also a rise in our monthly average user basis. This also had pushed and supported our subscriber sales plus ad sales as well. It's our branded zones. It also helped with our international sales. Our outlook for the third quarter.
The third quarter is typically a low season for ads, we will also be seeing more costs when it comes to supply of our content, and there will be slightly slower international sales in the third quarter. Overall, we may see rather a slower action compared to the second quarter. If you look at it from a longer perspective, as was mentioned, our subscriber base is upward trending, as is our advertisement sales. In the medium to long run, our trend is upwards.
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This is the answer from Fifth Season. As you've seen from the results, we've seen some delivery gaps this quarter, we believe that to continue somewhat in the second half as well. In the short term, to defend our numbers, we will focus on distribution and our films business. For next year, we've secured two green lights, and with that, we will try our best to see no delivery gaps in the years to come.
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Next question, please.
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Currently, there are no participants with question. Please press asterisk one, asterisk and one to give your question.
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Since there are no further questions, we will end our Q&A session here.
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I thank every [inaudible]
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This concludes the fiscal year 2026 second quarter earnings resulted by CJ ENM. Thanks for. [inaudible]