Good morning and good evening. First of all, thank you all for joining this conference call, and now we begin the conference of the fiscal year 2024 third quarter earning results by CJ ENM. This conference will start with a presentation, followed by a divisionary 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 quarter earnings results by CJ ENM.
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Good afternoon, this is Kay Choi from CJ ENM's IR. I thank the shareholders and analysts for taking time out of their busy schedules to attend our earnings session.
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Now we will begin Q4 2024 CJ ENM's earnings presentation. Please note that the financial and management results presented today have yet to undergo an external auditor's review and could be subject to changes upon such review.
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We have here with us CFO Deuk-soo Hwang and heads of different business divisions. From media we have Ki Sung Hong, from music Young Gwan Shin, film Kyung Beom Go, content sales Jang Hoon Seo, global Joon-yup Kim, and from commerce we have Ms. Ji-Hyun Kim. We have Studio Dragon CFO Kwangseok Oh, TVING CEO Joo Hee Choi, and CJ ENM Studio CEO Yong-Su Ha.
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First, CFO Deuk-soo Hwang and Ji-Hyun Kim from commerce will present on 2025 management plans and goals.
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Good afternoon, this is CFO Deuk-soo Hwang . In 2024, despite the downturn in upstream industry, CJ ENM successfully achieved a turnaround by strengthening its business with a focus on profitability. Marking its 30th anniversary in 2025, we will continue this profit turnaround through execution of strong business strategies. Our key strategic initiatives include quantitative and qualitative improving content, acceleration of global expansion, reinforcement of digital platforms, and mobile live commerce strategy, all of which will drive profit growth in 2025.
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First, regarding our content strategy. Last year, CJ ENM's 'Queen of Tears' set a record for the highest viewership ratings in tvN drama history, resulting in a syndrome-like popularity. Additionally, our entertainment content ranked first across all channels in target ratings during prime time, achieving remarkable success. In 2025, despite market contraction, we will produce more, produce better, and expand our global reach, accelerating our growth strategy. For dramas, we will introduce tentpole productions every quarter, striving to create the next 'Queen of Tears.' Starting in the second half of the year, we will also resume mid-week dramas featuring rising stars to optimize production costs and maximize additional revenue from content. In entertainment, we will expand proven season-based and new format programs. We will also strengthen the presence of Korean entertainment content by broadening its distribution in the global market.
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Our 2025 content lineup is more diverse than ever. On tvN and TVING, audiences will be able to watch top global stars such as Lee Jung-jae, Im Ji-yeon, Lee Jong-seok, Lee Jun-ho, and Im Yoon-ah in major tentpole dramas such as 'Resident Playbook,' 'The Tyrant's Chef,' 'Typhoon Company,' and 'Yummy Love.' Additionally, we will continue expanding season-based entertainment shows such as 'Sixth Sense,' 'The Great Escape,' 'Fresh Office Sea,' 'Genius Spec,' and 'EXchange.' Furthermore, producer Na Young-seok under our label will extend the influence of CJ ENM's entertainment content beyond tvN and TVING to Netflix, with new productions including 'Earth Arcade.'
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CJ ENM has designated this year as the foundation for global expansion, focusing on content production and distribution. TVING's overseas expansion and the growth of IP based on global MCS will strengthen local content production through studios in Korea and Japan, and the U.S., while expanding content distribution in new markets such as India, South America, and the Middle East. TVING aims to increase its global subscriber base and brand recognition by entering more actively into the global market through branded channels, thereby enhancing synergies with our global distribution business. For music, we plan to expand IP initiatives in Korea, Japan, and Greater China while continuing growth through the reinforcement of our multi-label strategy.
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Next, digital platform strategy. We will drive digital business growth and expand D2C content and commerce through the enhancement of TVING, Mnet Plus, and [Non-English content] . TVING is accelerating its business integration with Wavve, strengthening its competitive edge in the domestic content, while targeting 15 million subscribers globally by 2027 through international expansion. It will evolve into a multi-genre content platform for providing differentiated user experiences such as sports, live streaming, and short-form content.
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Mnet Plus, which has been expanding traffic through K-pop content, is enhancing its business model with digital content, commerce integration, and region-specific [Non-English content] IP strategies. Meanwhile, [Non-English content] is evolving into a curated live shopping platform. Our differentiated mobile live commerce strategy based on content is leading platform growth, with plans to expand new brands and maximize synergies between content and commerce.
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For detailed strategies in the content distribution, I would now like to invite Ji-Hyun Kim, Head of Growth Strategy, for the details.
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Good afternoon, this is Ji-Hyun Kim, Head of Growth Strategy for the Commerce Division. Despite a stagnant domestic retail market with zero growth in 2024, our Commerce Division successfully transitioned from a traditional home shopping model to a growth-oriented business model by advancing, first, our one-platform strategy and accelerating our mobile live commerce business.
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The market environment in 2025 is expected to remain challenging. However, with the potential for market consolidation, only a few key players favored by consumers will experience distinct growth. Our company is now recognized by brands as an essential platform to advance brand scaling and successful new product launches. At the same time, from the consumer's perspective, we are repositioning ourselves as a trendy and trustworthy platform, with mobile live commerce at the core of this transformation. To accelerate the verified growth structure established last year, we will focus on four key strategies in 2025.
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First, enhancing product competitiveness. We target not everyday shopping items but high-involvement, differentiated product categories. By leveraging data-driven trend analysis, we will expand sourcing to abandoned-based brands. Once sourced, we will amplify sales through the one-platform strategy and pursue exclusive distribution rights to further differentiate our offerings.
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Second, securing major high-impact IPs. We will acquire multiple large-scale IPs to best market trendy products. In addition to existing IPs such as Yoo In-na's [Non-English content] , we will develop additional flag IPs. These content assets will be diversified across live broadcast, short-form, and mid-form formats, maximizing long-tail sales potential.
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Third, we will expand seamless customer experience across multiple channels. We will integrate our platform with various external channels where customer viewership is high, including YouTube, Instagram, TikTok, TVING, and offline spaces. To achieve this, we will further refine our content production and digital marketing capabilities tailored to each media platform.
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Lastly, on strengthening synergy with the entertainment division. We will accelerate collaboration with the entertainment sector through joint IP planning, exclusive product development, and integrated advertiser growth.
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As is shown on the chart on page nine, our mobile live commerce business has demonstrated rapid growth, with transaction volumes increasing from KRW 140 billion in 2022 to approximately KRW 320 billion in 2023, a 2.3x increase over two years. By executing the four key strategies outlined above, we aim to maintain an annual growth rate of over 60%, targeting KRW 870 billion in transaction volume by 2026. This business is not just a cash cow but a key driver of shareholder value enhancement, and we are committed to proving its growth momentum.
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CJ ENM, as a content commerce corporation, will endeavor to realize platform growth and global market expansion in 2025. I wish the best of health for our shareholders in closing. Thank you.
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Now we will be hearing from Studio Dragon.
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Good afternoon, this is Kwangseok Oh, CFO of Studio Dragon. I'd like to present our 2024 annual and Q4 business performance. In 2024, the challenging media environment persisted, negatively impacting the drama production industry's business operations. The company also experienced a 40.0% decline in the annual lineup compared to the previous year.
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Despite these challenges, we expanded the proportion of pre-sold new titles by 20 percentage points (24 percentage points), strengthened our IP business, and introduced cost-plus models in the second half of the year to minimize market impact. As a result, we've recorded an annual revenue of KRW 550.1 billion and annual operating profit of KRW 36.4 billion .
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In Q4, the total number of broadcasted episodes decreased by 35% (YoY) to 46 episodes. However, by pre-selling the entire lineup of new titles such as [Non-English content], we maximized sales efficiency while actively working on cost reduction to improve profitability. As a result, in Q4 we achieved a revenue of KRW 130.6 billion with operating profit of KRW 5.4 billion , marking a return to profitability.
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Now on our outlook for 2025. In 2025, we aim to rebuild our fundamentals and secure future growth drivers by diversifying platforms domestically and internationally to expand our lineup, enhancing hit ratio by securing S or A-grade creatives and optimizing processes, and exploring new and global business opportunities to establish a strong foundation for high growth. Thank you for your attention.
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Now CJ ENM's results will be presented.
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Good afternoon, this is Kim Jin-young, Head of Finance. In 2024, our annual revenue reached KRW 5.2314 trillion, reflecting a 19.8% growth while operating profit recorded KRW 104.5 billion, marking a successful turnaround. Entertainment division recorded revenue of KRW 3.78 trillion with operating profit of KRW 21.3 billion. Commerce division saw revenue of KRW 1.4514 trillion with operating profit of KRW 83.2 billion.
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The profitability improvement of TVING and Fifth Season, along with the revenue expansion from music artists such as ZEROBASEONE, izna, and JO1, contributed to both top-line growth and profitability enhancement in the entertainment division. Meanwhile, the commerce division achieved revenue growth and margin improvement through the rapid expansion of mobile live commerce and a strengthened product portfolio strategy. For more detailed information on each business segment, please refer to the provided materials. Thank you.
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Now we will move on to entertain your questions. Given the time constraints, please limit your questions to each sentence on core issues.
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Now 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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The first question will be given by Kim Hoe-jae from Daishin Securities. Please go ahead.
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Thank you for the opportunity. I have three questions. First is on LiveCity. Could you please provide us with updates on how things are going with your LiveCity project? Will there be any further cash outs, including the event that took place on January 23, and will it influence your numbers in your books in the future? My second question is on Fifth Season. On their Q4 delivery, could you give us the revenue related to Q4, and could you also provide us with an operating profit number for Q4 for Fifth Season? I would appreciate it if you would give us the target numbers for 2025 and also the outlook for this year.
My third question goes to Studio Dragon. In your presentation, you have stated quite a high target for this year, 2025. Could you please give us more color on what kind of cost that would entail and your plans to attract good creatives? I would much appreciate updates on your plans.
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At the end of 2024, our borrowings related to the CJ LiveCity project stood at KRW 380 billion, of which KRW 200 billion will see a maturing in 2025. For the remaining KRW 180 billion, the maturity will fall between 2026 and 2027, and these borrowings and liabilities have already been reflected on a consolidated basis on our books.
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Regarding the losses that were reflected with the CJ LiveCity project nullification, in Q3 2024, the losses related to nullification of the contract had already been reflected in our accounting. In Q4, the operational amount related to managing our legal entity related to the CJ LiveCity project has been reflected, but that was it. There will be no further reflection of losses in our books going forward.
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Now on the Q4 numbers for fiscal season. The revenue at KRW 602.7 billion and the operating profit at eight.
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Now on the delivery in Q4 by fiscal season. Out of the seven episodes of Severance Season two, we've delivered much of it, and the Triple War out of nine, we've delivered six. In 2025, we will deliver the remaining three episodes of Triple War, and it's bound for Netflix and other platforms. The number of episodes compared to year 2024 will see a doubling from at least 33 episodes in 2024 to about 62 this year, but the revenue will pretty much remain the same as we saw in 2024.
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This is Studio Dragon answering your question. We've engaged in various cost-cutting measures, and starting from the second half of last year, we went with a cost-plus model. Starting from the second half of last year, it was 100% cost-plus basis. This year, we will continue to expand the cost-plus model, and we are also thinking of a mid-week drama. For the mid-week programs or mid-week titles, we are thinking of using less guarantee and thus lowering the budget required for production. These efforts will result in cost-cutting throughout the year.
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On how to even further our bonds with S and A-level creators, we have announced our lineup for year 2024, which includes Typhoon's co-operation, The Tyrant's Chef, and Yummy Love. We also have a title bump for Netflix. These were works of S-level creators. Our collaboration with such S-level and A-level creators will continue going into 2026, although we have yet to fix our firm lineup.
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Now on shareholder return measures, of course we would have to calculate everything at the end of the second half of this year. But should our operating margin touch a two-digit number and should we see a positive free cash flow, then we will think about the policies that we could implement for shareholder return.
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Next question, please.
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The following question is given by Shin Eun-jung from DB Investment Securities. Please go ahead.
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Yes, I have three questions. First is on TV advertisements. Well, it seems that you have seen a turnaround when it comes to TV advertisements. Will this trend continue in year 2025? And could you please give us about the trend that you have witnessed for the month of January and February? And my second question, could I get the revenue and operating profit numbers for TV? And could you please tell us about the influence that came from the collaboration between Naver and Netflix? And are you currently in search of another alliance partner? And my third question, you did mention in your presentation the 15 million strong subscriber basis by 2027. Could you please give us a yearly breakdown? And does this 15 million number include the merger effects with Wavve?
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This is Ki Sung Hong answering your question. We did see a recovery and a turnaround for our TV ad business in the fourth quarter, despite the low market conditions. We aimed for the older advertisers with older advertisers plus low market share advertisers, and combined this with our constant competitiveness, which gave us the desired results. It's too early to say, but we are seeing a little more stagnant move in the months of January and February. It's really difficult to annualize the results from the two months on an annual basis. Our target is growth in the single-digit level.
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Starting last year in 2024, we've taken an integrated approach, integrated sales approach by combining TV ad sales activities with digital TV ad sales activities. This is a combined approach, and we also went on to use the resources of TVING and Mnet in selling ad spaces. On a combined basis, combined basis meaning combination of broadcasting plus digital, we hope to get and see a higher number than our past figure.
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The TVING revenue stood at KRW 122.7 billion with an operating loss of KRW 14 million. We will be hearing more from TVING.
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Joo Hee Choi, CEO of TVING, addressing your question. It's true that we've ended our alliance with Naver, and that could give us some momentary influence, but we are well defending the influence. A precursor to the subscriber basis, the pre-indicator could be our tracking numbers. We're well maintaining our monthly average user basis of seven million, so we hope to see full recovery within two to three months. As for our future plans for future alliance with other entities, we're seeking healthy relationships with diverse players.
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Now for our timeline. We did give you the indicative number of 15 million, and it does include the subscribers from Wavve. In two years' time period, we hope to gain seven to eight million subscribers domestically, and also the same number, seven to eight million from overseas operations.
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If I may further elaborate on how we were going to strengthen our subscriber basis in the domestic market to reach the 678 million mark. We're going to work, of course, on improving our content and service provided through attracting more sports fans, and we would also be working with news content and shorts programs.
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We will bring back our representative IP such as EXchange and The Great Escape, and we would also introduce a big megascale pilot of titles in the second half to attract more users or subscribers. We will also introduce account sharing stock in the near future. We have also introduced various combined plans to bring together the subscriber basis of Wavve.
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Next, please.
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The following question is by Han Dong-ju from Quad Asset Management. Please go ahead.
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My first question is on TVING. I believe that TVING's business has been concentrating in the domestic business in 2024. But in your statement, you said that you would also be looking to external markets, international markets. And it was also said that you will set year 2025 as the foundation year for going more international, more global. Why so? Why did you pick year 2025 to go more global? And what's the strategy that will take you there? And what kind of markets are you going to tackle? Looking at the operating profit numbers of TVING, the domestic business itself did not give you the desired operating profit numbers. But since you've decided to go forward, you will be burning more OpEx. How will that influence your OPE numbers?
My second question is on MLC. Is it on a total funding stake? And what's the percentage of that in your commerce business? My third question is on Fifth Season. The revenue number looks fine, but relatively speaking, your operating profit numbers does not really follow the growth trajectory of your revenue numbers. Why so?
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Yes, this is CEO Choi addressing your TVING question. Why set year 2025 as the foundation year for going global or international? First, it's on the subscriber basis. We think we have reached a certain level when it comes to domestic subscriber basis, and we believe that we will be reaching close to our BEP numbers this year. That is why we've decided to go for the international market. Secondly, Korean content is gaining more popularity than ever in the global stage. And on a company-wide level, we've decided that we do not want to lose out on this good timing.
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If I may add more to our international strategy. The Korean content, Korean Wave is very popular in the Asian nations. We would target these regions first. As you've mentioned, we would be working very diligently to minimize OpEx burn. We would be going into regions where we already have a firm established partnership and would be establishing our brand there. We would also be launching a D2C app and take this two-track approach.
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Yes, now on the MLC-related question for commerce. It's on net order amount. This is Jin-uk Seo from commerce answering your question.
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On a GMV basis, in 2024 the number amounted to KRW 200 billion. Although we do not keep our numbers according to revenue-wise it would be between KRW 90 billion-KRW 100 billion.
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Out of the revenue numbers, it would be about 10%.
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We lowered the expected profit numbers to revenue in Q4. It's mainly because of impairment losses amounting to KRW 24.7 billion. We entered into a binding contract with the creators and production companies. In order for us to actually have this binding contract be respected as expenses, there are some processes that we have to follow. For the older contracts, we have to write them off. These contracts, they last somewhere between 18- 21 years. The older contracts that we had to write off were entered into prior to us buying Fifth Season.
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The following question is by Choi Yong-hyeon by KB Securities. Please go ahead.
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I have a question. First, on the merger between TVING and Wavve. Many had expected to see an economy of scale type of effect from the merger in attrition of the major shareholders to Wavve. Therefore, this led to some questions about the actual synergy effect due to the merger. Does the CEO see much synergy effect coming from the merger between TVING and Wavve? This is my first question. Now to my second question. There was an announcement by CJ ENM CEO about two days ago on expanding content investment by KRW 150 billion. I do understand the need for such investment, but from a shareholder perspective, would this really be added investment, and would it really lead to a leverage effect?
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This is CEO Choi from TVING addressing your question. Does the merger between TVING and Wavve really lead to an economy of scale? Yes, I believe so. Because the subscriber bases of TVING and Wavve were quite different. The overlap was only about 30%. So we're seeing a healthy traffic and a maintenance of the subscriber bases. I do believe that we have realized an economy of scale through the merger. As you've mentioned, there was some attrition of shareholders, but by this merger we were able to create a legal entity that provides good entertainment formats plus drama.
With this, I do believe that our subscriber base will strengthen going forward. With that, we would find more room for content investment going into the future, leading to the creation of a virtuous cycle. With this virtuous cycle in place, I think we will be able to expedite our globalization efforts.
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This is Deuk-soo Hwang, CFO, addressing your question. You're referring to what was announced on our media day by our CEO. He did mention to you more investment in content. Given the market situation, you may have doubts on how much we can recoup on the investment. As was mentioned in my presentation, we will be producing more and producing quality content and taking it to the global stage in 2025. As was mentioned by Studio Dragon and also myself, we will be creating new slots for mid-week dramas. With that, we will be spending more in terms of investment, but we would hire and recruit new faces, new rising stars.
We would also seek to get more value add from our investment. With these activities in place, we do think we will be able to recoup the investment that we spend on these new types of productions. The same could be said for our non-scripted entertainment programs. We have outstanding quality content, and we could distribute this over global OTT. With that, we would also be getting profit from the international platforms, the global stage as well. I think you could worry less on us spending more in terms of investment.
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Next, please.
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The following question is by Lee Gi-hoon from Hana Securities. Please go ahead.
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My question might be a bit redundant, but I would ask it. You mentioned TVING going global, and Studio Dragon has also talked about their pre-sales by Netflix and other overseas OTTs. Could the two strategies coexist? I see that you are going to sell more through both platforms in the global stage, thus the requirement for added investment. Is this a sustainable thing? Because I see that the accumulated loss over the decade amounts to about KRW 1 trillion, and your leverage has snowballed to somewhere around KRW 1.7 trillion. You announced an additional investment amounting to KRW 150 billion, plus the losses from the CJ LiveCity project amounting to KRW 380 billion. All these negative numbers amounting, is everything financially sustainable?
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This is the CFO addressing the TVING and Studio Dragon conflict of interest or cannibalization question. If I may bring your attention to page seven of the presentation deck, it shows how TVING will go global. We did mention to you regions, including Japan and Southeast Asia, where we could go to minimize the clash of interest with Studio Dragon's efforts. We did give you some regions, including India, South America, Mainland, and probably down the road the European region. We'll be working closely with Netflix, Disney, the global OTTs, but we would also be working with regional OTTs and very local OTTs. By taking this approach, I think we would be able to maintain the required profitability.
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Yes, this is Kim from Finance addressing your financial-related questions. In 2024 we sold off our shares with Netmarble, and we wanted to have more efficiency to our operating capital. We decreased our net debt by KRW 340 billion, and currently the level is somewhere around KRW 1.7 trillion. We will continue our activities to de-leverage in 2025 as well. We have changed and made some alterations to our settlement conditions, and we want to make maximum and more efficient use of our capital. In order to add more efficiency to our working capital, down the road, keeping a keen eye on new market conditions, we will seek to securitize more of our non-core assets.
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Do you have any further questions?
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Yes, I see no queued or further Q&A, then I hope to proceed the session now.
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Thanks again for your time, and this will end Q4.
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Thank you.
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This completes the fiscal year 2024 first quarter earnings report by CJ ENM. Thank you.