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 2024 third quarter earnings 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 and one on your phone during the Q&A. Now, we shall commence the presentation on the fiscal year 2024 third quarter earning 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 their time despite their busy schedules. Now, we will begin Q3 2024 earnings results presentation by CJ ENM. Please note that the financial and management results presented today have yet to undergo an independent auditor's review and could be subject to changes upon such review.
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We have here with us CFO Deuksoo Hwang and heads of different business divisions. From media, we have Ki Sung Hong , Film, [Joon Hee Won], Music, Hyung-gwan Shin , Global, Jun-yeop Kim , Commerce, Sung bae Park, Studio Dragon, Kwangsuk Oh , TVING, Ju-hui Choi , and from CJ ENM Studio, we have CEO Yong Soo Ha .
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First, CFO Hwang will brief us on management plans and goals.
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Good afternoon. This is CFO Deuksoo Hwang . Despite external conditions such as the slower advertisers market and seasonality, CJ ENM continued to fortify its business competitiveness with continued content sales in the global market. Difficulties continued in the media and content producing industries, and the recovery is not as fast as expectations. CJ ENM, based on hit ratio of its content, is enhancing the synergy between channels and OTT platforms.
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The company realized a turnaround on a YoY basis with its stance of strengthening profitability since last year, and is continuing to outperform competitors in the market. Popularity of Korean content increased in Q3, with simultaneous global airing of dramas and non-scripted entertainment programs, including "Love Next Door," "No Gain No Love," and "Jinny's Kitchen 2." Results strengthened in the cinemas and OTT platforms with movie content such as "I, the Executioner" and "Uprising."
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The audience is enthusiastically receiving drama and entertainment content in Q4 as well, with programs including "Jeongnyeon: The Star is Born" and "Three Meals a Day Light." We will continue this success with "Kinky Boots: The Musical" and movie "Harbin." The company is focusing on improving profitability of each business division. TVING will continue its improvement of profitability through premium content and sports library. Music will expand profit leverage through girl group izna debut and global concerts of ZEROBASEONE, JO1, and INI. Commerce will maximize business results of a high season with growth in mobile live commerce and launch of new brands.
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With strategy of expanding business model and new markets. Based on our strong basis as the dominant player in the domestic market, we will seek success of Korean content and K-pop in the global market as well, continuing our success. I deeply thank the shareholders and analysts and conclude my presentation. Thank you.
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Next, the results presentation. Quarterly and yearly results presentations are based on K-IFRS and is on a consolidated basis. Divisional operating profit has not eliminated internal transactions. Now, we will hear Q3 2024 results presentation.
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Good afternoon. This is Jin young Kim from Finance. Consolidated revenue of CJ ENM for Q3 2024 stood at KRW 1.1246 trillion, which is a 1.2% YoY increase. Operating profit at KRW 15.8 billion saw an increase of 113.8%. Entertainment recorded a revenue of KRW 790.7 billion with KRW 6.7 billion operating profit. Commerce recorded a revenue of KRW 333.8 billion with KRW 9.2 billion operating profit. However, the company recorded a net loss of KRW 531.4 billion with one-off events, including loss on disposal of PPE with CJ Live City contract nullification, other losses of KRW 24.6 billion, and corporate tax of KRW 130.5 billion.
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Media platform will continue to enhance channel viewership and TV and traffic growth with competitive content in Q4. Pictures and drama will focus on profitability improvement with expanded production and distribution. Music will continue its efforts to build on album activities and live concerts. Commerce hopes to ride the high season and enhance profitability with sophisticated one platform strategy and category specialized mobile live commerce content. Please refer to the presentation deck for details. Thank you.
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Now, we will be hearing from Studio Dragon.
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Good afternoon. This is CFO Kwangsuk Oh from Studio Dragon. I will present the company's Q3 2024 results.
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Aired episodes in Q3 stood at 59, which is a decrease by 21% YoY. With sluggish pre-sales of new titles, with the exception of 'Love Next Door,' and slow library sales, our revenue stood at KRW 90.3 billion, with an operating loss of KRW 900 million.
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On a different note, we were able to expand our domestic channel with ENA original, 'To My Hyeri. ' Other businesses, including OST sales, had good results, too.
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Lineup and pre-sales will continue to see some decrease in the second half, and the company will focus on viewer ratings recovery and portfolio optimization.
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Currently, 'Jeongnyeon: The Star is Born' is getting good viewer ratings. We will see recovery of viewership as the number one domestic player with improved hit ratio for individual IPs.
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Furthermore, in 2025 with portfolio optimization with [SMA level] tentpole titles and small and medium titles, we will address the needs of different platforms and enhance partnership, and thus overcome the difficult market conditions. Thank you.
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Now we will move on to Q&A session.
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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 Hyejin Kim from Daishin Securities. Please go ahead.
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Yes, I have three questions. The first one is related to CJ LiveCity. Is the loss impact from the cancellation of the contract over? Or will we be seeing more numbers be reflected in the future? And will there be any reversal of the already paid amount to your books later on? That was my first CJ LiveCity related question. My second question goes to Fifth Season. Could we know about the revenue numbers and operating profit numbers for Fifth Season? I see that your delivery schedule saw some glitches. How do you foresee things unfolding in Q4? Could you give us a guidance for year 2025? My third question goes to TVING. How is your subscriber base growing? Could I also get the revenue number and operating profit number for TVING?
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Yes, this is Kim from finance addressing your first CJ LiveCity related question. Our disposal of tangible assets related to this project amounts to KRW 320 billion . We also some contributed acceptance to the Gyeonggi Province. We also saw losses with our assets in construction amounting to KRW 260 billion . With return of land to Gyeonggi Province, our disposal loss stood at KRW 61.8 billion .
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And in treating land related losses, we have already reflected the losses related to lot A6-2, which we have yet to return to Gyeonggi Province. Going forward, we do not see any large amount being reflected in our books.
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So we've already given out a disclosure in October related to contributed acceptance of our arena project, and should we decide in a later stage to actually go back to the arena project, that would lead to some differences in our calculation as well. Should there be any legal lawsuits going forward, there could be some minute changes to the in and out numbers, but not in a big way.
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Now on your TVING and Fifth Season questions. TVING's revenue recorded KRW 121.3 billion with an operating loss of KRW 7.1 billion. For Fifth Season, the numbers are revenue of KRW 108.4 billion with an operating loss of KRW 23.2 billion.
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Yes, this is Jun-yeop Kim from Global addressing your added question to Fifth Season. Well, our numbers saw some difference to our projection because of the delayed delivery of Severance Season 2. It was scheduled to be delivered in the third quarter. It has been delayed to fourth quarter. In the fourth quarter, with the delivery of that title, we will be seeing some recognition of revenue numbers.
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Yes. Well, our TV series numbers, they were really influenced by the delay in the delivery of Severance Season 2. On a YoY basis, that impacted at 47.3%. It was decreased by 47.3%. Last year, we delivered a title called Life and Death, and that added to our numbers. But in 2024, our own title to be delivered was Severance. With the delay of that project, we saw some influence to our numbers. We would be working on the distribution of our library titles. As you're well aware, there were some impacts from the strikes, the writers and the guild strike, which led to some impact. But with that being more or less dissolved, we hope to see some improvements.
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TVING continues to see its paying subscriber bases grow on a YoY basis. That's a growth by 55%.
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If I may put it more accurately, our revenue has seen an increase by 55%. That was mainly led to our subscriber bases growth, which saw a 40% increase. Even on a QoQ basis, we saw a growth by 5%-10%.
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We're also seeing ad sales contribute to our overall revenue.
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This quarter we saw our operating loss numbers go below KRW 10 billion. We recorded KRW 7 billion loss, which is first ever under KRW 10 billion number.
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I believe it's all thanks to our effective operation and also economy of scale realization.
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The following question is by Eun -jung Shin from DB Financial Investment. Please go ahead.
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Yes. I have three questions. The first goes to TVING. The KBO season has ended, and I do believe there would be some attrition related to end of season. How much of magnitude do you expect from the end of season of KBO? Even with the season, you saw negative numbers. How are you going to improve the numbers now the season is over? Could you please brief us on your Q4 and your 2025 strategy? When do you think you will be seeing a break-even point? Those were my questions for TVING. My second question goes to your music division. The revenue number, the sales numbers were okay in 2024, but your operating profit did not really match your stronger revenue numbers. What's the reason behind it? Could we get some guidance on your expectations for next year, 2025?
My last question, the third one, goes to Studio Dragon. In your presentation deck, I read that you plan to deliver seven tentpole titles, and you are going to see pre-sales of eight titles. The numbers, are they fixed? How many titles are you thinking of delivering in year 2025?
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This is TVING addressing your question. Now that the KBO season is over, the baseball season is over, we are closely monitoring the changes to our traffic. Every Mondays there were no ball games, and the traffic as of today is similar to what we have seen on Mondays during baseball season. It is about 5%-10% influence.
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In the months of February and March, we did not air our baseball games. Compared to those months, our daily average user has seen an increase by 10%.
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As you have mentioned in your question, we are embracing ourselves to prevent any attritions of baseball fans. We could see in the worst case about a 20% attrition of the baseball watchers. We are preparing diverse contents to address and cater to the needs of the baseball fans. We will be airing WBSC Korea and Cuba team live baseball match. We are also preparing various original baseball related documents, and we are also thinking of batches airing.
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We did spend some amount to invest for our KBO programs. Now that the investment is over, we are going to see some decrease in our loss numbers. We have built up a good track record of attracting new subscribers. Going forward, we will be starting with this healthier subscriber basis. With that, I believe that we will be able to reach our goal of a break-even point somewhere in the end of this year.
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Yes. Next year's strategy, we will continue to strengthen our content with sports program and others. With that, we hope to attract more traffic. With added traffic, we are going to monetize it through advertisement packages. We are also going to offer differentiated service within TVING and build diverse business models. On the account sharing, Netflix with their account sharing program, were able to add 15%-20% to their numbers. We have yet to do that, and we could see better results.
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Yes, I will address your music question. You have asked why our operating numbers were not as strong as our revenue numbers. The operating profit that comes from in-house artists and our Japanese in-house artists, they are quite good and strong. However, when it comes to KCON that we had across different regions, they are associated with higher production costs, as are the artists that are not in-house. Also the follow-up season of our Mnet seasonal TV shows did not really perform to our expectations, leading to a lower income associated with our advertisement. How are we going to address the situation going forward in Q4 and year 2025? We are going to enhance our efforts with our in-house IPs. We are going to have concerts and conventions with in-house artists.
We are going to strengthen that effort, and we would also be adding new competitiveness to the newer content on Mnet. With that, we hope to enhance our operating numbers so that they match our stronger revenue numbers. We do have an expected debut of a new girl group, izna, on the 25th of this month. We also do expect to see enhanced activities of ZEROBASEONE, INI and JO1, our in-house artists.
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Yes, this is Studio Dragon addressing your questions on tentpole titles and the pre-buys or pre-sales numbers. The lineup for the second half of 2025, it is not yet firmly fixed. It is a little bit liquid, but the numbers for captive, it is pretty much sure that three to four titles. For OTT bound, it is also about three to four titles. We are in the midst of negotiating and finalizing the numbers. But the progress has been there when it comes to discussions. For OTTs such as Netflix and Disney+, we are working with them very closely. This could be a more firmer number. Now on the pre-buys or the pre-sales, we have talked to Amazon, Netflix and Disney+. We are currently coordinating with the numbers, but I do see that the company will be able to pre-sell or pre-buy eight titles.
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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 Yong hyun Choi from KB Securities. Please go ahead.
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Yes. Your loss numbers were there, but I do believe that you have seen some improvement when it comes to financial structure with improvement in your borrowing. Is it to do with PRS with Netmarble stocks?
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Yes, it is true that through the PRS contract with our Netmarble shareholdings, we have seen some improvement of financial structure. We have used the proceeds from our PRS deal to pay back our borrowings. It was not only that. We added more efficiency to our production, and we have seen optimization of our production and development capabilities. With that, our operating cash flow increased. With this cash flow, we were also able to service back some of our borrowings.
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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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Once again, if you have a question, please press asterisk one asterisk and one.
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Since there are no further questions, I would like to end today's earnings release session here. I do believe that you were rather disappointed in our lower than expected numbers due to many of our one-off influences. As we have communicated with the market, we have been on a turnaround stance since the first half of this year. As you are well aware, the media environment, the media industry as a whole, the whole value chain, is experiencing much difficulties. This is an external environment. As the number one leader and the number one player in the industry, we are continuing to improve ourselves and develop the processes further. You may have seen somewhat of a lower than expected numbers.
But as was mentioned, we are on an improvement path going forward, and we will be delivering more detailed information during our roadshow that is scheduled for next week. Thank you.
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I once again thank you for your attention. And with that, we will be ending Q3 2024 earnings release by CJ ENM.
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This concludes the fiscal year 2024 third quarter earnings release by CJ ENM. Thank you for your participation.