CJ ENM CO., Ltd. (035760.KQ) Earnings Call Transcript & Summary

Good morning, and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the Fiscal Year 2025 Third Quarter Earnings Results by CJ ENM. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2025 third quarter earnings results by CJ ENM.

Good afternoon. This is [indiscernible] from CJ ENM IR. I thank the shareholders and analysts for taking time out of their busy schedules to participate in our earnings section. Now we will begin CJ ENM's 2025 Q3 earnings report. Please note that the financial and management results presented now have yet to undergo an independent auditor's report and could be subject to changes upon such review. Today, we have heads of different businesses and our CFO [indiscernible] with us. From Media, we have [ Ki-Sung Hong ]. From Music, we have Young-joo Ok. From Film, we have [indiscernible]. And from Global, we have [indiscernible]. From Commerce [indiscernible]. And from Studio Dragon, we have [indiscernible]. And from TVING, we have CEO, [Ju-hui Choi ]. And from CJ ENM Studios, we have CEO, [ Ha Soo Young ]. First, CFO [indiscernible] will brief us on major results and business strategies.

Good afternoon. This is CFO, [indiscernible]. With delayed turnaround of media platform in Q3 and difference in activity timing of music artists, our profit decreased in Q3 compared to Q2, but saw a slight increase on a Y-o-Y basis. Viewer rating and platform performances metrics improve and based on platform competitiveness, the company will strive for a company-wide profit improvement. First, on content. In Q3, dramas such as Bon Appetite, Your Majesty and Shin's Project achieved higher viewership ratings, continuing the quarterly upward trend in both viewership and buzz for major dramas. This is the result of consistently producing well-made content based on the ongoing enhancement of programming and production decision-making processes such as the improvement of the Green Light Committee or GLC and quality control or QC processes. Additionally, through the establishment of a strategic partnership with Warner Bros. Discovery, we have agreed to collaborate on the joint planning and production of premium K-content targeting the global market. This is a recognition of our K-content leadership and production capabilities and is expected to provide an opportunity to expand overseas results with strengthened influence in the global market. Furthermore, we continue to expand the foundation of global production and overseas distribution markets through joint production in Japan and the U.S. as well as distribution expansion in new markets such as LATAM and MENA. As for platform, TVING's advertising revenue continued its high growth trend with a 75% Y-o-Y increase in cumulative third quarter figures and it demonstrated the advancement of the advertising business model by launching an integrated advertisement platform with Wavve. The integrated advertising platform is expected to achieve differentiated results in the digital advertising space through competitive advantages such as economies of scale and maximizing marketing ROI based on a combined MAU of 10 million. Mnet Plus has smoothly built a circulating structure of content, user participation, community and commerce, maintaining a high top line growth and strengthened its position as a global fan interactive platform with monthly average daily active users in September, growing more than 1,000% compared to January. Onstyle saw high growth in MLC transaction volume through diversification of customer touch points and expansion of brand sourcing, including the expansion of omnichannel IP that simultaneously broadcast on mobile, TV and OTT using the same IP. CJ ENM will continue to enhance our content and platform competitiveness, which in turn will fortify our revenue growth and profit improvement. In concluding, I thank the shareholders and analysts for their support.

Next is the results presentation. Our major financial statement is on a consolidated K-IFRS basis and the operating profit numbers include internal transactions. Now the Q3 2025 results.

This is Jihyun Kim, Head of Finance. Sales in Q3 2025 amounted to KRW 1.2456 trillion, and operating profit reached KRW 17.6 billion, representing an 11% increase Y-o-Y each. I will go over pre-consolidated adjusted operating profit changes by businesses. The Entertainment business saw expanded content delivery sales from subsidiaries such as Studio Dragon and Fifth Season, but due to continued sluggishness in TV advertising, operating profit decreased compared to the previous year. However, commerce improved profitability through continued expansion of mobile live commerce and strengthened high-margin product portfolio. From now, I will discuss the performance by business segment and the outlook for the second half of the year. Media platform saw slower performance due to the sluggish advertisement market. However, the ratings of key dramas such as Bon Appetite, Your Majesty continued to improve. In Q4, the scheduling of anticipated titles like Typhoon Family and Pro Bono is expected to positively impact channel competitiveness. TVING is continuously expanding its double subscription plan with Wavve and is building a structural foundation to maximize synergies in the integrated OTT by newly programming the terrestrial live channels within TVING. In Q4, we aim to increase subscribers through the success of anticipated original titles such as Exchange 4 and Dear X, while pursuing global business expansion through launches of brand sections in Southeast Asia and Japan via HBO Max and Disney Plus. Film and drama achieved a turnaround, thanks to steady content delivery from Fifth Season, ongoing diversification of overseas content sales partnerships, the start of sales in new markets such as Latin America and the Middle East and box office results and overseas release of the film, No Other Choice. In Q4, performance is expected to be driven by global simultaneous OTT streaming of anchor IPs like Typhoon Family and Pro Bono, creating stable overseas distribution revenue. Through supplying content to global OTT platforms, including Romantics Anonymous and Soulmate, we will continue to strengthen production capabilities. Music saw an increase in revenue for Mnet Channel and Mnet Plus through the high performance of Boys2Planet, but profitability weakened due to a decrease in album releases and concerts by Japan's LAPONE artists as well as increased investment costs in Mnet Plus and new artists. In Q4, we expect improvement over the previous quarters of performance, supported by expanded tours, including MAMA and Zero Based 1 World Tours. Additionally, through the launch of new artists via Japan's HIP POP Princess, Korea's Alpha Drive One and Mnet Plus Original Planet C: Home Race, targeting the greater Chinese market, MCS, we aim to focus on expanding our artist pool and growing global music label revenue from 2026 onwards. Commerce profit increased Y-o-Y through top line growth based on strengthening core PB brands and focus on high-margin product portfolios such as beauty and health supplements. In Q4, we plan to enhance fashion and beauty product curation through mega promotions to respond to seasonal demand and improve profitability. At the same time, we will focus on strengthening customer experience through omnichannel IP expansion across mobile, TV and OTT platform and increased collaboration with trendy brands such as Pop Mart. For further details, please refer to the attached material. This concludes my presentation. Thank you.

Now, [ Kwang-Seuk Oh ] from Studio Dragon will continue with the presentation.

Good afternoon. This is [ Kwang Seuk Oh ], CFO of Studio Dragon. I'll brief you on our business performance for the 2025 third quarter. The total number of episodes aired in the third quarter was 72, an increase of 13 episodes compared to the same period last year. Thanks to the expansion of original content supply and strong licensing sales, we recorded a revenue of KRW 136.5 billion and operating profit of KRW 10.5 billion, achieving growth compared to both last year and the previous quarter. Furthermore, we achieved solid results in terms of content competitiveness. Bon Appetit, Your Majesty achieved a peak rating of 17.1% on TVN, making it the highest-rated program on TVN this year. And Bon Appetit, Your Majesty and Genie Make a Wish ranked first among Netflix global non-English series, proving our global competitiveness in both viewership and popularity. In the fourth quarter, Typhoon Family and Shin's Projects are running smoothly, and we will reinforce our content competitiveness through the launch of anticipated titles such as Nice Not to Meet You and Dear X. Additionally, we will accelerate the diversification of our business model through new initiatives, including expanding ancillary businesses that leverage our IP, building fandoms and developing common centers. Thank you.

Next, we will move on to the Q&A section. Given the time constraints, please limit your questions to three each centering on core issues.

[Operator Instructions] Currently, there are no participants with questions. [Operator Instructions]. The first question will be given by Lee Ki-hun from Hana Securities.

Yes. I will [ got to the ]translation to the 3 questions. The first question is on your TV advertisement. I see that the TV ad space has seen a decrease by 17%. However, we look at your viewership, it's doing quite well. So why the disparity? Why the widening gap? And what's your short-term view on this TV top line result. And in the 3 to 6 months time frame, what do you think will happen given that you're doing quite strong with content viewership? Do you think the advertisement market will follow suit? Or would there be a real decoupling between viewership and the advertisement income? And my second question is related to your overseas profit structure. For example, if let's say, there is a subscriber to Disney in Japan. And do you charge them according to the view according to how they watch the Korean content on this platform? So how is this business structured like? So this is my second question. And my third question is related to your music business. Well, could you give us a profit [indiscernible] profit for Mnet Plus only? And if it's recording a loss, do you have short-term plans to address it?

So this is Media answering your first question on advertisement. Well, it's true that the TV advertisement market in the first half did not see good results. As a whole, the space, the market size has decreased by 20%. And if you look at the TV advertisement market, most of it is upfront sales, presales of the advertisement slots. So the results tend to come after some time. So in the first half, as was mentioned, the space did not really perform well, and this has been reflected in our third quarter numbers and our results. This time around the result is really be felt in the fourth quarter numbers and the first half results of year 2026. I cannot say for sure whether the advertisement market as a whole will see a rebound, but we will do our best to defend our position with integrated advertisement and other tools in order to defend the market share.

So this is CEO, Ju-hui Choi, TVING answering your second question on the activities overseas. As you asked and mentioned in your question, I cannot give you the details, but we work with Warner Bro. and Max in Southeast Asia and Disney Plus in Japan. We do get a minimum guarantee as well performance [indiscernible].

Yes, this is the answer to your Mnet Plus question. Well, it's still in an incubation phase. We are still making investment for Mnet Plus. We've only started generating revenue of Mnet Plus in 2025. We have our IP such as KCON and MAMA in Mnet. And with these contents, we have reached a meaningful number in terms of MAU at 20 million and DAU at 7 million. So we're in the process of honing our IP. And we believe that in year '26, we will be able to double the current revenue level. And in the mid to long run, we will, of course, be seeing a turnaround when it comes to our revenue.

The following question is by Shin Eun Jung from DB Securities.