CJ ENM CO., Ltd. (A035760) Earnings Call Transcript & Summary

[Interpreted] Good afternoon. This is [ Kay Choi ] from CJ ENM's IR team. I thank the shareholders and analysts for attending our earnings presentation. We will now begin the results presentation of CJ ENM for the third quarter 2020. Please note that the financial and management results presented today have yet to undergo an independent auditor's review and could be subject to future changes. Today, here with us, we have CEO, Min-hoi Heo; and COO, [ Kap-mun Song ]; and the heads of different business divisions. So we have Mr. [ Park Yong-Ju ], Executive Vice President; and Executive VP, [ Hong Ki-Song ]; and from Media, we have Mr. Lee Myung-Han; and from also Media Content, we have Mr. Lee Seong-Hak; from Commerce Business, we have Mr. [ Chong Yong-Chan ]; from Pictures Business, we have Ms. [ Jin Hee Hiti ]; from Music Business, we have [ Oh Gong-Ju ]; and from Studio Dragon, we have CEO, Kang Chul-Gu; and we also have CEO, Jay Yang from TVING. First, CEO, Min-hoi Heo will brief us on major results and business strategy.

[Interpreted] Good afternoon. This is CEO, Min-hoi Heo, of CJ ENM. The TV ad market, theater and live revenues, including that from concerts, continue to be sluggish with the ongoing influence of COVID-19. However, the company was able to realize profit growth based on content and commerce competitiveness. In particular, we are fast enhancing our digital strategy. The digital sales of our media business stood at an accumulation of 21.9% in Q3 and digital sales of commerce also grew to 45.4%, which is a much faster growth than what we have seen last year. Thanks to the shareholder support, the spin-off of our OTT TV has been successfully completed. And through subscriber expansion and with enhanced content, it is ready to grow into a premium platform. The media business is seeing clear signs of positive anticipation and viewership improvement. New scripted and non-scripted formats will continue their success in Q4. With picture strategy to minimize risk and with new music artists, these businesses will also aim for new growth. The commerce business will enhance TV competitiveness and is accelerating their strategy to further fortify mobile commerce. As was disclosed, the company has completed its strategic soft swap with Naver. Through active business collaboration between the domestic #1 platform and #1 content business, we will maximize synergy. Going forward, CJ ENM will do expect as a media commerce corporation that provides premium content to the global market. I thank the shareholders and analysts for their time. Thank you. Now we will give you the results, quarterly and yearly results [indiscernible] from K-IFRS the consolidation numbers. With sales of CJ Hello, Y-o-Y comparisons are on a pro forma basis. Jae Min Baek will walk you through the presentation.

[Interpreted] Good afternoon. This is Baek Jae Min of CJ ENM. The consolidated revenue for CJ ENM in Q3 was at KRW 798.6 billion, which is a decrease of 12.2% Y-o-Y, but an increase of 17.9% Y-o-Y for operating profit at KRW 71.0 billion. COVID-19 continues to influence TV ads and live revenues, but media and commerce digital revenue continued to grow rapidly. Through efficient production cost execution, the media business recovered profitability. The commerce business, with a focus on TV, led to outstanding profit growth. Music business continues to see improvement in profitability, contributing to overall [ profit ] growth. The media business will continue to add content competitiveness and popularity and enhance digital business. Commerce will focus on [ FW ] product programming strategy and also enhanced mobile product competitiveness. The pictures business will continue to strengthen in-house production, and music will focus on in-house artist nurturing strategy. Page 5, Media. Media revenue at KRW 370.6 billion saw a decrease of 13.2%. However, operating profit at KRW 29.3 billion saw an 82.1% improvement. TV ad saw a negative growth of 17.0%, but the digital revenue continued its fast growth at 34.4%, including the 34.6% growth of TV paying subscribers. Production efficiency increased with the per episode production cost cuts and co-airing. With that, operating margin increased 4.1 percentage points over the previous year and recorded 7.9%. In the coming quarter, we will also renew our efforts with Start-Up, True Beauty and other non-studio formats. And we will also be working on digital brands. Page 6, Commerce. Third quarter corporate revenue at KRW 344.3 billion, increased 2.5% Y-o-Y and OP at KRW 42.4 billion increased 44.2% over the same period. There was a focus on contact-free-related programming strategy, especially in the food and living categories. Digital revenue continued its rapid growth at 24.7% Y-o-Y. Thanks to the AtG, Secret and Odense, private brand grew 12.8% in terms of GMV. With a strategic focus on higher-margin categories, OP margin increased 3.5 percentage points to 12.3%. There will be stronger attention on fall/winter portfolio per category, including fashion, living and electronics in Q4. TV lineup will be enhanced in areas such as fashion and sports. Mobile platforms, such as flagship store and shop life will be upgraded. And with expansion of digital-only products, our digital strategy will be accelerated. Page 7, Pictures. Pictures reported a revenue of KRW 36.9 billion with operating loss of KRW 4.1 billion. Deliver Us From Evil recorded an attendance number of 4.36 million people, but the overall downturn continued, leading to slow box office and musical numbers. Going forward, in the fourth quarter, we will be also be focusing on project risk management, and we will also be responding to the fast-changing market conditions. In the month of November, we have plans to release Collector; and in December, Seobok, and we will be focusing on in-house planning and production. Page 8, Music. Music revenue was at KRW 46.9 billion, with OP of KRW 3.5 billion in Q3. Live revenue, including concerts' revenue growth, but online, including IZ*ONE concert continues. Thanks to IP library sales, album and single sales was at a sturdy number of KRW 40.7 billion, leading profitability improvement. New album release of IZ*ONE scheduled in Japan and Korea in the fourth quarter, and Enhypen is waiting for a successful debut. Going forward, the music business will continue to improve profitability, with a focus on core business areas with artists, albums and singles. Now we will be hearing a presentation from Studio Dragon.

[Interpreted] I will brief you on Studio Dragon Q3 results. With ongoing COVID-19, the number of titles produced in Q3 decreased. There was also a high baseline effect with last year's Arthdal Chronicles and Hotel Del Luna. With these influences, revenue decreased 19.0% Y-o-Y and reported KRW 106.3 billion. However, our library-based sales to Chinese OTTs and sales-type improvements and production cost efficiency greatly improved profitability. Our operating profit increased 46.8% Y-o-Y at KRW 16.0 billion. In Q4, we will improve success rates by using webtoon IPs, such as True Beauty, The Uncanny Counter and Sweet Home. In the case of Sweet Home, the title will be volumed up as Netflix original and lead the overall topline growth. At the same time, we will continue our efforts in library sales and enhance production cost process management and bring about fundamental business improvement. Now on to the Q&A. [Operator Instructions]

[Operator Instructions] [Interpreted] The first question will be given by Kim Hoi Jae from Daishin Securities.

[Interpreted] Yes. My question is related to your content sales to the Chinese OTTs. Is it the old type of library sales or as you've mentioned in the past of supplying 2 new original content, one by the end of this year and one in the earlier part of next year? So the Chinese OTT content sales, are you referring to the 2 titles that you've mentioned in your previous meeting or is it just old title library sales? And if possible, could you give us the number of titles that are to be sold to the Chinese OTT? And could you, if possible, elaborate on the size of the deal? And my second related question is, do you have other similar contracts with other global OTTs than the Chinese one?

[Interpreted] This is Studio Dragon's CEO replying to your question. So the Chinese-bound titles are not original. There are 2 library titles, and we have recognized the sales as our revenue. And please understand that I am not at liberty to disclose the amount. And as for our work with other global OTTs, as was mentioned, we are currently consistently pitching to other global OTTs, but we have yet to see a tangible visible result.

[Interpreted] The following question is by Kim Sunghwan from CS Securities.

[Interpreted] Yes, I have 3 questions. First is related to your TVING business direction. We've seen reports, but I would like to hear directly from the management on your ideas of TVING's business direction. You've mentioned the word premium and going global in your presentation, could you please give us more color on your direction with your TVING business? And if possible, could you please tell us the timeline related to your business direction? And you've also, I believe, have talked about strategic alliance with overseas players, so I would appreciate if you could give us more color on talking [indiscernible]. And also related to your TVING business, do you have any fund-related or investment-related goal in mind? Do you have a figure-wise goal in mind? And do you also have a plan in place or a good ball in place as to content investment? We've heard that one of your competitors is going to invest KRW 300 billion in content. This was an announcement by one of your competitors. So if possible, could you please tell us the proof of investment that you're going to make for your content for TVING? And my last question is related to the usage of your Studio Dragon stake. Even after your deal with Naver, I believe that you have more than 50% stake in Studio Dragon, and there are rumors or there are reports that you will be using this stake to enter into a strategic alliance with a global player. So could you please give -- shed us more light on this topic as well?