Studio Dragon Corporation (A253450) Earnings Call Transcript & Summary

[Interpreted] So excluding Fifth Season, well, if it comes to CJ ENM and our subsidiaries for the production cost that we could [indiscernible] [ KRW 850 million ]. This is for our overseas content not external sales. So for CJ ENM, the cost stands at [ KRW 740 million ], which is excluding what we require from TVING originals. So [ KRW 600 billion ] was budgeted. And on top of that, KRW 140 billion goes for TVING. And with these numbers, I can say that it's a slight increase as the production cost that we saw last year. But as was mentioned during the presentation, we are working on it to add more efficiency and doesn't make any redundancy when it comes to cost. Yes. Well, as was mentioned in the previous answer, we will be spending to create originals with TVING and the budget remains more or less the same as what we have executed in year 2022. We are seeing our subscriber base has increased and also our revenue number increased. And as was mentioned before, our key [indiscernible] throughout the remaining quarters. So we work -- we are going to see some improvement in our numbers in Q2 to Q4. So with that, we would be requiring no additional external funding. We could [ fuel our use of ] cash we generate. Yes. Now on your third question, which was on asset securitization. Yes, we did execute a big-scale investment back in year 2022 leading to added burden on our financials. And as was mentioned in February, we did come up with a list of the investment assets. that could be up for sales. And they are, of course, non-core assets not related to our direct business. And 3 months have passed since February and we implemented some of the quicker ones. And most of the listed up divestment plans, it needs a counterparty. So we are currently reviewing the very -- the various possibilities, and we are preparing to execute these deals. And for the last part of your question, do we have any time to sell of our business units or divisions? The answer is no.

[Interpreted] The next question will be given by Ms. Lee Hazel of NH Investment Securities.

[Interpreted] Yes. I have 2 questions. First is on your tvN Wednesdays and Thursdays slot. You have discontinued it and what kind of influence do they have on CJ ENM and Studio Dragon. This is my first question. And my second question goes to Steve. As a follow-up question to the previous one. You've mentioned delivery of 24 to 28 titles in 2023. Could you please give us the percentage wise count to dramas, films and documentaries. And my last question goes to TVING. Well, we are seeing the increase of production costs. And with that, we do see an increase in your numbers as well. So are you going to stick to your more expensive content strategy or will you be changing directions?

[Interpreted] Yes. Let me address the first question, which is on the discontinuation of Wednesday, Thursday drama slot. This is not a discontinuation but adding more flexibility to our strategy. Instead of having dramas for the Wednesday, Thursday slot, so we're going to have non-script format and also a successful TVING provisional content to be aired on Wednesday and Thursdays. And the influence to CJ ENM. Well--it would be associated with smaller production cost compared to the drama format. And as for Studio Dragon, well the title setting supply to us could see somewhat of a decrease, but since Studio Dragon has such a healthy third-party clients, so I don't think it would really be influencing them.

[Interpreted] Yes. This is [indiscernible] of Studio Dragon. We've given out the guidance for the number of titles that we're going to supply and it had already taken into consideration, the discontinuation of the Wednesday and Thursday slot. So our stance remains the same. And as was mentioned by Mr. [indiscernible], we're going to also focus on hybrid distribution, and we would also be working on developing new platforms too.

So -- answer only in English on this one as well. So the question was around 24 to 28 title guidance, what's the breakdown of between TV series, the film and doc. And before I answer that, I think it's important to note, obviously, traditionally, Fifth Season has been strongest and with roots in TV dramas and TV series. So that's been the historical strength of the company, and it will be such as well in 2023. That said, from there are many ways to understand the distribution of the titles from a pure numerical perspective. I'm a little hesitant to give exact numbers. But roughly speaking, dramas, by number of titles would be less than, for example, documentaries because the average sort of budget and revenue of the TV series is orders of magnitude greater than the typical documentary. So while there are fewer numbers of titles from a proportion of importance in terms of revenue, the TV series [ plays ] is probably of the most importance. So I think that's one way to answer, I think, your question to give you a better idea of the importance of the title and the distribution between film, documentary versus television.

[Foreign Language]

[Interpreted] This is the CEO [indiscernible] from TVING speaking. Well, we think our content investments as a portfolio investment. So within the portfolio, we have tentpole titles and also titles that are associated with smaller budget, but value for money. And we try to optimize the mix that is delivered to our diverse -- well, the mix. So in your question, you said -- there could be an increase in that with the strengthening of our subscriber bases. And if the same amount of investment going in for our titles, we believe the profitability of our business will improve going forward. As was mentioned by Mr. Hong from Media Platform, we will be enjoying more synergy with tvN as well.

[Interpreted] The following question is from [ Mr. Kim Dong-jin ] of CLSA.

[Interpreted] Yes, we have [indiscernible] and relative use coverage when it comes to Studio Dragon. While the OTT and TV business, is there not this could be. So realistically speaking, how much of the growth do you expect in the number of titles that you can deliver? Could you give us the guidance on that platforms? Well you're working with Netflix, Disney Plus, Amazon Prime, [indiscernible] different OTTs. We have even heard that Netflix limited in their expansion activity. So if you could give us some more guidance on these issues that would be much appreciated. And well, Netflix once again. Your new contract with Netflix. The market seem to have some misunderstanding of it or it seems to have a different understanding. So could you give us your -- further information on what kind of margin upside you can enjoy with the new terms and conditions with Netflix? And when will these new terms and conditions [indiscernible]? And well congratulations on confirmed Season 2 of The Big Door Prize. And when will it be reflected in your revenue numbers, your sales number? And now once again, back to your overseas drama production. When can we see some meaningful titles -- steady title production from your overseas activities by when?

[Interpreted] Yes, I do understand the concerns and expectations for the OTT and TV market. Well, when it comes to Netflix, they have recently announced their continued investment and interesting in key drama. And on top of that, we are seeing increase in interest from new platform players such as Amazon and Apple that have yet to make big investments for Korean content. And going forward, we do expect to see diverse contracts from diverse platform players. And as to the number of our titles. Well, each title, they are now seeing production cost increase so rather than increasing the number of -- absolute number of titles, we will be working on improving the hit ratio and also the volume and margin associated with each different titles. And we hope to get the best contracts with different platforms. And now on our renew contract in Netflix. I can say that the general terms and conditions with the new contract is better than the previous one. And there is a reflection of [ prebuy ] too. But when it comes to original, the revenue is recognized at the time of delivery. So we will be seeing improvement in our numbers starting from next year when our delivery begins. And now on Big Door Season 2, we are currently working on the production of it. And at this given point in time, we do expect to see delivery happen at the end of year '23, but we would have to update you on the exact schedule as things progress. And for meaningful and steady number of titles to be created overseas, in particular [indiscernible]. Well, we do hope to see some tangible results this year. And after '24, we do hope to see about 2 titles created overseas.

[Interpreted] The next question is from Ms. Hyunji from Eugene Investment and Securities.

[Interpreted] Yes. I have 3 questions. First is on TV ad. Well, I know that TV ad market is quite difficult to predict, but do you think you have bottomed out that the TV ad market has bottomed out in Q1? Or will Q2 be as difficult as Q1? And when do you expect to see a recovery of the TV ad market? This is the first question. And second question goes to TVING. I believe that we were giving the guidance of 5 million subscribers of TVING. Do you still maintain your position? My third question goes to Studio Dragon. I might have noticed because of poor launch mission of your U.S. drama. Did you say 20 titles. Because I thought it was going to be about 10 titles. So have you won any new contracts with the new platform. And you talked about you're seeing tangible results in the overseas market. Is it related to Big Door 2 or are you talking about a brand new title?

[Interpreted] Yes. If may address your ads market question first. As you're well aware, the TV ads market has seen a Y-o-Y minus 30% in growth in Q1. And it's quite difficult to predict what will happen going into the future. But having said that, I do see is that there will be some improvement in Q2 on a Y-o-Y basis. Well, our basis is the increase of advertisers in Q2 compared to Q1, we see more advertisers come to the ad market. And with that I cautiously think that in the second half of this year, things will start to improve.

[Interpreted] Yes. Well, this is from TVING. As you're well aware, the market is quite volatile. There are various challenges and also opportunities out there for us. And we may not be reaching the 5 million subscriber bases that we have mentioned. There is a big possibility of that. So we should be working on upgrading our existing subscriber base because [indiscernible] on larger screen TVs and also with higher-resolution TVs. So we are thinking of moving up the planned scheme to our existing subscribers.

[Interpreted] Yes, this is Studio Dragon. You've heard the number correct. It's 20 IPs versus the stronger market. Well, it's in diverse format. They include Korean IP remake in the U.S. market and also Korean and U.S. originals. So we have plans to work on it alone. And for some titles, we will be working together with a U.S. company for development and production, too. And the tangible results that I talked about for year '23 includes the results from Big Doors -- The Big Door Prize Season 2 and one new order that we're currently working on.

[Foreign Language] [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]