Studio Dragon Corporation (A253450) Q4 FY2025 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 Fourth Quarter Earnings Results by CJ ENM. This conference will start with a presentation followed by divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2025 fourth quarter earnings results by CJ ENM.

[Interpreted] Good afternoon. This is [indiscernible] from CJ ENM's IR team. I thank the shareholders and analysts for their participation in this earnings session despite their busy schedules. Now we will commence Q4 2025 results presentation of 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. Today, we have with us Jihyun Kim from Finance and Consumption from Strategy and Planning and heads of different business divisions. We have from Platform, [ Hyunju Lee; ] from Film, Ms. Jung Hyun-joo; from Content Distribution, [indiscernible]; from Global, Jiyeon Kim; Music is represented by Young-joo Ok and Ms. [indiscernible]; from Entertainment, we have -- from Commerce, we have [ Kim Hyun-soo ]; from Studio Dragon, we have Ms. [indiscernible]; from TVING, we have [indiscernible]; and from CJ ENM Studios, we have CEO, [ Yong-Soo Ha ]. First, there will be presentations on major results and business strategy.

[Interpreted] Good afternoon. This is Jihyun Kim from Finance. In 2025, the company saw tangible results of global expansion together with strengthened competitiveness that comes from business model enhancement. First, on Content. CJ ENM's content [Technical Difficulty] in 2025, FUNdex ranking for 27 makes. Major dramas and nonscripted entertainment programs recorded outstanding results and high popularity. Out of 10 best K-dramas of 2025 selected by U.S. Times, 5 were streamed on TV. His & Hers produced and delivered by Fifth Season last year was ranked as #1 global TV show on Netflix after its release earlier this year. The company realized a diversification of profit model, which starts from preplanning, fan meetings to good sales that enables multifaceted long-tailed profit generation with strategic IP design as was demonstrated with Bon Appetit, Your Majesty. Marry My Husband, the Japanese Amazon Original drama recorded top ratings ever in 2025. Many other dramas were produced and aired this way, cementing our global production capabilities. With enhanced daily content and platform services, TVING's AVOD subscriber number increased and advertisement revenue grew 84% Y-o-Y. The company secured a firm position as a K-content global hub with HBO Max Southeast Asia and Disney+ branded Zone services. And established content-based ad Plus Chat and album MD business model. And with that, saw rapid growth of Q4 average MAU of 270% compared to Q1. The platform confirmed its potential with 2025 revenue witnessing an exponential growth of about 250% Y-o-Y. Commerce is evolving into a [Technical Difficulty] offline pop-up store and expanded marketing channels that covers SMS and OTT platforms, inviting new customer traffic centering on the MD customers. Thanks to collaborations with influencers and fandom commerce expansion with strength in short-form content, the company is seeing stronger mobile live content competitiveness. With the introduction of fast delivery paddle delivery and expanded specialized stores with faster delivery, the business is enhancing its services. Accordingly, MLC has grown 66%, continuing top line growth. Next is our midterm strategy after 2026. CJ ENM will continue to grow its competitiveness with content platforms that gave us excellent results in 2025. And with that, I have given you the major presentations for our results in 2025. And with that, now let's move on to talk about our long-term strategies that will continue in year 2026.

[Interpreted] Good afternoon. This is Keun-sup Shin from Strategy and Planning. CJ ENM will engage in the strategy to transition into an IP and platform-centered business structure and to fully expand to global markets. First, for content IP. The company will focus on developing global IP and securing rights. By expanding local production hubs centering on the U.S. and Japan, the company will evolve into a global content IP holder. We will enhance our competency as an entertainment company with stronger planning, production, management and talent discovering functions and with global multi-label expansion, the company will expedite our artist business growth with MTS-based national and regional mega hit IP. Dealing in the digital platform space will continue to discover representative mega IPs and offer innovative experience and differentiated content with KBO broadcasting, short- and live. The platform will enhance its status as a daily platform and will focus more on overseas expansion that started last year with branded zones. Mnet Plus, our other platform will see enhanced original content production targeting K-pop core fans with fan-directed products and services design will advance its business model and lay the foundation to grow as the global #1 K-pop fandom bound OTT platform. Now on AI, which is the core technical factor in future content industry. The company will create new AI-based content in animation and movies and by establishing a network comprised of entities from the public, private sector and the academia will lead the AI ecosystem. The company will accelerate the adoption of AI in all production stages to enhance process and quality and also reduce production costs. Lastly, for commerce. The MLC business model will be strengthened with increased influence of pools and short forms with enhanced system and infrastructure. By combining data analysis and trend capturing capabilities, the business will establish a system of high mix, low-volume sourcing to address diverse customer lifestyle and expand into new categories, thus enhancing our MD competitiveness. Next is our results presentation. CJ ENM's results are based on consolidated K-IFRS numbers and internal transaction on different businesses have not been carved out. Now our results for Q4 2025. Next, I will talk about the results for the fourth quarter of 2025. Revenue reached KRW 1.4378 trillion, a decrease compared to the previous year, but operating profit recorded KRW 86 billion, more than doubling on a Y-o-Y basis. I will go over the changes in AP of different business segments based on figures before consolidation adjustments. In the Entertainment business, revenue decreased due to a high base effect from Fifth Season's major series, seven Season 2 from the same period last year, but operating profit improved significantly, thanks to reduced losses in TVING, improved profitability of Fifth Season strengthened distribution of drama content and reduced losses from LiveCity. Commerce revenue and profit grew due to high season effect focusing on fall/winter fashion and the continuous expansion of mobile live commerce. From Page 6, I will discuss the performance of each business segment and our outlook for the second half of the year. Despite the decline in TV advertisement revenue due to a continued slowdown in the advertising market, the Media platform's revenue increased, aided by the inclusion of Wavve. In particular, TVING reduced its operating losses, thanks to a high growth in advertising revenue driven by original hits such as Exchange 4 and Dear X, as well as contributions from overseas branded zones. In 2026, subscribers will continue to increase through strengthened partnerships and bundles. The company plans to achieve performance growth through advertising revenue increase based on the integrated TVING-Wavve ad operations and by becoming a key content hub centered on several branded zones. On the channel side, we will defend revenue and secure platform competitiveness by strengthening integrated TV/OTT IP programming and continuously advertising products that link linear TV and digital. Profitability for films and dramas has significantly improved, thanks to strong distribution sales of Fifth Season, cost efficiency as well as robust sales of E&M Studios dramas to Netflix and Amazon and expanded sales of both new titles and libraries to new overseas sales partnerships, including HBO Max, Disney+ and others, despite the high base effect with the supply of major IP [Technical Difficulty] in the same period last year. In 2026, we will continue simultaneous broadcasting with global OTT platforms while expanding [indiscernible] reference by discovering new partnerships centering around Japan, Southeast Asia and North America. Additionally, we will increase profitability based on hit IPs such as the musical, Spirited Away and strengthen our global presence by securing mega [Technical Difficulty] franchise IPs. Despite the investment costs incurred for the growth of Mnet Plus, music achieved the highest profit for the year, thanks to strong album sales from INI, JO1 and others. Record-breaking results from 2025 MAMA and pre debut results from advertising and fan club subscriptions for ALD1. In 2026, we will focus on growing domestic and international sub revenues through artist expansion while increasing Mnet Plus traffic centering on human IP and in-app content. Additionally, we will grow synergies and strengthen business competitiveness by broadcasting global live performances such as MAMA and KCON through Mnet Plus, which will diversify our revenue sources. Commerce saw significant profit improvement Y-o-Y as MLC transaction volume continued to grow, maximizing the benefits of peak season driven by strong fashion sales in the followed equities and the expansion of short-form and influencer commerce. Notably, the upgrade of the broader delivery infrastructure and the strategic management of fandom portfolios like Labubu strengthened traffic and retention amongst the MZ generation, which is a remarkable achievement. In 2026, we plan to diversify customer lifestyle categories based on trend data analysis and expand product planning to influencer commerce and [Technical Difficulty] differentiated IP formats such as [indiscernible] live that only E&M can offer. Additionally, through the expansion of SMS OTT channels focused on short-form content, we aim to establish a growth structure for the commerce platform. For details, please refer to the documentation. Now we will deliver you the results presentation of Studio Dragon.

[Interpreted] Hello. This is [ Hemi Lee, ] CFO of Studio Dragon. I will share our business performance for the year 2025 and the fourth quarter. Year 2025 was marked by a clear contrast between the first and second half in terms of performance. Some titles in the first half showed lackluster performance in viewership, leading to sluggish programming and sales. However, in the second half, key titles such as Bon Appetit, Your Majesty, Genie Make a Wish and Dear X achieved notable success, both domestically and internationally, significantly improving our performance. The total number of episodes aired in the second half stood at 130, an increase of 25 episodes compared to the same period last year, indicating a recovery in our lineup. Furthermore, the expansion of presales and the improvement in the hit ratio enhanced sales efficiency, resulting in a turnaround of results. With that, the company recorded an annual revenue of KRW 530.7 billion and operating profit of KRW 30.4 billion. In the fourth quarter, increases in the number of aired episodes and presales as well as sales of older titles in the TVING brand section were reflected. And as a result, programming revenue grew by 33.9% Y-o-Y and sales revenue by 4.9%, achieving sales of KRW 145.9 billion, operating profit of KRW 18.5 billion with an operating margin of 12.7%. In 2023, we plan to normalize the lineup with more than 25 titles through expansion of terrestrial and global bound originals, and we will also focus on production efficiency, improving utilization of AI. Additionally, we will actively pursue new businesses such as commerce and digital, aiming to shift an IP centered structure. Thank you for your attention.

[Interpreted] Now we will be entertaining your questions. Given the time constraints, please limit your questions to 3 each centering on core issues.

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

[Interpreted] I have 3 questions. First is related to advertisement revenue. Well, compared to the numbers that you have given us, well, I think that your ad performance is rather low. So what is your outlook for ad market recovery in year '26, especially for the TV ads? And my second question is related to your overseas production hub. In your presentation that you mentioned that you will be expanding your overseas production hub activities centering around the U.S. and Japan. So could you please give us a status update of what you're doing overseas, mainly in Japan? And my third question is related to your nonoperating expenses. The number seems quite high. So could you please give us a more detailed explanation on the nonoperating expenses.

[Interpreted] Yes. Well, I'll give you my answer for our outlook in the TV ad market. In year '26, we do expect to see a steady decrease when it comes to linear TV ad market because the advertisers, their focus is more now on performance. So they will tend to move to the digital platform ad space, which is much more cost effective. But CJ ENM is in a different position to all other local players because we have a digital platform that is TVING and Wavve. So we will be providing the market with linear TV plus digital ad opportunity. That's what sets us aside.

[Interpreted] Yes, this is the answer provided by Studio Dragon. When it comes to our U.S. and Japan production hubs. Well, we will be working together with the U.S. and Japanese legal entities that belong to CJ ENM, and we will also be working together with the local partners there in our planning and production stages. So Marry My Husband last year gave us great success in the Japanese market and building on our success. So we have a title that is on Netflix, which we plan to deliver in the first quarter. It's called the Soulmate. And as you're well aware, the production and production cycle in Japan is quite quick. With that, we hope to deliver the tangible results in the year 2026. And as for our activities in the U.S. territory, we do have about 20 titles that is currently under development and planning. But as you're well aware, in the U.S., we have to go through various stages and processes to deliver actually a title. And the best candidate that's close to series order -- number back 3. We're continuously tapping with these candidate titles.

[Interpreted] So our net operating -- nonoperating loss is at KRW 136.3 billion. Much of it was related to our copyright loss and also the intangible asset losses that belong to Studio Dragon and goodwill right. And also, there were equity method losses amounting to [ KRW 15 billion ] and intangible asset losses of KRW 47 billion and financial losses amounting to KRW 58 billion. So on a Y-o-Y basis, there was a decrease of KRW 48 billion. So on an amount basis, there was a decrease by KRW 25 billion compared to the previous year.

[Interpreted] Next question, please.

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

[Interpreted] Yes. I have 3 questions. First is on revenue and opening on the TVING and Fifth Season fourth quarter. And if possible could you give us a guidance for this year's revenue and operating profit for TVING and Fifth Season? And my next question goes to commerce. I see that there has been significant profit improvement. Is it because of the change in your accounting practice? Or was there actually a good reason behind your profit increase? And my third question is related to the business entering into branded zones of different OTTs. So what was the profit recognition related to the branded zones [Technical Difficulty]

[Interpreted] So I will give you the Q4 results for TVING. Our revenue stood at [ KRW 118.8 billion ] with an operating loss of KRW 4.1 billion. And as for Fifth Season, well, Q4 revenue stood at [ KRW 184.7 billion ] with operating profit of [indiscernible].

[Interpreted] So this is an answer for your guidance request from TVING. So as was mentioned in our previous answers in the presentation, in the fourth quarter, we saw the lowest loss number ever at KRW 4.1 billion. And it was achieved in a quarter without the KBO season. And thanks to the subscriber base increase with also the advertisement income increase. And we also saw good results from our [Technical Difficulty] international sales. So it's quite meaningful in that, that we've laid the basic structure or the basic foundation that will give us income in the years to come. So in the year 2026, we saw the structural improvement. And with this structure now in place, we expect to see a further decrease of our loss numbers going forward. Of course, we would have to invest some more going into the future to secure our top line growth in the future. So we would have to spend for some quarters. And with that, we conservatively expect some quarters to give the breakeven points and some quarters to record a better number.

[Interpreted] So this is from Fifth Season. Well, we do have a line of 3, 4 titles in '26. We are waiting for some more green light. So we are making this preparatory [Technical Difficulty] working together with our platform partners and also with distribution channels. And we will be working towards securing a good margin. So going forward, also in year 2026, our focus will be on profitability and not just the top line numbers.

[Interpreted] Yes. And if I may give you the results or the answer or comment. Well, there has been no accounting changes. So the accounting rules remain the same. The improved result was from our own efforts. Well, as was noted in the presentation, we had a very good operating results for Q4, focusing on our fashion offerings, the brands. The sales performance was excellent with our fashion section and the beauty category and the health functional approved, they are associated with better profitability, and these sectors performed well in the fourth quarter. And our brand subsidiary they also gave us good results, adding to our positive number. And we've continuously engaged in profit cutting or -- cost-cutting measures, including adjustment of labor. So these activities together led to a better number for us in the Q4.

[Interpreted] And this is Hemi once again answering to your branded zone results question. Well, we cannot disclose the exact numbers, but I would say that the amount recognized will be difficult enough to cover much of our production cost. We do have a healthy number of titles that will be released into the market in 2026, namely about 10 to 20 titles. And going forward, we also expect to see much of a regroup from our branded zone activity.

[Interpreted] Next question, please.

[Interpreted] Currently, there are no participants questions. [Operator Instructions] The following question is from Lee Hwa-Jung from NH Investment Securities.

[Interpreted] I have 2 questions. The first one goes to Fifth Season. I see that the revenue itself for Q4 is smaller than revenues in Q3. But having said that your profit numbers are better. So was there a sort of a package there that helped you boost up your numbers? This is my first question that goes to Fifth Season. And my second one goes to Studio Dragon. I believe that you'll be releasing 4 more titles this year compared to year 2025. And do most of the new additions go to the Wednesday, Thursday slot?

[Interpreted] So this is [Technical Difficulty] yes, as you rightly mentioned, our profit numbers were better in Q4. It's because we have more distribution type revenue, which is associated with better profitability and it also diversifies our profit sources, including producing services and also equity method gains. And in year '25, we have stellar results and with [Technical Difficulty] and that has given us an incentive amounting to USD 2 million. And we've continuously work on cost efficiency or [Technical Difficulty] profit number this time.

[Interpreted] And as for your lineup-related question that goes to Studio Dragon. Well, currently, for the Wednesday and Thursday slots, we have one title. I'll give you the universe. This is the only one. And you see an increase in the number of titles to be provided this year because of our extended work with the non-captives. We have plans for the terrestrial broadcasting companies, including MBC, KBS and SBS. And we also have plans with the originals for Netflix and Disney+. So based on this in-house planning capabilities, we will be working on to enhance our titles and lineups.

[Interpreted] Next, please.

[Interpreted] Currently there are no participants with question. [Operator Instructions]

[Interpreted] If there are no more questions we will be ending our Q&A session here. I once again thank the participants. And with that this concludes Q4 2025 CJ ENM's earnings session. Thank you.

[Interpreted] This concludes the fiscal year 2025 fourth quarter earnings results by CJ ENM. Thank you for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]