Studio Dragon Corporation ($A253450)

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2026 first quarter earnings resulted 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 2026 first quarter earnings resulted by CJ ENM.

Good afternoon. This is from [ Yuvan Chong ] from CJ ENM's IR team. I thank the shareholders and analysts for their time despite your busy schedule. Now we will begin the 2026 Q1 earnings report from 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 further review. Today here with us we have CFO [indiscernible] from Finance and we also have heads of various business divisions. From Media we have [indiscernible], from Media Solutions [indiscernible] and we also have [indiscernible]. From content distribution we have [indiscernible] and from Global Business Support we have [indiscernible]. First [indiscernible] will go over the major results and business strategy.

Good afternoon. This is CFO, [indiscernible]. Q1 2026 was a little [indiscernible] in terms of profit, but our midterm [indiscernible] strategies are well underway. [indiscernible] has continued an overall increase in subscribers with advertising revenue in particular maintaining a high growth rate of 45% over the previous quarter. This suggests that the strategy the company is pursuing to become a daily platform is being well implemented, supported by the solidification of the AVOD subscriber base as well as the effects of WBC broadcasting and exclusive IP. In addition, overseas content sales demonstrated a 31% growth, supported by the expansion of global OTT [indiscernible] lineup and the strengthening of nonscripted formats and music sales. New dramas and originals were supplied to global audiences through major OTT companies such as Netflix, Amazon and [indiscernible] while new and nonscripted shows and music content like Show me the Money [indiscernible] were provided to local platforms, thereby expanding the company's global presence as a leading [indiscernible] content producer. Although music experienced short-term profitability fluctuations due to the seasonality of Japan's [indiscernible] the album by Alpha Drive One recruited through last year's [indiscernible] recorded initial sales of 1.44 million copies, debuting successfully and further strengthening human IP. [Indiscernible] surpassed 44 million subscribers and revenue grew by 260%. This is demonstration of TVING's growth and a smooth progression to digital platform share. In the case of commerce, sales continued to grow, thanks to an increase in MOC GMV, [indiscernible] expansion of the content commerce IP universe and the expansion of the customer base through fandom IP. In Q2, to respond to the decline in the advertising market, we will focus on recovering advertising revenue through integrated advertising products that includes the digital resources of [indiscernible] as well as our [indiscernible] and group's resources such as [ ESS ] and [indiscernible] [ COOH ] along with advanced advertising product strategies like anchor IP sponsorship and celebrity targeting. Additionally, we will restore profitability through drama and entertainment content such as [indiscernible] Legend of Kitchen Soldier and Unplanned Trip: Limited Edition as well as music HIP and conventions such as [indiscernible] Japan 2026. In addition, to overcome the external environment of the continuously declining TV advertising market, the company is improving its business structure to maximize IP-based revenue generation through programming optimization, organization structure efficiency, establishment of organic internal and external collaboration system and diversification of IP revenue model. We expect visible results starting in the second half of the year. Furthermore, while developing maturing global mega IP, we will continue to accelerate to digital platforms such as, thereby improving growth potential and profitability in the medium to long term. Thank you shareholders and analysts for interest in and support for CJ ENM. This concludes my presentation.

Next, the results presentation. CJ ENM's results presentation is based on consolidated K-IFRS and has not carved out operating profit resulting from transactions among different business. Next, I will talk about the performance of the first quarter of 2026. Sales amounted to KRW 1.297 trillion, a 17% increase compared to the previous year. Operating profit was KRW 1.5 billion, showing slight improvement Y-o-Y. I will go over the changes in operating profit by business segment based on [indiscernible] consolidation adjustments. Entertainment business sales grew due to [indiscernible] consolidation. Strong content sales of [indiscernible] as well as increases in subscriber and advertising sales and operating losses narrowed compared to the previous year. In commerce, sales increased due to growth in mobile live commerce, driven by the strengthening of short-form content and influencer commerce. On Page 5, I will discuss the performance by business segment and the [indiscernible]. In the media platform sector, TV advertising experienced a decline due to the continued slowdown in traditional off-season period and overall TV advertising demand, but TV's revenue showed steady year-on-year growth, driven by strong advertising revenue from net subscriber increases and the effect of WBC popularity and inclusive content [indiscernible]. In the second quarter, we will focus on defending TV ad revenue and improving business structure through anchor IP centers, integrated solutions, covering broadcast, digital [indiscernible] as well as strengthening sponsorship sales capabilities. With the KBO season and the launch of the anticipated original content, TVING is expecting to increase subscribers and traffic, leading to simultaneous growth in advertising and subscription revenue and is projected to achieve high [indiscernible]. The film and drama segment experienced significant revenue growth due to fifth season's increase in sales and profitability from supply TV series such as American Classic, the expansion of China broadcasting lineup and [indiscernible] content sales through a wider number of suppliers to global OTT platform. In the second quarter, we concluded a new sales agreement with regional OTT platform as Japan's U-NEXT, North America's [ Vicki ]and Russia's Ivi while continuing to diversify local platform partnerships in new markets such as India and the Middle East. Fifth season anticipates temporary delivery gaps in TV series, but will focus on securing revenue through diversification of business model, including distribution and planning. Additionally, we will continue to expand the foundation for overseas co-productions through measures such as establishing joint ventures with Japan's TBS and U-NEXT and Taiwan's [indiscernible]. Music saw strong performance with [indiscernible] debut album selling 1.44 million copies. [indiscernible] and revenue growth [indiscernible] based on [indiscernible]. However, [indiscernible] the same period last year, which featured the large-scale concert [indiscernible] increased investment [indiscernible] for growth. In the second quarter, with the expansion [indiscernible] such as [indiscernible] and with the debut of new artists like [indiscernible] [ Princess ], album releases and other activities, label revenue is expected to grow. Additionally, through [indiscernible] Korea-Japan fan concert tour [indiscernible] tour [indiscernible]. Commerce revenue increased as the GMV of [indiscernible] commerce continued to grow at a high rate Y-o-Y, driven by the expansion of IP-based content commerce and strengthening of SMS sales focused on short-form content. In addition, mobile competitiveness is being enhanced as key customer acquisition and engagement metrics improve, including app downloads and app MAU, thanks to increased mobile investment. In the second quarter, we plan to secure random customers through strengthening collaboration with mega influencers and external partners such as KBO while actively promoting customer login through enhanced large-scale campaign promotions and expanded sourcing of cloud engagement products. Furthermore, we will continue investing in AI content platforms to promote growth [indiscernible] short-form content and sustain the growth of MLC through the advancement of data-driven influencer content. This concludes my presentation and should you require more information, please refer to the document provided.

May we have your attention, please. Background noise is currently being detected. To ensure smooth presentation and minimize background noise, we kindly ask that all participants other than the speaker keep surrounding noise to a minimum. Thank you.

We will continue with the presentation from Studio Dragon.

Good afternoon. This is Hye-Mi Lee, CFO of Studio Dragon. I will walk you through the business performance for Q1 2026. In the first quarter, we addressed concerns over content supply by expanding our lineup across TV and OTT and continued growth in programming and sales. The total number of broadcast episodes was at 91, an increase of 32 episodes compared to the same quarter last year and 33 episodes compared to the previous quarter, marking 3 consecutive quarters of revenue growth. However, profitability temporarily slowed due to an increase in project expense in the short term and the recognition of remaining amortization costs resulting from expanded presales in the previous quarter. Accordingly, revenue amounted to KRW 155.3 billion and operating profit KRW 6.4 billion. External difficulties such as economic uncertainties continue. But starting from the second quarter, we plan to gradually recover performances through expanded original content supply for terrestrial and global markets. With these cost burdens, performances of major anticipated titles such as Yumi's Cells 3 with fetch us better results. In addition, the company will strengthen domestic and international content competitiveness and global scalability through enhanced programming strategies and diverse portfolios while actively developing an official YouTube channel and commerce-linked businesses to expand drama from a single product to an IP-based platform business. Thank you for your attention.

We will now entertain your questions. Given the time constraints, please limit your questions to two each [indiscernible].

[Operator Instructions] The first question will be given by Shin, Eun Jung from DB Securities.

Yes, I have 3 questions. First is on the revenue and operating profit or loss numbers for both tvN and [indiscernible]. My second and third question is relation to Studio Dragon. In your presentation, you mentioned temporary expensing and this leading to a lesser-than-expected profit numbers. So could you please elaborate what the temporary expensing was about? And my third question is also to Studio Dragon. You talked about using your IP for [indiscernible] services. You talked about making your IP platform. And I believe that in your previous presentation, you said you will begin with [indiscernible] Yumi's Cells 3. But till date, I don't see any effort [indiscernible]. So has there any changes to your response.

Yes, I talk about TVING's revenue and operating loss numbers. Our TVING's revenue stood at KRW 101.3 billion with an operating loss of KRW 19.2 billion. So for the operating loss numbers on a Y-o-Y basis, it's an improvement of [indiscernible]. So now on the revenue number of the fifth season, it stood at KRW 233.6 billion with an operating loss number of KRW 2.9 billion. Compared to the previous year is an improvement by KRW 14.5 billion. So the temporary expense increase is much to do with OTT originals and our supply to terrestrial broadcasting stations. If we air our titles on tvN, then the amortization happens over a certain period of time, whereas if we supply to OTT as originals and if we supply to terrestrials [indiscernible] recognized while the titles are being aired. So in the second quarter, there has been a lot of concentration of our supplies to the OTT originals and terrestrials, thus the temporary increase in expenses. Because of the difference in this amortization practice, I know there has been some confusion caused on the part of shareholders and the analysts. We do understand that there is this still possibility of [indiscernible] because of that we are thinking of reviewing some changes to our amortization practices. As for expanding our IP business, yes, it's true that we have begun the work with Yumi's Cells 3 and Filing for Love. But as to the detail, please understand that I cannot disclose the details to you today. But if you look at our future titles to be aired, I think you will get the gist of things.

[Operator Instructions] The following question is by Choi, Yong Hyun from KB Securities.

The first one is for Hye-Mi. You talked about making adjustments to the useful life of copyrights in the first quarter. Could you please give more color on what you're about to do? And my second question goes to [indiscernible]. In the presentation you talked about some delivery void. Is this a temporary thing? Or is it a trend that you will be seeing for the medium to long run? And how much of an influence will it have on your final numbers? My third question is on your overall content investment for the year as a company as a whole.

Yes, this is Hye-Mi addressing your question. Well, we amortize our content for their useful life. And we have made some evaluation on how we should apply the useful life over the consumption of our content. And till date we have been going by a 2-year amortization. It was because in the past our contents were largely broadcasted over broadcast stations. But now the paradigm shift has really moved towards OTT. And therefore, we thought it was right that we make some adjustments to the useful life of our content. And with that, we've changed it from 2 years to 4 years because we've benchmarked the other global OTTs. And on average, the global OTTs, they amortize their content's useful life over 4 to 7 years. So we are following industry standards.

And this is [indiscernible] addressing your second question. The delivery void that we witnessed in Q2 is a temporary thing. It isn't a lasting phenomenon. It's temporary to year '26. We are currently in discussion with various platforms for future delivery. So in the near future engage [indiscernible] distribution [indiscernible] and also engaged in TV buyouts and production services to [indiscernible]. So [indiscernible] when it comes to the number of our new [indiscernible] production, but we will be working to address the situation around our in-house studios, including Studio Dragon. And we will be keen on balancing. We will make sure to balance the spend per episode.

The following question is given Kim, Hoi Jae from Daishin Securities.

Yes, I have 3 questions. First is on your investment process or investment into your affiliated companies. My second goes to [indiscernible] YouTube channel kind of opportunity will this channel bring to the company? And what kind of scale are you talking about here? And my third question is related to [ USB Revolver ] how are things moving with your USB Revolver?

As to your first question on our investment is equity method [indiscernible] with our investment affiliated companies.

And this is Studio Dragon answering your YouTube question. It will not be a money-making business on itself. It would be a YouTube channel to support our overall IP business. It will mostly be used for promotional and marketing purposes. And also, it would be an excellent tool of [indiscernible] Studio Dragon branding. And as for your last question on our USB Revolver, our aim is to have a series order within the year. We currently are working on 3 candidates. Things are moving slow, but it is moving. And should we have any updates, we'll make sure to let [indiscernible].

The following question is by Lee, Hwa-Jung from NH Investment & Securities.

I have one question for [ Chi Bin ]. You talked about the change in your useful life with your copyright. And I think that translates to lesser expenses going forward. And I see your number for revenue in the first quarter, it's quite good on Y-o-Y basis, but still you're in a lossmaking section. So I think this is largely due to the acquisition of [indiscernible] which has pushed up your SG&A expenses. So when do you think you [indiscernible].

Yes. As you mentioned in your question, our revenue number for Q1 was quite strong, but we still saw operating number when it comes to our operating numbers. So it was an operating loss. Well, if you look at our ad income for the first quarter, on a Y-o-Y basis it has shown steady growth of over 50%. But as you know, the first quarter is not a good quarter for ad income. It only accounts for 10% of a year's ad income. So that was one reason. And we also had a concentration of original content supply. And as was answered in the previous answer, because there was such a concentration of original content, which has a different amortization process, we saw our operating numbers in the loss-making section. But going forward, starting from Q2, I can say with some confidence that you will be seeing a breakeven point.

[Operator Instructions] The following question is by Lee, Ki-hoon from Hana Securities.

Yes, I have 2 questions. First is on your advertising revenue. Well, I see that your TV advertising sector is still experiencing much difficulties. And in the previous [indiscernible] Olympics and now we have the World Cup games soon to be held. And with that big international sporting event, how do you foresee the ad space moving? And well, the TV ad space is [indiscernible] but I think you could -- well, could you offset the difficulties in the TV ad space with the merger of TV and Wavve. So do you think this platform will offset the negativity that you see in [indiscernible]. My second question is related to your asset sales. There were some presentations on your asset sales maybe a year back, 2 years ago. And, well, what about your asset sales going forward, including that of your stakeholding in Netmarble because I still see that your financial costs are quite high.

Yes. This is [Lee] speaking for the TV ad question. Yes, we do expect to see some pickup in the TV ad space in the second quarter. But while speaking or looking at the bigger picture, Q2 will continue to be a slow quarter for overall TV ads. As you rightly noted, there was the Olympic games in the first quarter, and we will be seeing the World Cup games being held starting June. And because of these 2 big mega sporting events, we will continue to see somewhat of a sluggish ad sales continuing the first quarter. And -- but as you mentioned, with the merger between TVING and Wavve, well, we think -- we expect to see the ad revenue being offset by this merger because as illustrated in our presentation, revenue for TVING has grown more than 200% on a Y-o-Y basis. And our income from this space is likely to be more than to offset what we see from the decrease in TVING. And to your second question of our noncore asset sales, well, we are continuing with the effort, but we have been experiencing a lot of external macro volatility, including the war. And we also have the new regulation in place for prior disclosure of such endeavors. And we're currently looking into various possibilities as to the timing and method of how to sell our noncore assets. If we find the right fit, then we will look further into the possibility.

Due to time constraints, we will entertain one last question.

[Operator Instructions] Thera are no further questions, we will end the Q&A session here.

I once again thank you for your attendance [indiscernible]. This concludes the Q1 2026 earnings release portion from CJ ENM. Thank you.

This concludes the fiscal year 2026 first quarter earnings resulted by CJ ENM. Thanks for the participation.