CJ ENM’s OTT platform TVing: White elephant or new cash cow?

CJ ENM Co. is the undisputed No. 1 movie producer and distributor in South Korea, having sponsored numerous awards-wining films such as “Parasite” and “Decision to Leave.”

It has also spread its tentacles to TV, music and over-the-top streaming services and bulked up these businesses through M&As and heavy investment.

But its aggressive expansion is now coming back to haunt the so-called "department store of the entertainment sector." Investors have turned their back on the stock. Some of them mocked the media giant as a dinosaur falling from the sky.

Especially, analysts were cynical about its heavy spending on content creation for the OTT platform TVing to challenge bigger rivals Netflix Inc. and Disney +.

In 2022, CJ ENM delivered below-expectations operating profit of 137.3 billion won ($103 million), less than half the previous year's.

In the first quarter of this year, it swung to an operating loss of 50.3 billion won ($38 million). For all of 2023, the consensus view is that its operating profit is forecast to drop 20% to 109.5 billion won.

Its shares have lost three-fourths of their value after peaking at 286,400 won in mid-July 2018, when the company absorbed its home shopping TV channel.

During the same period, the benchmark Kospi index gained 8%. On Thursday, the stock closed at 76,200 won.

“That’s the result of its reckless investment with a focus on the creation and promotion of content, instead of shoring up its bottom line,” said an asset management company head.

Its market capitalization of 1.7 trillion won is just half of the 3.3 trillion won of music-centric JYP Entertainment Corp. The figure is even lower than the 1.9 trillion won of its subsidiary Studio Dragon Corp. CJ controls 54% of the TV studio.

Now fund managers advised the company to close down the money-losing TVing, or scale back the OTT service.

“If a crow-tit tries to walk like a stork, he will break his legs,” said one of the investment managers, quoting a Korean saying that warns against having more ambition than ability.

There is a contrarian view, however.

Daishin Securities analyst HJ Kim said CJ ENM should continue its efforts to increase its OTT subscribers through heavy investment to compensate for shrinking TV advertising revenue.

A CJ ENM official indicated that the company's stance is in line with Kim’s view.

“We will strengthen our platform business led by TVing, shifting away from our traditional content business.”

Streaming giants are speeding up their efforts to boost Korean content after Netflix’s survival drama series "Squid Game" made a global hit and became the streamer's biggest show ever.

Last month, Netflix unveiled a plan to invest $2.5 billion in South Korean content over the next four years.

RESTRUCTURING EXPERT

Now market eyes are on its Chief Executive Koo Chang-gun who took over last October.

The former analyst of Korea Investment & Securities made his name with an in-depth and critical analysis of the CJ Group, which caught the eye of CJ Group Chairman Lee Jae-hyun.

In 2010, Koo joined the CJ Group and spearheaded the restructuring of two units of the conglomerate: food service and catering company CJ Foodville Co. and CJ Olive Young Corp., a beauty products retailer.

Analysts are refraining from voicing their views about Koo, at least for now.

“We are now in a wait-and-see mode, rather than pinning vague hopes (on CJ ENM’s restructuring),” said one analyst.

He noted that closing down money-losing businesses to focus on key segments would significantly improve its earnings. The analyst also suggests CJ shed non-core assets such as its shares in Samsung Life Insurance Co. and game developer Netmarble Corp.

Write to Ui-Myung Park at uimyung@hankyung.com

Yeonhee Kim edited this article.