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Edited Transcript of 035760.KQ earnings conference call or presentation 8-Aug-19 7:00am GMT

Q2 2019 CJ ENM Co Ltd Earnings Call

SEOUL Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of CJ ENM Co Ltd earnings conference call or presentation Thursday, August 8, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hee-Jae Kim

CJ ENM CO., Ltd. - VP & GM of Marketing Support

* Jae Min Baek;Chief Financial Officer

* Jinnie Choi;Studio Dragon;CEO

* Min-hoi Heo

CJ ENM CO., Ltd. - CEO & Director

* Seong-Hak Lee;Vice President

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Conference Call Participants

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* Hoi Jae Kim

Daishin Securities Co. Ltd., Research Division - Analyst

* Hyun Yong Kim

eBest Investment Securities Co. Ltd, Research Division - Analyst

* Min Jung Kim

HI Investment & Securities Co., Ltd., Research Division - Research Analyst

* Sejong Hong

Shinhan Investment Corp., Research Division - Research Analyst

* Stanley Yang

JP Morgan Chase & Co, Research Division - Analyst

* Sung-Ho Park

Yuanta Securities Korea Co., Ltd., Research Division - Analyst

* Sunghwan Kim

Crédit Suisse AG, Research Division - Associate

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Presentation

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Unidentified Company Representative, [1]

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[Interpreted]

Good afternoon. This is [K. Cho] from CJ ENM's IR team. First, I would like to thank the shareholders and analysts for taking the time to participate in our earnings release session.

And with that, we will begin the second quarter earnings release of CJ ENM. Please note that the financial and management results presented today have yet to undergo an independent auditor's review and therefore could be subject to future changes.

Today here with us are CEOs, Min-hoi Heo; and Min ho Hou, or Michael Hou, and heads of different business divisions. Our executive lead team, Mr. Yong-Soo Ha is here. And also from Media, we have Mr. [Woo-Yang Park]. From Media Solutions, Seong-Hak Lee. And from Commerce, we have Hee-Jae Kim. From Pictures, we have Mr. Young-Ki Cho. And from Music, we have Mr. [Joong-Won]. And also from Studio Dragon, we have the CEO, Jinnie Choi, here with us.

First, CEO Min-hoi Heo, will brief us on major Q2 results and management strategy.

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Min-hoi Heo, CJ ENM CO., Ltd. - CEO & Director [2]

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[Interpreted]

Good afternoon. This is CEO, Min-hoi Heo of CJ ENM. Despite the worsened internal and external market conditions, CJ ENM has recorded the best-ever management results in the second quarter thanks to enhanced core business fundamentals. The company has enhanced original content and continue to fortify IP competitiveness, and as a result, has recorded the highest-ever revenue for both TV and digital advertisement. Through strengthened private brands, our commerce business also overcame the adverse market conditions and recorded both top and bottom line growth.

We have continuously strengthened our business competitiveness in the first half. And based on that, we will aim for even sturdier profit growth in the second half. The company will expand content distribution, including digital, in domestic and overseas markets and will enhance global-bound IP for export and local businesses. The company will continue to expand its overseas results through IP remakes and overseas joint ventures in 2020.

CJ ENM will continue to fortify revenue and profit in all business areas en route to become a global media commerce company. Based on our original content, we will expand our media solution and distribution business and strengthen our portfolio strategy with our private brands which ensure product competitiveness. Production efficiency enhancement and IP profit margin expansion will also contribute to better profitability.

CJ ENM will continue its top and bottom line growth to meet 2019 target and will grow into a global company that enjoys added profits from overseas markets in 2020. Based on our business competencies in planning, development, production and distribution, we will overcome the difficult market conditions and lead changes. CJ ENM will continue our growth with the shareholders. Thank you.

Next, results report. Please note that the quarterly and yearly results of CJ ENM are based on K-IFRS consolidated financial statements, and the Y-o-Y comparisons used are on a consolidated pro forma basis. CFO, Jae Min Baek, will now direct the management results for Q2.

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Jae Min Baek;Chief Financial Officer, [3]

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[Interpreted]

Good afternoon. This is Jae Min Baek. CJ ENM's consolidated revenue in Q2 stood at KRW 1.2604 trillion with operating profit of KRW 96.8 billion, which is the best-ever management results. Revenue and OP grew 20.1% and 22.3% Y-o-Y, respectively, with high-growth momentum for revenue and OP in all business areas. Advertisement and content sales revenue continued their steep growth and commerce engaged in profit-oriented business activities with reinforced product portfolio.

The company will continue to strengthen all business areas in the second half. The media business will maintain its focus on content and media solution-based advertisement growth, and commerce with fortified product portfolio that could lead the trend. The increase will expand in-house planning and production to heighten project profitability. And through global IP expansion, the music business will also see increased profitability.

Page 5, Media. Media, in the second quarter, recorded the best-ever advertisement and content sales revenue and saw a jump in profitability growth. Revenue was at KRW 426.4 billion, a growth by 15.4% Y-o-Y. And operating profit was at KRW 36.5 billion, a growth by 25.1%. TV ad revenue grew by 21.4% Y-o-Y, which is a record-high quarterly sales number. And digital advertisement also set a new record with 32.4% growth. Content sales also led profitability growth with a steep growth rate of 71.9% Y-o-Y.

Business growth, based on content competitiveness, will continue in the second half. And the company will focus on profit improvement with activities, including expansion of digital IP. Profit growth will be sustained with currently aired dramas, including Hotel De Luna, Melting me Softly and Accidental Landing; and also new non-scripted entertainment programs, such as Three Meals A Day: Mountainside Village and Laborhood on Hire; and with digital original expansions, such as TVING content, service reform and tvN D, the company will aim for further digital ad growth.

Page 6, Commerce. In the second quarter, commerce business realized PB-focused top line growth and portfolio adjustments centering around profitability. GMV grew 2.5% Y-o-Y, with KRW 1.0183 trillion, but revenues saw a rapid growth of 16.3% Y-o-Y, with KRW 357.6 billion. With good performances of A+G, CelebShop and O Daily, PB adoption in the overall GMV grew 61.2% Y-o-Y. PB's proportion out of the overall GMV increased 3.9 percentage points over last year, pushing up the number to 10.7%. With portfolio reform centering around higher-profitability products, the operating income grew 6.2% Y-o-Y at KRW 36.0 billion.

The business will continue to aim for top and bottom line growth in the second half with differentiated programming and enhanced PBs. The business will enhance fashion brands, including Vera Wang and g studio and will explore new brands and categories. Commerce will create demand with trendy products and counter-seasonal fashion. The business will continue to improve itself focusing on profitability with programming that creates demand and also with enhanced product portfolio.

Page 7, on Movies. The second quarter revenue from movies was at KRW 67.8 billion, which is an 88.2% growth Y-o-Y. Operating profit with KRW 10.0 billion saw a turnaround. With stellar performances of Parasite, theater revenue recorded KRW 41.5 billion, which is a growth by 234.8%. Ancillary revenue, including that from Extreme Job, also performed excellent with KRW 13.7 billion, which is a growth by 85.6% Y-o-Y.

The business will continue revenue and profit growth in the second half by introducing movies with both artistic and commercial values. Exit that opened last week is off to a good start. And with in-house-developed titles such as The Bad Guys: Reign of Chaos in September and Collateral in Q4, the business will hone its competitiveness. The business also aims to enhance profitability in overseas markets such as Thailand, Turkey and the U.S. with IP remakes and expansion of in-house development.

Page 8, Music. Music revenue in the second quarter was KRW 153.8 billion, which is a 131.2% increase Y-o-Y. Operating profit was KRW 4.9 billion, realized a fast growth of 16.1%. Concert revenue, including IZ*ONE, Monsta X and BTS set new records with KRW 111.1 billion. Despite the high baseline set with Wanna One and lag in IZ*ONE Japan sales, albums, records and sub-labels revenue continued solid growth.

The music business in the second half will continue its growth momentum with in-house artist expansion and global-bound IP expansion. The business aims for top line growth through album release and global concerts of IZ*ONE, X1, Jay Park and other in-house artists. The business will also expand its global IP business, such as ProduceX101 JAPAN, TOO, Belift Lab, that would enhance mid- to long-term growth momentum.

Now we will invite CEO, Jinnie Choi, from Studio Dragon to share her report.

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Jinnie Choi;Studio Dragon;CEO, [4]

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Yes. This is Jinnie Choi from Studio Dragon. Studio Dragon recorded a revenue of KRW 128.2 billion in Q2, which is a 72.6% growth Y-o-Y. The diversified programming platform and increased influence with titles such as Arthdal Chronicles, Abyss and Spring Night, programming and sales revenues saw rapid growth, leading to top line improvement. In particular, even with Arthdal Chronicles staying at breakeven point, with enhanced profitabilities of other titles, the company recorded an operating profit of KRW 10.8 billion, which is a growth by 47.3% Y-o-Y.

In the second half, the business [aggressively] maximizing results of bigger-scale titles and also in securing bargaining advantages. Hotel De Luna and Watcher showed good ratings and viewer response. Premium titles such as Accidental Landing and Melting me Softly will give us enhanced results. And with diversified platform, with Dr. John as an example, will provide the business stronger market influence.

Studio Dragon will expand new business models, such as the one for Laborhood. Differentiated content and brand awareness with that -- those competencies, will expand sales markets and discuss with new global OTTs, forming a diversified business model, and in doing so, secure our future growth.

We will continue to gain competitive edge by developing and fortifying our core competencies, and we will fine-tune our IP multi-year strategy. And we'll continue to further differentiate our production capabilities by structuralizing our creative organization. Going forward, we will expand our creative pool to include overseas talent and will continue meaningful growth by securing competitiveness as a global studio.

Thank you.

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Unidentified Company Representative, [5]

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[Interpreted]

Now we will entertain questions. Due to time limitations, please limit your questions to 3 each, centering on core issues.

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Questions and Answers

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Operator [1]

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[Interpreted]

Now Q&A session will begin. (Operator Instructions) The first question will be given by Mr. Hyun Yong Kim from eBest Investment Securities.

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Hyun Yong Kim, eBest Investment Securities Co. Ltd, Research Division - Analyst [2]

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[Interpreted]

Yes, 2 questions, first to the CEO. Yes, through the listing of Studio Dragon, I believe that you were quite successful in your strategy because now Studio Dragon can independently fund themselves and also can independently expand their business. And I ask the CEO whether he has the same plans for your digital ads business. Because it has recorded one of the best revenue for your businesses with over KRW 70 billion in revenue, and the margin associated with your digital ad business is higher than the average 2-digit numbers. So in expansion or going forward, do you have any plans to split off the business division and make it more independent, to have an independent entity in place with digital ads? That was the first question that goes to the CEO.

And now the second question is related to music business. I know that there were some noise related to ProduceX101. And I did hear some rumors about manipulation of the vote. So what's the company's response to that allegation? And you've mentioned in the presentation about the activities of X1. Will they really make an official debut in the third quarter as was announced?

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Min-hoi Heo, CJ ENM CO., Ltd. - CEO & Director [3]

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[Interpreted]

So if I may address the first question. This is Min-hoi Heo. We have no immediate plan for a spin-off or a split-off, so we do not have any plans for that for our digital ad business. Of course, if in the future there is a need for it, we could think about it. But as of today, we have no plans for it. And the whole digital area is growing as is demonstrated by our results with TVING and E&M IP. It's a growing area, and we would have to continue fortifying the digital business. But as was mentioned, as of today, we have no plans for a spin-off.

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Unidentified Company Representative, [4]

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(foreign language)

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Min-hoi Heo, CJ ENM CO., Ltd. - CEO & Director [5]

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[Interpreted]

Yes. This is the CEO once again. Of course, we are quite aware of the noise that's surrounding the vote results. And the company has asked its authorities to go into investigation of such allegation. And our response will come after the investigations are over.

And as for your second part of the question, whether X1 will be making their debut. Well, it's on schedule. So the scheduled Gocheok Dome performance is on schedule. We do not want to disappoint any of the fans, and we do not want any of the innocent participants to incur any damages.

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Operator [6]

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[Interpreted] The following question is by Mr. Stan Yang from JPMorgan.

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Stanley Yang, JP Morgan Chase & Co, Research Division - Analyst [7]

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[Interpreted]

Yes, I have 3 question. The first question is related to your stellar performance in TV ads. I've heard in the presentation that the revenue growth associated with TV ads has been [very strong] despite the very bad market conditions. And how did you differentiate yourself? And do you think this is a sustainable growth level? This was the first question.

And now as to the second question, which is related to CJ Hello. I know that there are some procedures still left to be taken. And when do you think the overall process will be complete? And once the process is complete, what would be the use of proceeds? And would it be for the shareholder benefit? Is that a possibility?

And the third question is related to your Netmarble hold. In the mid to long run, what are you going to do with your stakeholding in Netmarble?

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Seong-Hak Lee;Vice President, [8]

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[Interpreted]

So this is Seong-Hak Lee from the [property] division who will be addressing your question. Well, we have our premium content that gives us advantages and much more the competitiveness over our peers. And we have an outstanding integrated marketing solution to back it up. Despite these bad external market conditions, we were able to really outperform the market thanks to our such competitiveness. And our anchor channels, such as tvN, OCN and Mnet, they have a very firm identity, and the viewership associated with these anchor channels are quite high. Therefore, the advertisers, they do realize that these are the channels that they must air their ads on.

And in the second quarter, as was mentioned during the presentation and also in your question, we recorded more than 20% TV ad growth rate. And as for digital ads, it was a growth rate of 32.4%. These figures shows that we have cemented our position in the advertisement market.

And your question also was to do with sustainability of our high growth level. Well, as you are quite aware of, in the first half, we did have a very adverse market condition with the trade friction between the U.S. and China in play. And in the second half, we do continue to see unfavorable market conditions continuing with the trade friction between Korea and Japan. But despite all these difficulties and challenges, we were able to outperform our peers and outgrow the market. And I believe that this is pretty doable thing with our competitiveness and advantages in place.

So we have a very good mix in capabilities by which we could mix our TV products with digital product offerings. And we do have excellent analysis technology based on our data collected. And with our excellent premium content in place, I know that we could overcome such external difficulties. And the network, with our advertisers, will also benefit greatly.

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Unidentified Company Representative, [9]

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[Interpreted]

Yes, and to your next question, which was on the sale of CJ Hello. Currently, the application has been made to the Fair Trade Commission and also to MSIT, the relevant government authorities. And we're earnestly following the required processes with the government authorities. And well, as for the sales of our Netmarble stakeholding, we have no plan that -- to sell our stakeholding as of today.

And if I may give you more flavor on CJ Hello's sale. If the sale goes through, with the huge proceeds, we would work on improving our fundamental businesses, such as content and commerce. And we will also be using part of it to service our outstanding debt, which will once again enhance and strengthen our financial position. And then further, we could think about enhancing our shareholder value.

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Operator [10]

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[Interpreted] The following question is given by Mr. Hoi Jae Kim from Daishin Security.

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Hoi Jae Kim, Daishin Securities Co. Ltd., Research Division - Analyst [11]

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[Interpreted]

Yes, 2 questions related to (inaudible). Well, there is a higher than usual expectation for your tentpole products, but it's also related to a big roster of big names. And well, sometimes people only tend to look at viewership and that leads to an increase in production. So you have your advertisement income, but is the advertisement income enough to cover for the growth in production cost?

And as for your Arthdal Chronicles, it began airing at the time it had already reached a breakeven point because you have made your presell to Netflix. And with that, you were able to safely air that. But in the future, what would you be doing to ensure that all the titles released currently meet the breakeven point? What is your measure to control?

And the second related question is with the other OTTs, with Chinese OTTs and Disney Plus. I know that you have a very good ongoing relationship with Netflix, but what has happened with other OTTs?

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Min-hoi Heo, CJ ENM CO., Ltd. - CEO & Director [12]

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[Interpreted]

So let me first elaborate on our tactical strategies, one of our very important strategies, and we have a plan in place for realizing this strategy from the time of release to realizing profit associated with each title. And as was mentioned over and again, we are well managing our production cost. It is a budget, it's well executed, it's well within our plan and in -- within a controllable level. And (inaudible), our top line growth is sufficient to cover our required production costs. And that is why we've resulted in a very good profitability level at this time. And we do expect it to be maintained going into the future.

So as you know, the Chinese market is a big one and an important one. But CJ ENM realizes that the distribution, the core of it, will be towards the direction of multiplatform. And until the point in 2016, well our contributions from the Asian market was quite significant, therefore we had much more dependence on the Chinese market back then. But things have really changed since then. We see more diverse platforms emerging every day, increasing the domestic portals with YouTube and even Netflix.

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Operator [13]

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[Interpreted] The following question is by Mr. Sung-Ho Park from Yuanta Securities.

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Sung-Ho Park, Yuanta Securities Korea Co., Ltd., Research Division - Analyst [14]

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(foreign language)

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Min-hoi Heo, CJ ENM CO., Ltd. - CEO & Director [15]

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(foreign language)

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Unidentified Company Representative, [16]

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[Yes, I will translate the 2 questions first.]

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Sung-Ho Park, Yuanta Securities Korea Co., Ltd., Research Division - Analyst [17]

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[Interpreted]

First, [with respect to] concert revenue. In the presentation, I heard that the concert constant revenue fetched more than KRW 100 billion this time. Was it largely grounded in domestic concerts? Or does it include numbers from BTS and IZ*ONE overseas concerts as well?

Second question is related to advertisement. In last year, well, I think you have completely overcome seasonality associated with ad business in the first quarter with great contributions from titles such as Mr. Sunshine. And this quarter, second quarter, we have -- so you have the Arthdal Chronicles, which I think has led to a good Y-o-Y number, influenced growth number. And well, given your current content lineup for the third quarter do think you could realize a Q-o-Q growth this time as well. That was just, like, an ad-related question.

And now one question to Studio Dragon on the amortization of Arthdal Chronicles intangible assets. I know that the drama is in parts 1, 2 and 3. So what to expect in method with amortization for the intangible asset there?

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Min-hoi Heo, CJ ENM CO., Ltd. - CEO & Director [18]

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[Interpreted]

Yes. If I may address your first question, which was on our concert performance. As was mentioned during the presentation, our concert revenue in the second quarter stood at KRW 111.1 billion. And of this contribution came from BTS World Tour. So there was this contribution from BTS World Tour in the second quarter. But please realize that this improvement in our concert revenue is a diversification from our past income sources. In the past, we used to rely heavily on the albums and record sales. But now our revenue source has diversified into concert revenue and also from ancillary revenue as well.

Yes. And if I may take the second question, which is related to advertising continuing to grow in the third quarter following the excellent result in second quarter. As was mentioned, we do sell our ads based on our premium content, content competitiveness. And in the third quarter, the aired drama, Hotel De Luna, is performing quite well with 9% or more viewership. And in September, Arthdal Chronicles Part 3 will be aired. And Watcher on OCN is doing growth, too. And Show Me the Money Season 8 will soon be aired. So it's very likely that we would be continuing our growth momentum.

Of course, there are adverse external conditions such as the trade dispute between Korea and Japan, and this will largely influence the external given environment. But as was mentioned before, we do have our competitive edge, our excellent content. And the combination of linear TV offering with our digital ad offering will give us the stellar performance or outstanding results compared to our peers. And as was also mentioned, we do enjoy a very sticky, good relationship with the network of advertisers. So I believe that third quarter would be another good quarter for us.

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Jae Min Baek;Chief Financial Officer, [19]

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[Interpreted]

Yes. And if I may give you the amortization method related to Arthdal Chronicles. Well, Studio Dragon typically amortizes our intangible assets over 18-month period. And therefore Arthdal Chronicles, we had presales, and the presales were announced, it was amortized. The lump sum was amortized.

So it's an 18-episode drama and 10 episodes had already been aired. And for those 10 episodes, the revenue has been recognized and the cost has also been amortized. And the remaining 8 episodes will be amortized. And for Arthdal Chronicles, for all episodes, I believe the sales recognition and the amortization will be over in year '19.

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Min-hoi Heo, CJ ENM CO., Ltd. - CEO & Director [20]

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[Interpreted]

And our progression with -- the amortization in the second quarter, it has already been done and it has been reflected in the results presented today.

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Operator [21]

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[Interpreted]

The following question is by Mr. Sejong Hong from Shinhan Investment.

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Sejong Hong, Shinhan Investment Corp., Research Division - Research Analyst [22]

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[Interpreted]

Yes, 2 questions. First goes to Studio Dragon. On your IR [deck on Page 9], I see mentioning of Studio Dragon 2.0 and how you're going to impact -- or improve your production capabilities. And you also guide on Page 9 that you have plans to find and seek new talent. Of course, you have the open competition with The Voice, but could you give us more flavor on how you're going to find new talent, producers and writers and so forth? And what are your detailed plans to move from Studio Dragon 1.0 to 2.0? This is the first question that goes to Studio Dragon.

And my second question is related to the commerce business. Well, you've mentioned the numbers related to digital GMV. But could you carve out the online portion from that overall number? And may I ask how your catalog business is [so far].

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Unidentified Company Representative, [23]

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[Interpreted]

Yes, if I may address the first question first, which is on our 2.0 strategy, Studio Dragon. Well, if for our Studio Dragon 1.0 strategy, we focused on laying the foundation, the basic infrastructure required to create content and also to produce it. And because we needed to lay the foundation, we were focused on getting more production houses and S-level, the top-notch writers in place. And we wanted to lay a ground by which we could enjoy our business for the coming 3 years or the coming 5 years.

But now going forward, with Studio Dragon 2.0 strategy, we want to create a foundation by which we could sustain our success. So we want to discover new talent, new writers and new directors which could grow into a top-level, top-notch writer or a top-notch producer or director. And as was mentioned during your question, we do have a system ready for it, because we have the open system by which we could discover new talent. And we give them an opportunity for their writings to really turn into a drama. We match them together with producers and directors and have their writing be translated into drama format. And well, this is what we are doing.

And we want to also have the productions done in-house, with our expansion of production houses, which is of course to keep profit within the house.

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Hee-Jae Kim, CJ ENM CO., Ltd. - VP & GM of Marketing Support [24]

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[Interpreted]

So if I may take your commerce question. Well, our GMV, as was mentioned during the presentation, is over KRW 1 trillion. And of that, online proportion is at JPY 450 billion. And of that, mobile accounts for more than KRW 300 billion. And our orientation, our focus is on highly profitable TV air products. So with that, our TV growth rate is more than 20%.

Yes. And your last question related to our catalog business. Everybody realizes that the catalog business is a sunset thing. So at the earlier part of this year, we decided to stop our catalog business and our last catalog was issued in June. And we tried our best to move our catalog audience to the TV platform and also online platform.

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Operator [25]

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[Interpreted] The following question is by Mr. [Lee] from Hana Financial and Investment.

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Unidentified Analyst, [26]

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[Interpreted]

Yes, 2 questions. First is on your results guidance. The media poorly performed in the first quarter, and your numbers were downward-adjusted somewhere around KRW 350 billion. But your pictures, your movies have really performed well up until this quarter. And if the good growth momentum continues on into the third quarter, there will be much more positive contribution from the movie business. And with such added contribution, will you still be maintaining a guidance of KRW 350 billion? That's my first guidance-related question.

And the second question is related to Studio Dragon. I hear that there are rumors of Netflix stopping the seasons, just I hear such noises on what would be the decision in terms of Studio Dragon. And I also heard about your production cost control, so what is your response?

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Jae Min Baek;Chief Financial Officer, [27]

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[Interpreted]

Yes, if I might take the first question. Well, in the second quarter, just as a run rate, I think we will be sticking with the guidance number that we have illustrated at the earlier part of this year. And the run rate for our revenue as of today is at 51%.

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Jinnie Choi;Studio Dragon;CEO, [28]

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[Interpreted]

Yes, the second question to Studio Dragon related to Netflix. Well, I think Netflix has just announced that they will be -- would be focusing on their selection. Therefore, they have announced that there could be some off -- stoppage to a few series.

But we've inquired with the Netflix headquarters, and they said that Korea is the most strategic hub when it comes to the Asian market. Therefore, they really want to increase the number of content created in the Korean market, not decrease it. So we are subject of that selective focus. And with that, they have no plans to control the production cost in the Korean market.

And we are working not only with Netflix, but we are also talking with other global OTTs, including Disney. We have made our contact with them. And well, we are exploring various paths with diverse global partners, not only for the OTT channel, but other platforms...

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Jae Min Baek;Chief Financial Officer, [29]

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[Interpreted]

Correction to the numbers in the first answer. As mentioned, run rate revenue number of 51%, but that was a -- we have to adjust that to 49%. The run rate for our OP is at 51%.

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Operator [30]

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[Interpreted] The following question is by Ms. Min Jung Kim of HI Investment & Securities.

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Min Jung Kim, HI Investment & Securities Co., Ltd., Research Division - Research Analyst [31]

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[Interpreted]

Yes. The first question is related to music revenue. I see that their revenue number result has grown tremendously over the previous year. But I see that your OP numbers have remained more or less similar. And well, I believe that a bulk of your revenue growth is associated with concert revenue. And having said that, will your concert gave you lesser of a profit? Could you please illustrate the cost structure related to concerts?

And my second question is on movies. The Extreme Job, the Parasite and now the Exit, they have recorded very good numbers at the box office. And for the last few years, I know that you have been indulging in restructuring measures or realignment measures for your movie business. And is this still a performance due to your realignment activity? What is the reason behind such a big turnaround?

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Unidentified Company Representative, [32]

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[Interpreted]

Yes. If I may take the music business. Well, our concert revenue, a bulk of it, came from the World BTS concert. And the profit associated, made may seem low, but the absolute profit number is quite significant. And in-house produced concerts, they do contribute to profit significantly. Therefore, we will continue with our concerts.

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Unidentified Company Representative, [33]

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[Interpreted]

Yes. Now to the movies questions, I think everything depends on content competitiveness. The profitability also depends on content competitiveness. And for the past few years, we have been keen in procuring outstanding IP. And we have also focused on enhancing our in-house planning and development capabilities. And going into next year, we will continue to enhance such capabilities.

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Unidentified Company Representative, [34]

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(foreign language)

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Operator [35]

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[Interpreted] The following question is by Mr. Sunghwan Kim from Crédit Suisse Securities.

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Sunghwan Kim, Crédit Suisse AG, Research Division - Associate [36]

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[Interpreted]

Yes, the following question goes to Studio Dragon. In the fourth quarter, you mentioned coproduction with a Chinese partner. So I want to be updated on the progress for that project. And I also want to know when is the project will start contributing to profit? And are there any strategic changes to such plan? If so, I want to be informed of the changes.

And the second question is on your plans to go to the U.S. market. I heard rumors that you are to acquire a production company there. And if so, when will be the timing and what would be the [org] structure like?

And third, on production cost. Well, compared to your yearly plan, how much did you execute in terms of production until the second quarter?

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Jinnie Choi;Studio Dragon;CEO, [37]

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[Interpreted]

Yes, and if may elaborate on our China activities and our coproduction. Well, given the current environment, things are moving rather late than our expectation. There have been some delays because of the given environment, but we continue to sell the remake and the format. And for 3 titles, we're currently working on the local language script. So this is what we're doing with the Chinese partners.

And second question on our U.S. talent. Well, as is mentioned, we are going the direction of acquiring a U.S. production company, as [converged] together with CJ ENM . So this is currently something that we are working on. And on the timing of in the second half, we have plans to set up Studio Dragon U.S. And starting from the second half or perhaps into next year, we will complete the setup of our organization there.

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Jae Min Baek;Chief Financial Officer, [38]

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[Interpreted]

Yes, I know that there are concerns over increasing [cost pressure]. And it's true that we have seen some slight production cost increase in the second quarter. But as was mentioned during the presentation and during my previous answers, everything is being checked within our management hand level and within the guidance. It's in a controlled local level -- under a controllable level. And as we've mentioned, the run rate for the first half of the year, when it comes to our revenue, it's 49%. When it comes to OP, it's 51%.

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Unidentified Company Representative, [39]

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[Interpreted]

Are there other questions?

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Operator [40]

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[Interpreted]

Currently, there are no participants with questions. (Operator Instructions)

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Unidentified Company Representative, [41]

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[Interpreted]

Since there are no pending questions, we will complete the Second Quarter 2019 Earnings Release of CJ ENM. Thank you.