U.S. markets closed

Edited Transcript of 067160.KQ earnings conference call or presentation 29-Apr-20 12:00am GMT

Q1 2020 AfreecaTV Co Ltd Earnings Call

Jun 15, 2020 (Thomson StreetEvents) -- Edited Transcript of AfreecaTV Co Ltd earnings conference call or presentation Wednesday, April 29, 2020 at 12:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Chan-Yong Jung

AfreecaTV Co., Ltd. - Co-CEO & Inside Director

* Jiyeon Kim

AfreecaTV Co., Ltd. - Head of IR

* Joonsung Kim

AfreecaTV Co., Ltd. - CSO & CFO

================================================================================

Presentation

--------------------------------------------------------------------------------

Unidentified Participant, [1]

--------------------------------------------------------------------------------

Welcome to AfreecaTV Live Conference aka ALCON. Hi, I'm BJ [Kim Sang-woon]. ALCON is open to anyone who is interested in AfreecaTV. However, please understand that since it's related to our earnings, only those who preregistered can ask a question via chat window. We are joined by Mr. Jung Chan-Yong, our CEO; Kim Joonsung, our CSO and CFO; and Kim Jiyeon, Head of IR. First of all, could you all greet those who have joined us?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [2]

--------------------------------------------------------------------------------

Good morning. I'm Jung Chan-Yong. Now the first quarter has gone past, and we are -- it's time for us to give you the reports on our earnings. As you know, internally and also domestically, globally, the economy is not doing so well because of the outbreak, and that definitely impacted us. However, since we are in a unique situation, that the impact has not been so bad. Now the things are going a little bit improving. So for the second quarter and in the coming years, we are going to do our best to improve.

--------------------------------------------------------------------------------

Joonsung Kim, AfreecaTV Co., Ltd. - CSO & CFO [3]

--------------------------------------------------------------------------------

Good morning. I'm Gene. Thank you very much for joining us this morning, and I look forward to taking a lot of questions from you. And of course, we're going to talk about the outbreak issue. And I'm sure your questions will be related to that.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [4]

--------------------------------------------------------------------------------

Good morning. I'm Kim Jiyeon. Even though we had some struggle in the first quarter, but looks like things are recovering. So it's quite fortunate to see that improvement. And I look forward to be able to tell you some good news from now on.

--------------------------------------------------------------------------------

Unidentified Participant, [5]

--------------------------------------------------------------------------------

Yes. Last time, and this is my second ALCON. Right now I'm on a stage for performance and a play. And then I asked a lot of questions. But then with the outbreak, I couldn't work as an actress. So I had a hard time for the first quarter, too. I wish that, that impact was not so bad to AfreecaTV. So what's the order of business today?

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [6]

--------------------------------------------------------------------------------

First, let me briefly go over the earnings highlights for the first quarter and then take your questions afterwards.

--------------------------------------------------------------------------------

Unidentified Participant, [7]

--------------------------------------------------------------------------------

Okay. Well, if you have any question, you can definitely upload your questions to the chat room. Now let us move on to the earnings report. Ms. Kim, it's all yours.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [8]

--------------------------------------------------------------------------------

Let me walk you through the business highlights of the first quarter 2020 followed by our earnings report.

First quarter was hit by COVID-19 outbreak, and we did our best to respond to the changes occurred home and abroad at each business sector.

As for our contents business, since March when strict social distancing was implemented, most of offline events and sports leagues were delayed at best or canceled. In this situation, we anticipated a rise in demand for online contents and have been producing diverse original contents through partnerships. To meet the demand for sports viewing, we held amateur sports tournaments like badminton and ping pong. Also moved the off-line eSports events to online. As such, we're doing everything we can to support our BJs to reproduce contents and to support new BJs who have never broadcast on our platform before, so they can realize their full potential and have fruitful outcome.

It's worth taking note that the number of active BJs and channels increased, which is an encouraging sign. We are putting efforts to maintain such positive trend in those indicators and even improve those indicators even further. We also believe that those active new BJs will contribute to expansion in learning and hobby categories, which needed improvements previously and also make a basis for diversification of contents. However, it was inevitable that advertising revenue impacted by the contraction of consumption market in general. Nevertheless, considering that our main clients are game companies, we foresee a favorable market situation for more ads running during the peak season of H2.

As for the advertisement in the first half, we have been funding efforts into developing advertisement products best suitable and effective for AfreecaTV platform. Once we complete the development of the products and equip ourselves with the necessary system, we'll probably introduce you those products that took another step further.

As for eSports business, thanks to many years of partnership with Blizzard for content production, we have been able to operate the existing leagues on a stable basis and created a foundation for production of new game league. We'll continue to partner with game publishers home and abroad to create more opportunities to expand the eSports contents.

Now let me report you on the earnings of Q1 2020. The total revenue of Q1 was KRW 41.5 billion, recording 4% decrease Q-o-Q, but 9% increase Y-o-Y. Revenues from platform recorded 8% growth Q-o-Q and 17% Y-o-Y. As for the platform revenue, the KakaoPay service suspension and mobile carrier building restriction, which dragged down the platform revenue last Q4, were all resolved. And with the stringent social distancing implemented since March, the number of paying users increased and ARPU also saw an uptick. On the other hand, advertisement revenue was impacted by COVID-19 outbreak, just as the ad market in general was hit hard. The revenue declined by 51% Q-o-Q and 29% Y-o-Y.

Not only platform ads, the branded contents which is included in the eSports League production revenue, were also directly impacted by the outbreak. With COVID-19 continuing, the Pro League now moved to online since March. Currently, the eSports production revenue is being recognized. The outbreak will continue to impact April, affecting ad revenue of Q2. However, Q2 will be better than Q1.

All 18 Open Studio revenue has been reflected in the multi-platform revenue, recording 5% decrease Q-o-Q. With social distancing, as you can imagine, those Internet cafes had limited operation, which affected the revenue.

Next slide, please. The Q1's operating income recorded KRW 8.08 billion, a 11% jump Q-o-Q, but an 11% decrease from Y-o-Y. Operating margin stood at 19.5%, which is a 2.6% increase Q-o-Q, but a 4.4% decrease Y-o-Y. These numbers were mainly influenced by a drop in ad revenue and multi-platform revenue, and the details will be shared next slide.

Now turning to operating expense. Q1's operating expense recorded KRW 33.4 billion, a 7% drop Q-o-Q. Early this year, we hired about 40 new and experienced staff, which drove employment cost of Q1 up by 14% Q-o-Q. And increased traffic and dwell time in March brought dedicated line costs up. As for depreciation cost, last year, we built eSports Arena coliseum for the first time, and its rent and depreciation expense of that CapEx was recorded from Q1 this year. Hence, a 7% growth of the depreciation cost Q-o-Q. On the other hand, commission and service charge, which is directly related to ad revenue, dropped by 53%. Content production cost also dropped by 40% Q-o-Q. Big events of the Q4 last year didn't happen this quarter. It's driving expense -- event expense and the overall expense for the operating percent down. Other than that, there is no other outliers. Thank you very much.

--------------------------------------------------------------------------------

Unidentified Participant, [9]

--------------------------------------------------------------------------------

Well, yes, I see big changes and some impact, and I can tell that the ad area was hit hard by the COVID-19 outbreak. Now anyone, if you have any questions, please feel free to ask. We will be more than happy to answer your questions whatever they are. While we wait for more questions, let me start by asking a few questions here and there.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Unidentified Participant, [1]

--------------------------------------------------------------------------------

Well, let's talk about the ad revenue drop. I believe it's the outbreak of the COVID-19 that actually caused this. But do you believe that this impact will last until the second quarter and further? And also, you had the guidance for the ad revenue for this year. How would you like to address this given the situation?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [2]

--------------------------------------------------------------------------------

Well, I believe the impact of the COVID-19 will continue to impact second quarter. Hopefully, by the first half of this year, it will stop, but I'm not sure if it will continue until the end of the year. But it's clear that it will have an impact until the first of the year for sure. And it's actually not just our company that's impacted by this, but all the other companies in this market and other markets as well are hit hard by it. You will know that 1 quarter is about 3, 4 months. So the impact isn't going to be stopped just for the first quarter. And there's also platform ad and also the branded contents. There are many different types of the ads. So we'll try to find avenues for growth even in this situation.

--------------------------------------------------------------------------------

Unidentified Participant, [3]

--------------------------------------------------------------------------------

Okay. I believe all the investors are having difficulties and the companies like ourselves also having difficulties as well. I understand that there's a -- there was a new hires and experienced hires in the first quarter. Maybe is that why that brought the expense for the employment high?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [4]

--------------------------------------------------------------------------------

Well, that's a very keen and sharp question. Well, as you know, every year, given the nature of our company, we have new hires every year. And every year, actually, that hiring, recruiting takes place in the first part of the year, which is why employment cost is high for the 1Q. We see that as an important investment, not just an expense, because it's important for us to expand our company, and we also need to have this very young spirits, which gives new energy to our company overall. So every year, this new recruit official one is going to continue, but maybe we'll have to adjust the size of the new hires. Usually, we had -- we hired 10, as many as 50. But given the situation last year, this year, and hopefully -- well, actually from 2 years back until this year, for the past 2 years, we were heavily in hiring because we had expected big growth. So it's an intended move. So I hope you will understand in that light.

--------------------------------------------------------------------------------

Unidentified Participant, [5]

--------------------------------------------------------------------------------

Well, yes, it's very encouraging to see that you are hiring more people amidst this very difficult situations. We're very thankful for your move.

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [6]

--------------------------------------------------------------------------------

Well, thank you for pointing that out because we are, in a way, a big company, well, you can call it as a small company. But as a social responsibility of this company, we believe it's important to create opportunities for people to be employed. And of course, the margin, operating margin for us is quite big. So I think, again, hiring, meaning investing in people is very, very meaningful for us.

--------------------------------------------------------------------------------

Unidentified Participant, [7]

--------------------------------------------------------------------------------

In the first half of this year, internationally speaking, the Tokyo Olympics have been delayed to next year. So what kind of impact do you foresee?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [8]

--------------------------------------------------------------------------------

Yes. I mean of course, because every year, the big sports events have been part of our big businesses. And every year, if early, when the -- we always had some big events going on, but it's all stopped now. And as the February and January, our business didn't go well because of those big events being canceled.

--------------------------------------------------------------------------------

Unidentified Participant, [9]

--------------------------------------------------------------------------------

And [Pengsoo]. I'm from Daiwa Securities, I'm Kang Minjoo. Well, the user engagement is strengthening policies like the point accumulation policy, how are you going to execute this?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [10]

--------------------------------------------------------------------------------

For the first quarter, if you log into our platform, there -- if you're going to the MY menu, you can see your points accumulated. So the accumulation already started. However, now these points need to be transferred to tokens. And then you have to be able to spend those tokens. And right now we're preparing for the system, and that's going to be implemented this year. You can use those off-line, like at our Open Studios or you can buy beverages on Internet cafes and also AfreecaTV shops. It's not going to be any 100% commerce, but our AfreecaTV IP goods will be launched. So you can buy those physical items, too. I think that can start this quarter.

--------------------------------------------------------------------------------

Unidentified Participant, [11]

--------------------------------------------------------------------------------

Yes, I'm accumulating my points, too. I have high hopes for this. And additionally, can you maybe give us an idea about what the 2020 guidance would look like?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [12]

--------------------------------------------------------------------------------

Well, I think, Ms. Kim or Gene, do you want to take that? You can decide whether to give the guidance or not.

--------------------------------------------------------------------------------

Joonsung Kim, AfreecaTV Co., Ltd. - CSO & CFO [13]

--------------------------------------------------------------------------------

Well, let me give you an answer to this. Well, as you know, globally and domestically, actually, companies are not exposing their guidance due to high uncertainties due to COVID-19 outbreak. And it's same here, I think it's too early to give you the guidance at this very point. But as our CEO and Ellen mentioned, as we see the situation now in terms of the ad and other areas, we are seeing a pickup from this point on. Despite this improvement, though, I think it's very difficult to give you an overall picture of the 2020 guidance. So what I can do is maybe think about what to say in the second half of the year, and then come up with new guidance and then share that with you.

--------------------------------------------------------------------------------

Unidentified Participant, [14]

--------------------------------------------------------------------------------

I'm [Beth Dujeet from the NK Investment.] Can you give us the trend of the MUV for Q1 and for this year also, especially with the delay of the Olympics? And is the traffic on VOD increasing and how much? How about you, Ellen, you can comment on this, right? You have not answered any questions. It's your turn.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [15]

--------------------------------------------------------------------------------

Yes, the MUV for the first quarter, I can tell you a little bit about that. The January and February, we didn't have any big changes. But like I said, in March, the traffic turned around and not just the traffic itself, but the BJ activity indicators improved. So a lot of BJs are putting out good contents. And that means we have new BJs, and that means we have new users coming in. And for many years, we have funding efforts to diversify and accumulating contents, and that also contributed to this trend. And annually speaking, the MUV won't be not as different as for the Q4. But March, definitely, we saw an uptick here. Of course, March was the time when social distancing was implemented, and that was the part of the reason why. And how about you, Sang-woon, you feel that, right? You feel that since you are BJ.

--------------------------------------------------------------------------------

Unidentified Participant, [16]

--------------------------------------------------------------------------------

Yes, I do. And now that people are distancing with each other and they like to stay at home, so they like to read at home or they log on and spend time online. I think that was the reason why.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [17]

--------------------------------------------------------------------------------

Next question?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [18]

--------------------------------------------------------------------------------

Oh, yes, The VOD part. The annual MUV for VOD. We are quite optimistic. The MUV is a very important indicator for our platform. And so logically speaking, MUV goes up, that means there are lots of contents to watch. That means the BJ's activities have expanded, and we have a lot of BJs and interesting contents. And that means our ecosystem and our platform has become more sound. So is that what's happening? If we just rely on big events only to improve MUV then – and, of course, we had some influence like that. We had good experience with World Cup and U-20. And based on our past experience, I think, in general trend, considering our uniqueness of our service and our users' characteristics, we do have some room for improvement, and there's a room to grow even more. And for VOD, especially, we said that we're going to share with you some indicators at the end of this year. But in general, things are going really well comparing to other live services. However, that change itself is kind of minimal. So it's too early to say. But definitely, User Clip service is boosting that service. And consumption and video, and we have to strengthening the viewership, and we are making a lot of different attempts and testings. But every year, 5,000 user clips are being produced. And the VOD viewers UV has reached, how much? So 2.5 million MUV, right? So we really have to push hard to improve on that.

--------------------------------------------------------------------------------

Unidentified Participant, [19]

--------------------------------------------------------------------------------

Thank you very much. Next question from Mr. Kim Dong-hee of Meritz Securities. What is the paying user and ARPPU in relation to sharing economy trends? And how is the ad business doing in April?

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [20]

--------------------------------------------------------------------------------

Well, as for the paying user, Q-o-Q, we saw a 7% increase. Well, I can see that in the last quarter, we saw a drop because of the payment methods and issues related to it. And on top of that, with the COVID-19, we saw more -- new inflows of the paying user. We also saw a slight increase of the ARPPU, but clearly, it was the paying user that saw a stronger uptick than ARPPU. Now next question was how is the ad business doing in April?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [21]

--------------------------------------------------------------------------------

Well, we're seeing an improvement, though slightly. In the team, different teams, we have around 6 teams that are working on ad business. The first quarter of 2020, we see more than 5 teams that saw KRW 10 million of revenues already in that quarter. So that's pretty good. And again, ad is influenced a lot by the outside situations. But we're seeing a pickup from April and onwards. And I hope that things will be even better for May and onwards.

--------------------------------------------------------------------------------

Unidentified Participant, [22]

--------------------------------------------------------------------------------

I'm Lee Moonjong from Shinhan Investment. You said activity indicators improved in March. Will this continue in April? Does this mean gift economy revenue improved in March comparing to 2 previous months?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [23]

--------------------------------------------------------------------------------

Yes, that's what happened, right? Yes, it's on the rise. In April, also, the pattern is there.

--------------------------------------------------------------------------------

Unidentified Participant, [24]

--------------------------------------------------------------------------------

I don't see any more questions. Why don't I maybe turn your attention to eSports to our CSO, Gene. Let me see.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [25]

--------------------------------------------------------------------------------

Well, as our CEO mentioned, let me just add a little bit to the VOD business of AfreecaTV. Of the indexes of March, there is the dwell time on the VOD, and I can see an improvement there. I think that means that people who used to just watch the live are now spending more time on our platform on the VOD. And for the newcomers, it's more -- there's more accessibility to the VOD than the live. So we have the replay and the user clips. I think these have played a role there on a positive note.

--------------------------------------------------------------------------------

Unidentified Participant, [26]

--------------------------------------------------------------------------------

Thank you so much for 50 balloons that you have sent out to us. Next question, please? Yu Incheol from Citi Securities. Ad balloons have been your focus this year. Can you share with us any user indicators or revenue on that?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [27]

--------------------------------------------------------------------------------

Yes, ad balloon, it's an ad product. And of course, we have the gift economy ecosystem, but it's linked to that ecosystem. And ad balloon, because it's a product, it's been impacted by the ad contraction. We expect it to -- the revenue should go over KRW 1 million. But it dwelled on KRW 60 million to KRW 70 million. Once the ad market becomes more vitalized, then I'm sure the ad balloon will recover also.

--------------------------------------------------------------------------------

Unidentified Participant, [28]

--------------------------------------------------------------------------------

There was a question that I wanted to ask. Yes, there's a question to our CSO, Gene. Globally, eSports business seems to grow for sure. But domestically, that growth is very minimal as we saw in the back-to-school event last time. Do you believe the sponsorship revenue and the lead revenue are actually growing?

--------------------------------------------------------------------------------

Joonsung Kim, AfreecaTV Co., Ltd. - CSO & CFO [29]

--------------------------------------------------------------------------------

Well, I'll be honest with you. Before the first quarter, we saw continued growth. But on the first quarter, we were expecting to see the same growth. But you know this issue, the outbreak, and this led to a delay of the leagues such as ASL and the coliseum also had a trouble, opening was delayed. And it's not just us. LCK are now -- they tried online, but they are now doing on off-line, but with no audience there. So that means that they are also seeing some difficulties. But I think it will get better in the future with coronavirus being less of a problematic issue in the future. So for the league sponsorship revenue as well, there were no such contracts in February and March, but in April, we're seeing more contracts that we are winning. But it's not, of course, at the level that we had wished and expected. But we actually tried ASL with no audience format. So I think we'll be able to continue on that area. Well, we'll see what happens with the corona, with the COVID-19, whether we're going to bring in the audience again, because it's a lot more fun and more exciting for both audience and sports athletes.

--------------------------------------------------------------------------------

Unidentified Participant, [30]

--------------------------------------------------------------------------------

Right. I mean imagine me acting with no audience in front of me. That's so difficult even to imagine.

--------------------------------------------------------------------------------

Joonsung Kim, AfreecaTV Co., Ltd. - CSO & CFO [31]

--------------------------------------------------------------------------------

Of course, with the audience in front of you, you get more adrenaline and you get more excited and you perform better. So given that kind of nature, I think in the second quarter, I think we'll be able to see gradual growth, of course, may not be too big of a growth, but I think it will be positive, and it will have an impact on our revenue overall. I do hope to see a pickup in the future.

--------------------------------------------------------------------------------

Unidentified Participant, [32]

--------------------------------------------------------------------------------

Thank you, [Johan] , for becoming our fan. Well, my next question will be, I was curious about that, too. Well, Twitch and YouTube and the existing competitors, but also SKT and NAVER's influencer search engine, all these are being revitalized. And that means the viewing time can be divided among those platforms. So what does make AfreecaTV so special and competitive and stand out from the crowd?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [33]

--------------------------------------------------------------------------------

On NAVER's influencer search engine started, right? But the process, when the influencer registered there, then it's going to be part of their search engine, right? Did you register with NAVER?

--------------------------------------------------------------------------------

Unidentified Participant, [34]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [35]

--------------------------------------------------------------------------------

Well, I think that's the answer. You just answered my question. Influencer search engine can be firmly systemized and then it's going to push up the traffic. But they are tapping on the influencers and diversifying their channels. But that means that they're going to expand the influencers' impact and that's the direction we are heading. So AfreecaTV's live streaming service, which is our core, that will be the basis for our influencers to expand their contents, and we can definitely partner for that, and we're going to pursue more.

--------------------------------------------------------------------------------

Unidentified Participant, [36]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [37]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Unidentified Participant, [38]

--------------------------------------------------------------------------------

I'm from JPMorgan. Can you -- what's the April trend for paying users? And tell us the portion of high-paying in ARPU? And what was the reason for the nonoperating expense?

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [39]

--------------------------------------------------------------------------------

The April trend, it's the same as before. High-paying portion in the ARPU also stays very similar to previous months. And like I said, the top 20% users take up the biggest portion of the ARPU -- of the revenue. And this question related to the previous question, the losses on valuation has been reflected and also the corporate tax rate was also increased.

--------------------------------------------------------------------------------

Unidentified Participant, [40]

--------------------------------------------------------------------------------

Hello, I'm Yu Incheol from Citi Securities. One more question. YouTube, since March, has the live streaming menu per game is being executed and that's been divided. And how much competition do you foresee?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [41]

--------------------------------------------------------------------------------

Yes. I know that's how they have been doing on YouTube. And right now the LCK Playoff has broadcast on YouTube, too. And the viewership was quite high. That's my knowledge. All in all, there is definitely the competition getting fierce on official broadcasting. But the personalized contents of each BJs that are on our platform, I think YouTube needs to do more to catch up with us. What we do is different from YouTube, which is one-way broadcasting. But here, there's the LCK's official broadcasting, but dozens of BJs relay those broadcast and they communicate with the BJs. And that kind of cumulative effect is something very significant. And the channel power of each BJ is strengthening, and that's our competitive edge.

--------------------------------------------------------------------------------

Unidentified Participant, [42]

--------------------------------------------------------------------------------

Thank you very much. On the YouTube streaming part, there is a big difference in delay compared to AfreecaTV. Maybe it's their server. So viewers are having trouble because it's a real-time communication that matters, and I'm sure this should be even more problematic for the game viewing users. So AfreecaTV, as for the live streaming, I believe, is top, it's unrivaled, unmatched in this country, at least.

Okay. Now Gene, let's talk more about Coliseum. Depreciation cost is growing on that front. Is it because of the CapEx that's been reflected in the financial statement?

--------------------------------------------------------------------------------

Joonsung Kim, AfreecaTV Co., Ltd. - CSO & CFO [43]

--------------------------------------------------------------------------------

Yes, that is one of the reason because Coliseum investment was about KRW 8 billion over 5 years period of time. And that is, of course, have to be -- depreciation costs will have to be reflected in our financial statement. So we need to reopen this, for sure, as much as -- as fast as we can and bring in as many audience to this space that we have constructed. For that to happen, we have to see the COVID-19 disappear.

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [44]

--------------------------------------------------------------------------------

Right. That's true. Well, I believe even if there are some unfortunate events, I'm sure we'll be able to see the silver lining there. At the Coliseum, we can play ping pong, badminton. If we only had relied on sports broadcasting rights, then we would be broke at this point. But we had the ping pong, we had the badmintons, we had these amateur and leisure sports users on our platform already before the COVID-19 outbreak happened. And we could use this kind of platform already. We have now amateur team, we have the pro team for the fishing. So that's a diversity for us instead of simply relying on one thing, which is the broadcasting rights. If we didn't have the diversity, we would, again, be very, very having a difficult time right now. So it's in a way a silver lining in the dark clouds.

--------------------------------------------------------------------------------

Unidentified Participant, [45]

--------------------------------------------------------------------------------

I'm Kang Minjoo.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [46]

--------------------------------------------------------------------------------

Start with the Yuanta, please.

--------------------------------------------------------------------------------

Unidentified Participant, [47]

--------------------------------------------------------------------------------

What's the revenue trend on gift economy in April? And how is the production of short clips going? And traffic and number of channels changed due to outbreak and also kind of content production trend on nongame contents?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [48]

--------------------------------------------------------------------------------

I think we kind of covered these, right? April, the trend has been on the rise since January and the pattern is continuing. And short clip is being used, daily 5,000, and max, it goes up to 7,000 also. Outbreak definitely affected us on the advertisement revenue. However, the traffic benefited from the social distancing, and it peaked in March. Of course, that doesn't mean that once the social distancing is lifted, then does that mean the traffic is going to go down? We don't know yet. The traffic in number of channels?

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [49]

--------------------------------------------------------------------------------

Yes, the number of channels definitely improved since March. And March and April will be almost the same. In terms of the content genre, still the majority is craft games. However, the et cetera category is on the rise, which is very encouraging.

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [50]

--------------------------------------------------------------------------------

Like leisurely sports, and what else, music and learning. Yes.

--------------------------------------------------------------------------------

Unidentified Participant, [51]

--------------------------------------------------------------------------------

Oh, I read books on my channel, too. I'm Kang Minjoo from Daiwa Securities. Can you share the strategies for each business unit, namely platform, ad and Open Studio, please?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [52]

--------------------------------------------------------------------------------

Okay. On the platform service business unit, I can say that the COVID-19 is actually an opportunity for us. What that means is I think people use the word untapped business, untapped business. Even if it wasn't for COVID-19, I think the video or the streaming service has great potential for growth. So that is the trend. And for our platform to be stronger and have a competitive advantage are 3 things. First, our BJs will need to be more active. And we need -- that means we need to give more support to our BJs from the platform side. So that's a BJ engagement, BJ care.

Second thing we need is that the BJs will have to have a big scope for them to be active, not just meaning that they don't have to stay within the AfreecaTV only, that they can have influences outside the AfreecaTV, meaning they can be like the bigger influencers.

The third thing is that content, of course, matters the most. How do we develop content? And how do we acquire original content? And how do we just more -- come up with more methods, both direct and indirect, to activate and revitalize these contents are the questions we need to have answers for. So that will be the strategies for platform. Now second business unit, which is the ad. We have the platform ad and the branded contents ad and the BJ engagement -- engaged ads. So these are the 3 areas that we focus on when it comes to ad business. What we do here in AfreecaTV is that, as for the platform ad, by next month, we'll be able to launch new products there, about 5, 6 of them. If at least 1 of these 5 or 6 could actually be used for the BJ engaged ad area and the others will be on the platform ads, so that means we have more room for growth on the platform ad area. So we're going to continue to partner with our BJs for that. So with the ad revenue, it depends on how willing, how eager you are to grow. What that means for the growth of the ad business, we have to have a very progressive investment. And we are more than willing to make that. And ad is very, very critical, has been the foundation of our company. So we're going -- I hope you will continue to be positive on our improvements.

Now the third part, which is the Open Studio was actually a big trouble there. Because the government regulation during the COVID-19, they chose Open Studio, which is the Internet café and the karaokes to be very much restricted in terms of their usages. And last month, I, myself, restructured Open Studio of AfreecaTV. As for the operations of the business and of the employment and how the staffing in that areas, I completely restructured Open Studios. And I think short-term wise, in the next quarter and even the second -- 2 quarters from now on, my restructuring effort will pay off in terms of the reduction of the cost and expenses. But when the COVID disappears or at least reduces, I think Open Studio will be able to play its role of the foundation of the platform and platform business. Of course, the growth will not be as substantial, but we're going to make sure that it grows internally. So Open Studios revenue has a big -- was impacted quite large because -- in a separate financial statement, there isn't that much that has a big impact on the consolidated financial statements. But Open Studio did have that -- did play quite a role there.

--------------------------------------------------------------------------------

Unidentified Participant, [53]

--------------------------------------------------------------------------------

Thank you for that answer. Is there any other questions? Oh, there is one. As for the new product that you're talking about, is there going to be like a network sales just like existing platform ads or it's going to be based on performances? Do you have a plan to launch everything, the 5 to 6x in the second quarter?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [54]

--------------------------------------------------------------------------------

Yes, it's going to be direct sales based on the performance. We won't be able to launch all 5 to 6 of them in the second quarter. But I think until July, one by one, we are going to launch them. But fundamentally speaking, we -- what we are doing is we're really working hard on advertisement. And we are -- we think that the advertisement is very important. And right now what we have is a very basic one. For a couple of years ago, there are some open advertisement platforms where other big companies are employing right now. Not just the advertisers, but also the ad agencies can come to the solution, and they can do the real-time bidding. It's a more upgraded version technologically. And that's also related to target. So application of such solution has started on our platform, too. But it's a solution, so it takes time to implement. So we started on this since 4Q, fourth quarter last year, and then it's going to take some 3-step phase.

--------------------------------------------------------------------------------

Unidentified Participant, [55]

--------------------------------------------------------------------------------

Thank you very much for your 50 StarBalloons,[Hana Genie]. Thank you so much. All right.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [56]

--------------------------------------------------------------------------------

All right. I think we had enough questions. Anyone else who would like to add more questions, please do so now.

--------------------------------------------------------------------------------

Unidentified Participant, [57]

--------------------------------------------------------------------------------

Well, I think the highlights were already shared very well. Okay.

There's a question. The Open Studio restructuring you mentioned, how big was it in terms of staffing or head count? I think each quarter, you actually launched at least 3 on average on this Open Studio. What's the plan for the future? And I believe that you're getting an investment from VC. Any plans or any changes to the plan?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [58]

--------------------------------------------------------------------------------

Well, for the off-line business like Open Studio, the customer satisfaction is very important as one of the indexes. So if we expand, so meaning launching more Open Studios, that means we actually had manager and part-timers, but we restructured this manager assistant and part-times. And the managers were taking care of certain areas. But now we have given -- we've restructured their roles and responsibilities. We don't have any regional managers anymore. So -- and nowadays, which at one Open Studio, we have the manager and part-time only without the assistants. That's quite a big restructuring. And you talked about 3 new Open Studios being launched every quarter on average, right? But from now on, we are holding on. So we are not opening new Open Studios anymore. We are going to have to look at our financial statement, and we're going to have to look at how the situations unfold. So right now we're not opening any new ones. As for the VC investment, yes, we've got some investment from VC. So the future -- the plan is we may have to see some delays there due to the investment, and we're going to have to talk with the VC on that scheduling.

--------------------------------------------------------------------------------

Unidentified Participant, [59]

--------------------------------------------------------------------------------

Oh, another 100 StarBalloons. Thank you so much. Great. Does this mean that we call it a day today? Looks like all the questions have been asked and answered fully. Should we wrap up? Yes. So it looks like we're going to have to wrap up today. Now can you say a few words before closing?

--------------------------------------------------------------------------------

Chan-Yong Jung, AfreecaTV Co., Ltd. - Co-CEO & Inside Director [60]

--------------------------------------------------------------------------------

Our earnings on the first quarter are dissatisfactory, right? Yes. I'm very sorry about the bad performance for the first quarter. But as I said in the beginning of the ALCON, I feel that we fought well because we have a strong potential for us to grow based on our ecosystem. The StarBalloon revenue, that as you came up since 3 years, but it's on the rise constantly. And to maintain that kind of trend, we have been pouring efforts internally and externally.

Earnings on the first quarter, I don't know how the market will view, but I feel that we have a big potential for growth still. And I keep on saying that we focus on advertisement business, but nobody knows how it's going to go. But I feel that we do have a solid foundation for growth. And I feel that this is an encouraging sign. So please look at our financial statement and sound community. And I think that can give you high hopes for the future. So yes, that's all I can say.

--------------------------------------------------------------------------------

Unidentified Participant, [61]

--------------------------------------------------------------------------------

Gene, anything you want to say?

--------------------------------------------------------------------------------

Joonsung Kim, AfreecaTV Co., Ltd. - CSO & CFO [62]

--------------------------------------------------------------------------------

Well, to add to what was already mentioned, when we had the earnings report on the fourth quarter, we said the first quarter of 2020 will be even better. Well, we hadn't expected COVID-19. No one were able to see that coming. But like I mentioned, our community is extremely solid, and we were reconfirmed once again that looking at the indexes such as new BJs and the concurrent viewers, if you look at all these indicators, we can see and say that our solid -- we are -- our community is extremely solid.

And given this, as mentioned already, in the second quarter and going onwards, we will be able to see a big improvement, of course, with COVID-19 disappearing slowly. Ad revenue for sure will grow compared to the first quarter. And as our CEO mentioned, AfreecaTV's BJ and user community is unbelievably strong and solid. And I have no doubt if there is no big issue, it's going to continue that way because it's not us that have created this community. It's the BJs, it's the users. We just need to be at the back of them and support them to grow. Thank you.

--------------------------------------------------------------------------------

Jiyeon Kim, AfreecaTV Co., Ltd. - Head of IR [63]

--------------------------------------------------------------------------------

Thank you. Well, I personally think that in the early this year, we said our paying user ratio would have to go up. That's what we had promised. But due to COVID-19's impact slightly, our user clips and the reward schemes, we're able to actually make our promise happen and deliver. And I'm very happy for that. And as the 2 gentlemen mentioned, it's because we have a very solid community and when the new users come in and flow into our community, they can see the value in staying in the community. That's all because of the hard work of the BJs. So we're very grateful. So I'm very positive on this.

And as for the ad, in the first quarter and the second quarter, I am, yes, concerned a little bit. But I think the second quarter will see an uptick as for the ad revenue for sure. And the eSports League are now turning back to the online format. So we're very looking forward to this. And in the second quarter, I believe, we can come back to you with even better earnings report.

--------------------------------------------------------------------------------

Unidentified Participant, [64]

--------------------------------------------------------------------------------

Thank you very much, and thank you for all the viewers and participants. I hope you enjoyed the ALCON today. I also hope that your questions were also answered and your curiosities satiated. Last ALCON and this quarter with -- we saw something unexpected, which is the COVID-19. I do hope to see that this virus go away very soon. And we'll be able to see -- come back to the normalcy as soon as possible. If you have any suggestions to ALCON itself, please let us know. You can contact us at the IR team of AfreecaTV. Thank you very much, everyone. And see you again at the next ALCON.