[NEWS ANALYSIS] CJ ENM hopes its U.S. money pit will prove to be a gold mine

Industry

Published: 21 Sep. 2022, 16:57

[NEWS ANALYSIS] CJ ENM hopes its U.S. money pit will prove to be a gold mine

Oliver Latta, left, and Teddy Banks pose in the press room with the award for outstanding main title design for ″Severance″ on night two of the Creative Arts Emmy Awards on Sept. 4, 2022, at the Microsoft Theater in Los Angeles. [AP/YONHAP]

CJ ENM's acquisition of Endeavor Content in late 2021 was a big deal, the 930 billion won ($666 million) price tag putting the Korean entertainment company firmly on the map in the U.S. market.

The purchase, the largest ever by the company, is also turning into a bit of a money pit.

In the transaction, CJ ENM bought 80 percent of the “scripted business” of Endeavor, a Beverly Hills, California production company best known for distributing hits like “La La Land” (2016).

CJ ENM reported a 25-billion-won net loss in the second quarter of 2022. The company said the red ink was largely due to continued expenses related to the purchase of Endeavor Content, now known as Fifth Season. The previous quarter, its net profit was down 98 percent on year, also due in part to the cost of the acquisition.

The company's stock is down 43 percent on year and is trading at an all-time low. It has lost about half its value since Oscar-winning "Parasite" (2019), which it distributed, was released.

At least one analyst argues that these costs are not unusual for acquisitions and that the deal should be given some time.

"Although it's regretful to see the synergy with Endeavor Content's businesses has not lived up to expectations, the company will strengthen growth momentum in the mid to long-term," said Choi Min-ha, an analyst at Samsung Securities.

She is forecasting Fifth Season to turn a profit in the second half as it has 13 to 15 works being delivered this year.

CJ ENM's overseas revenue has been increasing since the acquisition. In the first quarter, its overseas revenue was up 62.4 percent to 245.3 billion won, and in the second quarter, it was up 217.6 percent to 374.3 billion won.

The Emmy Trophy [AFP/YONHAP]

The poster for ″Severance,″ a workplace thriller series produced by Fifth Season [CJ ENM]

Fifth Season was the production company for "Severance," an Apple TV+ workplace thriller that received 14 Emmy nominations and took home two of the awards.

CJ ENM recently changed the name of Endeavor Content to Fifth Season to reach a wide audience in the global market with a new brand. The name symbolizes the harvest season, "the richest time of the year" and the company's aim to "present richer and fresher content to the world."

Fifth Season aims to produce over 30 films and dramas each year and has $1 billion of projects planned for 2023. It plans to distribute seven more dramas by the end of this year.

CJ ENM says that having a studio of its own in the U.S. ensures a steady source of programming and gives it ownership of copyrights, as opposed to signing with other companies, which results in complicated dynamics when it comes to ownership of intellectual property.

The purchase gives the company access to networks, distribution channels and production capabilities, the company argues. It adds that having a U.S. company helps it in terms of market entrance as the U.S. can be an unfriendly environment for "Asian and non-mainstream players."

CJ ENM now has three main pillars under its wing: Fifth Season, Studio Dragon and CJ ENM Studios.

Studio Dragon and Fifth Season will carry out 10 collaborative projects this year. The two companies will either adapt Endeavor's English films into Korean or vice versa, or co-develop new output together.

CJ ENM Studios recently appointed film director Yoon Jae-kyun as the new co-CEO along with CEO Ha Yong-soo. The company will focus on producing for online streaming services.

BY YOON SO-YEON [yoon.soyeon@joongang.co.kr]