Investor Relations
Nov 2016 Disclaimer
This presentation was made as the dates shown and reflected management views as of these dates. All financial information regarding CJ E&M’s business results and forward looking statements and beliefs about future events are subject to known risks and uncertainties that may cause actual results to differ from those stated or implied.
The financial information in this document are consolidated earnings results based on K-IFRS. This document is provided for the convenience of investors only, before our external audit on financial results of our headquarter is completed. These statements involve risks and uncertainties, and actual results may differ.
This document contains “forward-looking statements” - that is, statements related to future, not past, events. In this context, “forward-looking statements” often address our expected future business and financial performance.
CJ E&M is under no obligation or responsibility to update the information provided in the presentation in correspondence to their respective dates. CONTENTS
1. Company Overview
2. Mid-Long Term Strategy
3. 3Q16 Earnings Review
4. Financial Summary
5. Appendix Company Overview WHO WE ARE
Founded in 2011 with O Media holdings* (5 companies merged) No.1 MPP in Korea 16 TV ch, M/S 27% CJ Media, OnMedia*, CJ Internet*, CJ Entertainment, Mnet Media*
Business divisions : Media, Pictures, Music, and Musical No.1 Film in Korea M/S 23% (2015)
Media: No.1 MPP in paying TV, operating 16 TV channels
No.1 Mobile game in KR Pictures: No.1 Film producer & distributor in domestic market M/S 34% (2015)
Games: No.1 mobile game developer, spun-off in 2014 Media Conglomerate Leading Creator Leading media company building digital & global expertise
4 COMPANY OVERVIEW
Sales-mix (2015) Snapshot (as of end Nov 2016)
Outstanding Shares 38,732,089 shrs 14.8% Market Cap. 2,692 mn USD Media 17.7% Pictures Shareholders' Equity 1,644 mn USD
67.5% Music, Musical P/B 1.64 x
Foreign Investment Limit 49.0 %
*KRW/USD = 1,000
Shareholders’ stake Price information (‘000 KRW) 120
CJ (001040.KS) 100 18.2% Jay Hyun, Lee & affiliates 80 0.4% 39.4% Foreign Investor 60 16.2% Domestic Institution 40
Treasury stocks 20 3.5% 22.3% Others 0 01.'15 04.'15 07.'15 10.'15 01.'16 04.'16 07.'16 10.'16
5 SALES-MIX (2015)
Media Pictures
26.8% TV Ad. 25.0% Theatre MSO subscription 51.4% Ancillary 61.4% Others 13.7% 21.8% Others
Music . Musical Netmarble Games
7.7% 16.2%
Mobile(Domestic) Music 18.0% Mobile(Overseas) Muscial 65.9% Others
92.3%
6 BUSINESS MODEL by Divisions
Media Pictures
Media Revenue Box Office Revenue
TV Advertising Subscription Fee Others Movie Theater Distributor 50% 50%
Advertiser MSO Distribution Fee 5% - Export CJ E&M - Contents Sale Cost Recoupment 16 TV channels (Production, Marketing) Main Investor - Digital Ads (3 Premium, 13 Basic) ) (PIP, MCN)
Production Investors 40% 60%
Production Purchase Drama, Comedy Contents Aggregation
7 BUSINESS MODEL by Divisions
Music Musical
Music Revenue Musical Revenue
Discontinued
Music Investment Production Licensing Artist Distribution Concert Mgmt (B2B/B2C)
B2B B2C Re-Licensing LP Copyright (60%) Platform (40%) Performance rights
IP development
Production Distribution Mnet $ 35% 9%
Artist Composer $
6% 10% Users …
8 Mid-Long Term Strategy
9 NEW BIZ MODEL for Digital Strategies
Platform Content Partner Business Model
Ad. Existing Model TV RMC Advertiser MSO Subscription VOD Ready Made Content + MIM Ad. RMC PIP Mobile Advertiser New UCC ECC Portal Model Online MCN Aggregation Archiving OTT … Mobile TV(total video) Content Revenue Sharing
Business Feature Current Partners Potential Partners
. Content Curation . MIM (mobile instant messenger) . Mobile/online media rep. PIP . Portals NAVER Daum . Focus on Traffic increase Kakao TV Gom TV tvcast tvpot . Global OTT (over the top) (Platform In Platform) . pre-roll Ad
. Individuals and Experts created contents (UCC & ECC) MCN . Eco-system for Creators
. Increase Partnership with Global OTT YouTube Daily Motion Youku Tudou iQIYI Yahoo! QQ (Multi-Channel Network) Platforms 10 Digital Business
‘2-Way Strategy’ in Digital and Global
PIP (platform in platform) PIP traffic over 30x quarterly PIP enhanced contents consuming
“Extend platforms and boost up traffic” Top 5 20X 10 9 MCN (multi channel network) 7 10X 7 Creator: 900 teams Others 29
“Expand digital creators and channels” 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Source: CJ E&M, Portal site ‘A’ Source: Nielsen, CJ E&M Digital Business In-house OTT Outer Platforms
NAVER Daum Kakao TV Youku V-QQ tvcast tvpot “In-house OTT platform, tving” + “Diversify ads revenue streams” - Enhance the content library - Diversify ads products and clients - Partner with global OTT players - Increase the traffic for the digital contents - Adapt to changing media marketplace - Expand further into other OTT platforms
11 Digital Business Timeline
Ready to Digital Shift, Expanding Platform Partner
Speed Up Growth as Global MCP Become a Global MCP(Master Contents Provider) based on growth in Asian markets. Expand to MIM, OTT Platform Strengthen Digital Media Biz. Competitive edge with Contents Create Basis for global expansion Digital Content market to grow eco-system and distribution power tv Pot for Creator Groups Broaden rapidly with media, movies, spectrum to OTT Platforms in music, and animation contents; Provide Content to Naver & Daum Europe, China, etc. as well as increase in Online and mobile service of Expansion through strategic collaboration and co- RMC(ready made contents) of partnership with leading MCN production with creator and drama, entertainment, music, players celebrity groups lifestyle, etc. Built Media Player Vingo To expand platforms with portal, Full HD and Dolby 5.1. MIM, SNS, etc. Ad Compatible with Mobile, PC, TV, etc. C Opened Digital Studio Increase PIP Serviced Platforms Digital Exclusive Studio for creator Compelling original TV & digital groups of individuals, experts, Expand Digital channels and PIP contents DB CPs, etc. Production facility service with our own CMS solution drama, comedy, and reality shows. optimized for creating and curation. Various mix of DOCs contents for online, mobile, To bolster digital ad. Revenue growth through service Built Own Solution(CMS) and social media Key Growth Driver, Digital Ads expansion linked with our own Digitizing, Archiving of contents. ad server Revenue DB Library of video contents based Linear TV + Digital Ads on user feed and traffic analysis Expansion of media mix
Enhance the Content Library Expand Creator Group Partnership with global OTT players Adapt to changing media Acquired Mezzo Media Extend specialties in various YouTube MCN Partnership marketplace Korea’s Major Digital Media Rep. contents including music, Optimized tool for digital marketing Continue expanding official beauty, game, lifestyle, etc. on online, mobile, and social channels of media, music, etc. Korea’s largest content production media Competitiveness through increase partnership in subscribers and traffic
2012 2013 2014 2015 2016E 2017E 2018E
12 Global Strategy for 2016
2 things to focus : Co-production, Extension of platforms
Export Enhance production skills for global contents
• Studio Dragon → Story-line, Casting, R&D, Filming Local Distribution Local Contents
ON AIR Co-production of global contents Broadcasting Network Media • Co-work with global networks and productions Co - production
Distributor Pictures 91% ontents
C
“Asia No. 1 Studio” Rebranding and extending channel coverages in Asia • Rebranding of ‘tvN Asia’
• New launch of ‘tvN Movie’ Digital Ads “High-end (PIP, MCN) Contents, Extend digital business to the global market Grow our business” “Digital Ads + • Planning global launch of ‘tving’
Platforms Global business” • New digital business in Japan with ‘Mnet smart’ Digital Global • Global OTT business thru local partnerships 2015 2016 13 Strategy for 2017 and mid-term
Extending business & Elevating content quality
Business Model Content Expand Extend Digital BM local content (Digital ads, Platform) (Co-production, OSMT) Expand OTT platform Co-produce dramas overseas • Widen OTT and music platform • Co-produce with Huace Media (‘17) Strengthen Value up • Launch “tving” globally by region (4Q16~1Q17) traditional BM Studio production • Co-produce w/ Warner Bros.’ Drama Fever (‘17) • Spin-off digital music (Mnet) & strengthen service (TV ads, Channel, Distribution) (Planning, Production, Distribution) • Expand co-production in Thailand and Vietnam
Extend digital ad BM Co-produce films overseas Studio Dragon • Expand digital ad products (Drama production) • Produce localized
14 Global Business Timeline
Rolling-out Localization Through the Best Experience
Expand Global Network JV Partnership under MOU Expand overseas network based on Preparing JV with Vietnam VTV. ASIA No.1 Contents Creator To expand local contents for the growth in Asia Region. broadcasting, films, and Increase co-production with local Global Culture Leader of Cultural advertising, etc. production and networks. Trend. Lead lifestyle trends. Movie, Global Projects Expand local cultural biz. and In 2013, expanded co-production business opportunities. films for the overseas market. Increase contents power in global Box-office hits in China,
2004 … 2014 2015 2016E 2017E 2018E 15 3Q16 Earnings Review
16 1. 3Q16 Financial Highlights
Improved profitability at Media vs. Loss at Pictures
Revenue Operating Income Net Income (Unit: Wbn) (Unit: Wbn) (Unit: Wbn)
13.6 14.1 42.8 27.9 370.0 385.0 378.8 12.1 357.3 12.5 56.7 313.5 54.0 2.4 49.3 48.3 8.9 47.8 56.2 93.1 47.8 40.6 40.3
280.5 227.6 225.4 268.4 3.1 268.6 (77.9)
3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16
Media Pictures Music,Musical
[3Q16] Revenue W378.8bn (YoY +2.4%), OP W3.1bn (YoY -77.5%) : Despite weak season and higher amortization cost, Media OP rose to W8.7bn thanks to strong digital ads and content sales : Music OP improved by expanding in-house records and synergies with Media, Musical OL reduced by strengthening in-house line-ups : Pictures recorded OL of W7.4bn owing to poor B.O. in domestic and overseas and accrued expense of W3.0bn from film investment fund [4Q16] Widening signature content including
17 2-1. Media – Financial Results
High amortization offset by strong digital ads & content sales
(Unit: Wbn) (Unit: Wbn) Major Shows 280.5 268.4 268.6
[3Q16] Revenue W268.6bn (YoY +18.0%), OP W8.7bn (YoY +24.0%) : While major channels’ TV ads continued growth even in weak season, PPL at lifestyle channels decreased slightly : Others revenue hiked (YoY +79.5%) thanks to strong digital ads, content sales, and festival revenue : With solid revenue growth backed by content quality, OP rose 24% YoY despite low season of TV ads and amortization burden
[4Q16] Entering strong TV ads season with expanded content sales to drive growth : To enjoy sales of
18 2-2. Pictures – Financial Results
Losing box office deepened operating loss
Major Movies (Unit: Wbn) (Unit: mn, %) 93.1
[3Q16] Revenue W56.2bn (YoY -39.6%), OL W7.4bn (TR) : Sluggish B.O. dragged down theater revenue (YoY -25.9%); Others revenue fell (YoY -72.8%) due to absence of overseas line-ups : Ancillary revenue rose (YoY +29.9%) with revenue from movies released in 1H16 including
[4Q16] Co-produced film releases in Asia including Vietnam and Thailand : Domestic)
Profitability steadily improved on in-house records & concerts
Major Content (Unit: Wbn) (Unit: Wbn, %)
56.7 54.0
13.2 14.1 (1%) 0% 1% 3% (2%) 9.2
Music Musical OPM Concert revenue Own labels portion
[3Q16] Music Revenue W46.2bn (YoY -4.8%), OP W2.4bn (TB) : In-house artists’ records and management revenue led margin improvement [4Q16] Focus on albums and concerts of in-house artists and sub-labels : Continued to broaden and strengthen featured artists’ work including records/digital albums and concerts [3Q16] Musical Revenue W7.8bn (YoY +935.9%), OL W0.8bn (CR) : Revenue expanded thanks to large-scale line-ups, yet operating loss recorded upon initial marketing expense for
20 Operating Costs, COGS breakdown
Operating Costs COGS Breakdown
(Unit: Wbn) 2014 2015 3Q16 acc. 6.6% 8.3% 8.5% OPEX 1,245.3 1,294.6 1,023.5 28.4% COGS 977.3 1,019.4 797.3 30.0% 35.9% 2.8% 3.3% Payroll Expenses 70.8 83.9 69.6 3.7% Depreciation & Amortization 14.5 14.4 10.9 62.2% Commission Expenses 94.2 95.5 86.5 58.4% 52.0% Marketing & Promotion 47.4 37.4 29.8 Other Expenses 41.2 43.9 29.3 2014 2015 3Q16 acc. COGS/Sales (%) 79.3 75.7 76.0 SG&A/Sales (%) 21.7 20.4 21.6 Payrolls D&A Commissions Others
Content production and Operation efficiency (3Q16 acc.) D&A portion rose due to change in amortization period : COGS/Sales: 76.0% (YoY -0.2%p; increased D&A, reduced Others) : Revised original drama contents’ useful life : SG&A/Sales: 21.6% (YoY +1.9%p; increased commission & marketing) : 4y → 1.5y incurring higher amortization cost in 2016
Additional revenue helps profitability Higher amortization burden to weaken going into 2H16 : Greater portion of increased amortization cost in 1H16 : Media + Music → Drama & variety show OST, Concerts : Offset by healthy growth in Media revenue : Digital PIP, VOD → Additional revenue
21 Financial Summary
22 Appendix 1-1. Balance Sheet Summary
(Unit: Wbn) FY 2015 3Q16 YTD (%) Total Assets 2,365 2,636 11.4 Current Assets 940 840 (10.6) Cash and Cash Equivalents 47 123 159.8 Other Current Financial Assets 893 717 (19.7) Non-Current Assets 1,425 1,795 26.0 Tangible Assets 77 265 242.0 Intangible Assets 653 696 6.6 Total Liabilities 805 965 19.9 Current Liabilities 642 739 15.0 Non-Current Liabilities 162 226 39.1 Shareholders' Equity 1,560 1,671 7.1 Equity capital 1,163 1,163 0.0 Retained Earnings 370 419 13.2 Other Reserves 18 29 57.7
Key financial ratios
(Unit: %, %p) FY 2015 3Q16 YTD Current Ratio (%) 146.4 113.7 -32.6%p Net Debt Ratio (%) (3.0) 16.6 19.6%p Cash Ratio (%) 55.2 23.4 -31.7%p 23 Appendix 1-2. Income Statement Summary
(Unit: Wbn) 3Q15 2Q16 3Q16 YoY (%) QoQ (%)
Revenue 370.0 357.3 378.8 2.4 6.0
Media 227.6 268.4 268.6 18.0 0.1
Pictures 93.1 40.6 56.2 (39.6) 38.5
Music 48.5 47.2 46.2 (4.8) (2.1)
Musical 0.8 1.1 7.8 935.9 631.0
OPEX 356.4 343.2 375.7 5.4 9.5
COGS 286.5 269.8 290.8 1.5 7.8
SG&A 69.9 73.3 85.0 21.6 15.9
Operating Profit 13.6 14.1 3.1 (77.5) (78.3)
Non-Operating PL 19.6 33.5 6.4 (67.3) (80.9)
Financial PL 3.0 (5.0) (4.1) (235.6) (17.1)
Equity method G/L 13.3 44.5 14.0 5.2 (68.5)
Others 3.2 (6.0) (3.5) (211.3) (41.8)
Pre-tax profit 33.1 47.6 9.4 (71.5) (80.2)
Tax Expenses 5.2 4.8 7.0 34.5 45.9
Ongoing Operating Income 27.9 42.8 2.4 (91.3) (94.3)
Discontinued Operating Income 0.0 0.0 0.0 - -
Net profit 27.9 42.8 2.4 (91.3) (94.3)
24 Appendix
25 Media Industry Outlook
Top-line Growth through Digital New Biz. in Jumping Market
Positive Growth for Digital Media – Extend and Expand Content Business based on Long-tail
: 2018(E) domestic ad. market $12bn - digital ad. to grow to 34% of total ad.
: 2018(E) video streaming market $17bn - 47% from mobile ad., driving growth
: Digital content production system + new biz. model such as PIP and MCN → Secure growth in growing domestic/overseas market
Domestic Ad. Mkt., Positive Outlook for Digital Ad. Video Streaming Mkt. in China, Mobile Ad. Driving Growth ($ bn) ($ bn) 12 20 Mobile Video Ad Online Video Ad 9 Digital 15 Others TV 6 10 Printing Others 3 5
0 0 2001 2006 2011 2016F 2012 2013 2014E 2015E 2016E 2017E 2018E source: KOBACO, CJ E&M source: China Internet Watch, iResearch, CJ E&M 26 PIP and MCN Business Model
3-Layers for Digital Contents Distributing in Multi-Platform
Content CMS Platform Curation + Ad. Content Mgmt. System C Ad. User pool Media Contents
Ø Ready Made Contents PIP Digital Ø Segmented Clips Solution Contents … … …
Ad. Digital Contents Ad. Ø In-house made MCN Digital Ø Creator Group made Solution Contents Ø Collaborated
Digital Studio OTT Program Scheduling Solution Customized contents for multi-platforms Creator Community Archive, Content Curation : variation fit for each platform Eco-System for Creators Billing and revenue sharing settlement Demand Pulling Data Analysis : digital contents segmented by target Cross-Media ad. audiences 27 Comparison of Digital Ad. Model
Revenue Diversification from Media-Mix
Traditional TV ad. Paid VOD Models Digital CPM ad. Digital CPV ad.
. UAP / 15 sec. . price per episode . cost per millennium . cost per view
16 W mn 1 W th 10 W th 10 won + X + X ‘000 bn viewership mn views 10% ratings 10 1 impressions 1 views
Cost per household Gross Sales Cost per impression Gross Sales 10 won W10bn 10 won W10bn
($ bn) Domestic Digital Ad. Market 5 5year : Domestic digital ad. spending will reach $4bn in 2018 Cagr 10% 4 : emerging importance of digital media-mix with 3 traditional media 2 : competitive edge with analysis system for measuring ad. 1 effectiveness
0 : increase digital media revenue with various media mix 2000 2004 2008 2012 2016E source: KOBACO, CJ E&M 28 Fortifying with In-house Studio (2016)
Studio Dragon, aiming for new growth in Asian Contents market
R&D
Studio Dragon 91% Immerse in local market Story . Expand distribution . Co-produced contents Studio Dragon Production
100% 100% 100% The Spin-off of Drama subdivision, New entity for the Drama : Acquisition of the well-known production company Culture Hwa & Dam KPJ → Develop high-end dramas Depot Pictures Launch of a major studio to lead the content market : Expertise in storytelling, diversified genre contents, Introducing a cinematic quality to TV storytelling
* Studio Dragon (3Q16) Growing into a global production company : Total assets W244.4bn, Total liabilities: W108.6bn, Total Equity W135.8bn : Local-partnership, co-produced contents
29 Netmarble Games – Financial Highlights
Margin restored backed by new game launch and overseas expansion
(Unit: Wbn) (Unit: Wbn) Major Games
343.9 351.8 359.4
[3Q16] Revenue W359.4bn (YoY +27.5%), OP W63.6bn (YoY +12.4%) :
[4Q16] Secure popularity of new games, strengthen global presence : Domestic)
30 GAMES STRUCTURE after JV (2014)
Partnership Accelerates Move into the Global Market
l Partnership in New Corp. Advisor : Integration of Game Biz. (Netmarble & CJ Games) Jun Hyuk, Bang : Collaborate with Tencent for higher synergies and stronger publishing 35% 36% 28% l Equity Investment from Tencent : US $500mn with 28% stake : As a fully-loaded Strategic Investor rather than FI CJ Games l Removal of Regulatory Barrier Netmarble Games : Restructuring to facilitate M&A (Developing studios are great-grandsons of Subsidiary Studios the holding company. Partial acquisition is banned by FTC in current conditions)
Netmarble Netmarble Netmarble Netmarble Overseas N2 Nexus Monster Npark branch Equipped to Become a Global Player * Revised stakes after capital increase 1) Feb 2015: Mr. Bang 32%, CJ E&M 31%, Tencent 25%, and NCsoft 10% 2) Jun 2016: Mr. Bang 31%, CJ E&M 28%, Tencent 22%, and NCsoft 9% 31 The OTT Market
Global OTT Market Projection Domestic OTT Market Projection ($ bn) ($ mn) 780 80 Europe 800 68 North America 635 Asia Pacific 60 55 600 Other Regions 48 514
39 415 40 400 307 30 259 23 193 18 200 149 20 109 CAGR +24.7%
0 0 2014 2015E 2016E 2017E 2018E 2019E 2020E 2012 2014 2016E 2018E 2020E Source : Strategy Analysis Source : Korea Communications Commission
Service positioning of platforms Service positioning of platforms
Subscription C Business Model Type of Contents Platform Netflix A Subscription RMC tving A
tving B Ads UCC DIA TV Ideal Position User B Ready Created Made C Subscription RMC Netflix Contents Daum Contents tvpot D E D Ads UCC Youtube
YouTube Youku Naver E Ads UCC + RMC Youku Tudou Tudou F2P w/ Ads tvcast 32 Source : CJ E&M Source : CJ E&M Appendix 2. Main line-ups for 4Q16
Media Pictures · Musical
33 Thank you
34