2019 Outlook Media platform/Content Most favorable environment in history; focus on PR.I.C.E Analyst Jay Park +822-3774-1652 [email protected] Contents [Summary] 3 I. Outlook by segment 4 II. Medium-/long-term outlook 10 III. Key points to watch 12 IV. Global peer group (valuation) , Investment strategy 21 V. Top Picks 23 Studio Dragon (253450 KQ) YG Entertainment (122870 KQ) [Summary] Korea’s 2019 media/entertainment competitiveness Shares to be driven by content sales (p, US$m) (%) Media/content business model focused on direct sales 500 40 FTSE KOREA MEDIA indx (L) Key words: Global platforms, geopolitics, licensing fees, Domestic ad market growth (R, YoY) blockbusters, investments, leverage Broadcast content export growth (R, YoY) 400 30 Media/content business model focused on ads Key words: Domestic market, ad trends, seasonality, politics/sports 300 20 200 10 100 0 OTT export expansion in 2016-18 Chinese market lull 0 OTT export expansion in 2019F + Chinese market recovery -10 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Note: 2017 exports are based on KOCCA’s estimates; 2018 exports based on our estimates Source: Thomson Reuters, KOCCA, Cheil Worldwide, Mirae Asset Daewoo Research 3| 2019 Outlook [Media platform/Content] Mirae Asset Daewoo Research I. Outlook by segment: Media ads Ad market: Mobile and • We expect the domestic ad market to grow 3% YoY (similar to GDP growth) to W11.3tr, amid the absence of large- generalist/cable TV scale sporting events. • We forecast positive growth across all segments (except print ads), with mobile, generalist channels and cable TV channel ads are growing channels likely to drive growth. sharply • In 2017, Korea’s total ad spending as a percentage of GDP stood at 0.73% (+0.1%), which is more than 0.1%p lower than that of developed markets. • Key point in 2018: Major comprehensive channels and cable TV channels outperformed the overall broadcasting market, despite major sport events. Digital ad market exceeded broadcasting ad market in 2016; Total ad spending as % of GDP in 2014-17 mobile ad market to approach broadcasting ad market in 2019 (Wtr) 4.5 TV terrestrial TV terrestrial + Pay-TV 4.0 Mobile Digital 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F Source: KOBACO, KOA, CJ ENM, Cheil, Mirae Asset Daewoo Research Source: KOBACO, KOA, CJ ENM, Cheil, Mirae Asset Daewoo Research 4| 2019 Outlook [Media platform/Content] Mirae Asset Daewoo Research I. Outlook by segment: Media ads Ad market: Mobile and • Performance gaps between media formats: Digital ads (+8.5% in 2018F, +7.8% in 2019F) show stronger growth generalist/cable TV potential than broadcasting ads (+2.4% in 2018F, +0.4% in 2019F), backed by increasing time spent on digital channels (quantitative) and high cost efficiency, based on customer data analysis (qualitative). channel ads are growing • Digital ads: Mobile shows higher growth potential than PC; video ads are major growth driver; popular content sharply on NAVER TV and YouTube deserve attention Broadcasting ads: Generalist/cable TV channels have higher growth potential than terrestrial TV channels; CJ ENM • and JTBC have seen their viewership steadily rise, while other generalist channels are expanding investments. • In 2019, content competitiveness will likely be confirmed by ad revenue (CJ ENM’s TV ad revenue to grow 15% YoY in 2018), as in 2018. Traffic by channel implies ample growth potential of digital ads NAVER TV’s Top 75 chart (3rd week of November) (%) 12 38% No. of programs 15 2014-2017 CAGR 2017-2020F CAGR 10 10 5 0 8 -5 6 -10 -15 4 2 0 tvN JTBC Mnet MBC KBS SBS (%, Wbn) Utilization Ad market by media platform * 0.023 (mn views) Third week of November viewership 100 35 80 30 25 60 20 40 15 10 20 5 0 0 TV PC Mobile Newspapers Magazines tvN JTBC Mnet MBC KBS SBS Note: Penetration and ad market size by format/channel are recalculated based on figures for TV Source: NAVER TV, Mirae Asset Daewoo Research Source: KPT, Cheil Worldwide, Mirae Asset Daewoo Research 5| 2019 Outlook [Media platform/Content] Mirae Asset Daewoo Research I. Outlook by segment: Broadcasting content Acquiring time slots from • Acquiring time slots from broadcasters is essential to ensure content competitiveness ( ad revenue) and global broadcasters is essential sales ( content licensing revenue). • As licensing sales are generated after programming, production companies affiliated with TV channels which for licensing sales have ample room for investments will likely continue to fare well. • TV channels that have enjoyed high viewership and buzz include tvN and JTBC. • Solid earnings at CJ ENM and JTBC ( ample room for investments) vs. terrestrial TV channels’ falling influence • Major productions firms in 2019: Studio Dragon (28 titles for domestic, 2 titles each for Netflix and China) and J Contentree (13 titles) Annual average audience share in 2013-18: Marked rise for Popular broadcasting content in 2017-18 cable and generalist channels (%) Goblin (Jan. 2017) Idol School (Jul. 2017) Misty (Feb. 2018) 16 Programming on tvN, CPI 315.1 Programming on Mnet, CPI 278.7 Programming on JTBC While You Were Sleeping 12 (Sep. 2017) Produce 101 Seasons 2(Jun. 2017) Programming on SBS, Programming on Mnet, CPI 295.8 8 CPI 281.2 4 0 My Mister (Mar. 2018) CJ E&M JTBC KBS2 MBC SBS Programming on tvN, CPI 272.4 I Live Alone (Mar. 2018) (%) Programming on MBC, CPI 278.6 50 40 30 Mr. Sunshine (Jul. 2018) Are You Human? (Jun. 2018) Programming on tvN, CPI 293.4 Programming on KBS2, CPI 272.1 20 10 100 Days My Prince Something in the Rain (Apr. 18) 0 (Oct. 2018) Produce48 (Jul. 2018) Programming on Mnet, CPI 302.1 Programming on JTBC CATV Comprehensive channel TV terrestrial Programming on tvN, CPI 287.2 Source: AGB Nielsen, CJ ENM, Mirae Asset Daewoo Research Note: Based on the Weekly Content Power Index (CPI) Source: AGB Nielsen, CJ E&M, Mirae Asset Daewoo Research 6| 2019 Outlook [Media platform/Content] Mirae Asset Daewoo Research I. Outlook by segment: Music • Market growth forecast (CAGR) in 2017-21: +2.3% for Japanese concerts, -2.7% for domestic album sales, +7% for Solid domestic album digital music and Japanese concert • Negative growth of domestic album sales eased: 1.9mn copies for BTS (August), 1.2mn copies for EXO markets + market share (November) • Korean artists will likely grab an increasing share of the Japanese concert market through 2020: gains 1) Distribution of idol groups by generation; TVXQ’ concert attendees to exceed its previous high; expansion of concert venue size for EXO, SHINee, and NCT 2) BLACKPINK and TWICE to hold dome tours at end-2018 and in early 2019. Korean artists’ increasing share of the Japanese concert Solid domestic album and Japanese concert markets market (%) (mn persons) Korean artists' concert attendance (L) (%) 25 Past four years CAGR Next four years CAGR (2017~2021) 8 Korean artists' share of the Japanese concert marke (R) 12 20 15 10 5 0 6 -5 -10 8 -15 Japan Concert Japan Digital Japan Album Japan Etc. 4 (%) 9 Domestic Album/Digital Japan Concert 4 6 2 3 0 0 0 2014 2015 2016 2017 2018F 2019F 2020F 2012 2014 2016 2017 2018F 2020F Source: PwC, Mirae Asset Daewoo Research Source: ACPC, company data, Mirae Asset Daewoo Research 7| 2019 Outlook [Media platform/Content] Mirae Asset Daewoo Research I. Outlook by segment: Film Domestic: High cost • 2018 outlook for domestic film market: +1.7% for box office; +5.2% for ATP (price hikes); -3.4% for attendance burden (weak content) • 2019F: +1.3% for box office, +2.4% for ATP (price hikes in 2Q19), -1% for attendance (weak content) • Cycle of sluggish box office lower content investments major domestic films’ sluggish performances weak theater demand continues. • In 2019, labor/rental costs as a percentage of SG&A will likely rise to 57%, due to the minimum wage hike (+10.9%) and higher real estate prices. • Option: More frequent price hike or labor/marketing cost control Box office growth to continue to slow, despite price hikes Need to hike ticket prices more frequently (%) (W) 25 ATP YoY 9,000 ATP Attendance YoY BO YoY 20 8,500 +7.5% in ATP +6.2% 15 8,000 1) Price discrimination for various seats and times 2) Increased portion of premium theaters 10 7,500 +17.5% increase in multiplex ATP 5 7,000 in 2009 0 6,500 -5 6,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F2019F 2004-2008 2009-2013 2014-2017 2018-2019F Source: KOFIC, Mirae Asset Daewoo Research Source: KOFIC, Mirae Asset Daewoo Research 8| 2019 Outlook [Media platform/Content] Mirae Asset Daewoo Research I. Outlook by segment: Film A turnaround is also • In 2018, the emerging film markets were also sluggish, due to: 1) the end of price discounts and suspension of needed in overseas local film releases in China; 2) political uncertainties in Turkey; and 3) sporting events in Vietnam. • In 2019, local content and Hollywood film lineup are likely to improve in emerging markets markets • 2019F lineup: Captain Marvel (Mar.), Avengers: Infinity War–Part 2 (May), Toy Story 4 (Jul.), Frozen 2 (Nov.) • From 2020, new Avatar series are expected to be released. Film market outlook by country: Recovery in China and Reliance on Hollywood is increasing Vietnam and normalization in Turkey Release Distributed Attendance Title Directed by Starring Genre (%) Year by (mn persons) Ha Jung-woo, 2010 The Yellow Sea 20CFox Na Hong-jin action thriler 2.17 60 China Turkey Vietnam Kim Yoon-seok Shin Ha-kyun, 2013 Running Man 20CFox Jo Dong-oh action thriler 1.42 Lee Min-ho 50 2014 Slow