Investment in Korean Content Increasing

The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.

 

Investment in Korean content is increasing, backed by global OTT operators’ ongoing business expansion into Asia. In addition to expectations that the industry will benefit from additional price rise and sales volume growth, upsides such as a resumption in sales to China are also in play. We maintain a Positive outlook.

OTT competition underway; ample room remains for further share price rise

Backed by global OTT operators’ ongoing business expansion into Asia, demand for Korean content with strong appeal in Asian markets is on the rise. Recently, Korean content boasting high price merit has also proven its worth in Western markets via such offerings as Kingdom and Sweet Home. We expect the increase in both investment into Korean content (P; production cost and minimum guarantee) and the number of works sold (Q) to continue for some time.

According to the content investment plans announced by global OTTs and other operators, investment in Korean content is likely to rise by at least W900bn this year. As a result, content makers should see OP climb by W101.3bn~W135bn y-y, and if applying a P/E multiple of 30x, their combined market cap should increase by W3tn~W4tn. Meanwhile, compared to the figure at end-2020, the current combined market cap of content makers is up by only W1.5tn. We see plenty of room remaining for further share price expansion.

Warm breeze from China getting stronger

Since the recognition at major content makers last year of sales in China, positivenews inflow from China has been frequent, including Tencent’s announcement of equity investment in JTBC Studios (Dec 2020) and the MOU for broadcasting cooperation between China Media Group and KBS (Feb 2021).

When China’s ban on Korean content is eased, sales in China should resume focusing on: 1) works starring Korean wave stars in China; and 2) works by content makers owned by Chinese plays.

Focus on content makers with high sales bargaining power and global track records

We maintain a Positive outlook on the content industry, favorably viewing the current business environment. Although the industry should benefit overall amid an expanding market, we present Studio Dragon as our sector top pick in light of: 1) its robust global track record; and 2) its differentiated strength in terms of negotiating power. In addition, we recommend J-Contentree and Astory, both of which are enjoying the entrance of Chinese OTT operators as strategic investors (SIs)

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