Content Market Expanding
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
Amid intensifying competition among global OTT players to secure Korean content, related players in Korea are now greater investing in content arenas.
1) Telcos: To boost partnerships with global OTTs
Telcos benefited from OTT partnerships in 2018, the time at which Netflix started venturing into the Korean market. Against this backdrop, they are planning to partner with global OTT players that are to newly enter Korea, with KT and LG U+ seeking to engage in partnerships with Disney+, and SKT with Amazon Prime Video. Furthermore, domestic telcos are also considering making direct investment in content production via, for example, the establishment of content production companies (ie, KT Studio Genie).
2) Broadcasting firms: Investing in their own OTT platforms
Meanwhile, broadcasting firms are seeking to respond to global OTT players via bolstering their investment in content/OTT businesses over the next 3~5 years. Of note, TVing, a JV between CJ ENM and JTBC Studio, plans to invest W400bn in content production over the next three years. Wavve, a JV between SKT and Korea’s three major terrestrial broadcasters, is expected to invest W1tn over the next five years.
3) Platform players: To use OTT services to boost traffic
Meanwhile, platform companies are likely to leverage OTT services as a means to boost user traffic. In line, Kakao is projected to invest W300bn over three years in its own OTT platform Kakao TV in order to produce more than 200 original series titles. Coupang aims to invest W100bn in Coupang Play, and NAVER seeks to increase membership subscriptions via a partnership with Tving.
Content market expanding
All in all, the content market is expanding in line with strengthening investment at both global OTT players and domestic media-related players. Given that growth in content demand is outpacing growth in content supply from content producers, we believe that both content sales volume and selling prices are primed to increase moving ahead. In particular, companies that boast ample global track record for OTT operators, such as Studio Dragon and J Contentree) are likely to enjoy a sharp rise in content selling prices. Of note, their content selling prices have been on the rise for not only tentpole dramas, but also non-tentpole dramas.
Investment in Korean content market to total W2.8tn this year
In 2020, major media players (such as Korea’s three major terrestrial broadcasters, CJ ENM, JTBC, and Netflix) invested a total of W1.9tn in the domestic content industry. This year, the figure is likely to reach W2.8tn, considering plans to boost investment by both global OTT players and domestic media players.
Rising investment in content production to translate into W3~4tn expansion in market cap
Assuming that out of the W900bn y-y increase in content investment, 75% is invested into drama production, with ROI of 15~20%, domestic content makers should see OP climb by W101.3bn~W135bn y-y this year. And if applying a P/E multiple of 30x (for Studio Dragon, 2021E P/E is at 50x and 2022F P/E at 40x), their combined market cap should increase by W3tn~W4tn. Moreover, we believe an additional rise in market cap is likely noting increased investment by Disney, HBO, Apple, and Chinese OTTs (which have yet to disclose their investment).
See ample additional room for share price expansion
Meanwhile, the combined market cap of content makers stood at W4.1tn on average in 2020 and at W4.5tn in Dec 2020 when major OTTs’ content investment plans began emerging, and at W6.2tn over the past 10 business days. We note that their combined market cap is up by only W2tn compared to the average of 2020, and by W1.5tn compared to the figure at end-2020. We see plenty of room remaining for further share price expansion.
