Expanding Drama Production Business
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
Astory recorded 1Q21 OP of W0.8bn. Production progress for Jirisan (drama series) was slow, and margins were diluted by a large portion of outsourced dramas. But, amid expectations towards favorable earnings in 2Q21 (when cost execution for producing Jirisan is to concentrate), Astory is strengthening its position as a comprehensive content producer by supplying mid-form content to Coupang Play.
Supply of mid-form content looks promising; expanding drama production business
According to media reports on May 25, Astory is planning to supply entertainment shows (eg, SNL) and sitcoms to Coupang Play. By diversifying its formats to include mid-form content, Astory can reduce its production costs and time burdens, and it can satisfy the needs of local OTTs (which have low capacity for content investment, but are in urgent need of new content). The mid-form content should also be able to be used for the media commerce business down the road.
Astory’s drama series are displaying notable sales and OP growth in response to both increased production costs per episode and high ROIs. Of note, Big Mouse was originally planned to be a general drama, but production costs for the drama have now been boosted to the level of that for a tent-pole drama. This expenditure hike evidences Astory’s confidence that its proven strong production capabilities will translate into high ROIs for its future works. With Korean Wave star Lee Jong-seok having been casted as the lead actor for the drama, Chinese sales are expected to go smoothly.
1Q21 review: Production costs for Jirisan prove lower than expected
Astory announced consolidated 1Q21 sales of W16.2bn (+295% y-y) and OP of W0.8bn (TTP y-y).
Sales: Sales (fixed sales: drama sales revenue from tvN and iQIYI) and costs for its tent-pole drama Jirisan are recognized on a period-by-period basis, determined by the speed of production costs execution (of note, additional sales (PPL, VoD) and sales to China are recognized at the time of broadcast). Filming is scheduled to be completed by end-June, but the production costs executed during 1Q21 were less than 30%, around W9bn. As more than half of the production costs are expected to be spent in 2Q21, Astory should enjoy Jirisan-related sales growth from 2Q21.
OPM: 35% of the recognized production costs for dramas were taken up by: 1) outsourced drama ‘Cheat on Me, If You Can” and 2) W (drama series)-related costs (filming has been temporarily suspended). Since the gross profit ratio for these two dramas series was only 0~5%, 1Q21 GPM was also diluted. As there are no such dilution factors to be in play in 2Q21, 2Q21 GPM should be higher than 1Q21 GPM.