CJ ENM Faces Advertising Headwinds Despite Drama Hits—'Delayed Impact Expected Soon'

(Seoul=Yonhap Infomax) Su In Jeong – CJ ENM, a leading South Korean entertainment and media company, is grappling with the challenge of translating its string of drama successes into financial results, as continued weakness in the TV advertising market led to third-quarter earnings that fell short of market expectations.

In the third quarter, advertising revenue plunged 27.1% year-on-year, reflecting the ongoing slowdown in the advertising sector. The company is now focusing on developing new advertising formats leveraging AI and other advanced technologies to counter structural declines in the broadcast ad market.

According to industry sources on the 24th, CJ ENM reported consolidated operating profit of 17.6 billion won ($13.1 million) for the quarter, up 11.2% from a year earlier. However, this figure was well below the consensus estimate of 23.9 billion won ($17.8 million) compiled by major domestic securities firms, according to Yonhap Infomax.

The main drag was weak TV advertising sales. Media platform revenue fell 10.3% year-on-year to 319.8 billion won ($238 million), swinging to an operating loss of 3.3 billion won ($2.5 million) from a profit of 10.8 billion won ($8.0 million) a year ago.

Despite the popularity of hit dramas such as "The Tyrant's Chef" (17.1% viewership) and "Project New Boss" (9.1%), TV ad revenue dropped 27.1% year-on-year. The sluggish ad market and weak drama performance in the first half likely weighed on ad rates, signaling that the traditional correlation between content hits and ad revenue is breaking down.

Park Sang-hyuk, head of the Media Business Division, said during the recent conference call, "The decline in the ad market is due to an overall 20% contraction in the broadcast ad sector this year. Since TV ads are sold in advance of program airing, there is a lag in reflecting content performance." He added, "Weak content performance in the first half appears to have impacted Q3, but we expect to see positive effects in Q4 and early next year."

The overall downtrend in the broadcast ad market is expected to persist. According to the "2024 Broadcast and Telecommunications Advertising Expenditure Survey Report" published in January, terrestrial TV ad spending has been declining since 2022 and is projected to fall to 971.7 billion won ($722 million) this year.

Following CJ ENM's earnings release, KB Securities cut its target price by 10% to 90,000 won. Analyst Choi Yong-hyun noted, "The decline in ad revenue is expected to continue in Q4 (-20%), prompting a 17% downward revision to our 2025 operating profit forecast."

Amid structural weakness in the ad market, CJ ENM stated, "We are striving to enhance value by integrating AI and various tech-based advertising solutions, and will focus on defending sales and boosting ad competitiveness through advanced broadcast-digital integrated solutions."

Yoo Hyun-jae, professor of Mass Communication at Sogang University, commented, "Companies can now create dozens of ad combinations for the same budget, leading to more platform- or media-specific ad formats. Firms like CJ ENM, which can offer diverse platforms, will have a significant advantage going forward."

Looking ahead, the outlook for CJ ENM's earnings remains positive. In particular, its streaming platform TVING began collaborations with domestic partners such as Wavve, Baemin Club, and T Universe (SK Telecom) in June, and announced plans to partner with global OTT players in Q4. In 17 Asia-Pacific markets, CJ ENM is expanding through partnerships with HBO Max (Warner Bros. Discovery) and Disney+ in Japan, targeting overseas growth.

TVING CEO Choi Joo-hee said during the recent conference call, "With a strong Q4 lineup including 'Transit Love' and 'Dear X,' and new initiatives such as the Wavve-TVING double ad plan and branded content sales, we expect to approach breakeven."

According to TVING, "Dear X" ranked No.1 for new paid subscriber contributions on TVING for two consecutive weekends following its release on the 6th.

sijung@yna.co.kr

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