[Click eStock] 'Sweet Home' Achieved Box Office Success, but Studio Dragon's Earnings Declined

[Asia Economy Reporter Ji Yeon-jin] Entertainment company Studio Dragon's production costs for the drama 'Sweet Home,' which was a hit on Netflix last year, exceeded expectations, leading to a deterioration in fourth-quarter earnings, according to analysis. However, there are also forecasts that profits will improve this year as several major works are set to be released.

On the 5th, Meritz Securities commented on Studio Dragon's performance last year, stating, "The cause of the shortfall compared to expectations was the production cost overrun and incentive payments for the Netflix original Sweet Home," adding, "Non-operating losses of about 10 billion KRW occurred, reflecting foreign exchange-related losses and impairment of the value of subsidiaries held, which should not be interpreted as an operational issue."

Studio Dragon's fourth-quarter revenue was 137.7 billion KRW, a 29.6% increase year-on-year, but operating profit during the period fell 71.2% to 4.6 billion KRW. The biggest reason for the cost ratio exceeding expectations was identified as the Netflix original drama Sweet Home. Additional production costs were incurred to enhance the quality of post-production work. Sweet Home was expected to generate revenue and gross profit margin (GPM) of 30 billion KRW and 25%, respectively, but it is estimated to have recorded approximately 36 billion KRW and a mid-10% level.

This year, Studio Dragon plans to produce 30 new works, an increase of 9 from last year. While the production budget is expected to be similar to last year, the average production cost is anticipated to decrease due to a higher proportion of short-form and mid-form works. In particular, a major production worth about 10 billion KRW per episode is being prepared in collaboration with a U.S. production company.

Lee Hyo-jin, an analyst at Meritz Securities, said, "If Studio Dragon strengthens its position by entering the U.S. market, the valuation gap narrowed with small and medium-sized production companies could turn back into a premium," adding, "However, since it takes time to see the results, the current situation of narrowing the gap with small and medium-sized drama production companies is expected to continue for the time being." Park Sung-ho, an analyst at Yuanta Securities, predicted, "Given the expected expansion of Korean drama purchases by global OTT (over-the-top) platforms, the fact that about 10 TV dramas remain available for sale to OTTs other than Netflix is a factor that makes us optimistic about the company's profit improvement."

This content was produced with the assistance of AI translation services.