[Company Insight] NEW Increases Investment in Drama and Special Effects, Sells Deficit Subsidiaries

With the lifting of private gathering restrictions and operating hour regulations, social distancing measures that lasted for over two years have come to an end. Along with expectations for the recovery of daily life and the resumption of travel, a positive breeze is expected to blow through the cinema industry as well. Many films produced during the COVID-19 pandemic have postponed their releases for several years. Some films chose to release on Over-The-Top (OTT) platforms as a last resort. This year, a series of these delayed films are scheduled to be released. Starting from the 25th, eating inside theaters will also be permitted, and the industry is anticipating lively cinemas bustling with audiences. Asia Economy analyzed Showbox and NEW, stocks related to the theater reopening (resumption of economic activities).

[Asia Economy Reporter Jang Hyowon] NEW, a film and content distribution and production company, is gaining attention amid expectations for reopening. As people are expected to return to movie theaters, an increase in revenue from film distribution business is anticipated. NEW is focusing on its drama business and improving its structure while waiting for the upcoming post-COVID-19 era.

Drama as a Pillar... Increased Film Releases This Year

NEW is a content media group primarily engaged in film investment and distribution, and has expanded into various businesses such as drama, music, and VFX. Its main business sectors are film and broadcasting content, theaters, music content, and others. As of the end of last year, the film and broadcasting content sector accounted for 84% of the total.

As of the end of last year, on a consolidated basis, NEW recorded sales of 146.1 billion KRW and an operating loss of 0.5 billion KRW. Sales increased by 21% compared to the same period the previous year, but operating profit turned into a loss. This is analyzed to be due to increased advance payments for film investments.

The theater sector also continued to post operating losses. Since 2018, NEW has operated the cinema brand ‘CineQ’ in Seoul, Gyeongju, Gumi, and other locations. The theater sector recorded sales of 7.3 billion KRW in its first year and grew to over 10 billion KRW in 2019. However, due to the impact of COVID-19 in 2020, customer numbers declined, and sales plummeted to 2.9 billion KRW. Consequently, the operating loss widened by about 91%. Last year, the theater sector recorded sales of 2.9 billion KRW and an operating loss of 2.4 billion KRW.

Despite this situation, the drama business remains the pillar supporting NEW’s performance. NEW’s drama subsidiary ‘Studio&New’ recorded sales of 76.5 billion KRW last year, growing approximately 250% from 21.9 billion KRW the previous year. This growth is attributed to the inclusion of sales from Disney+ originals ‘Police University’ and ‘Moving’.

Expansion of the drama division is also expected this year. ‘Moving,’ with a production budget of around 50 billion KRW, is estimated to recognize about 55% of its revenue according to its progress, and productions such as ‘Activist,’ ‘Good Boy,’ ‘Dr. Cha Jeongsook,’ and ‘Tell Me I Love You’ are expected to be reflected as production revenue. Shin Eunjeong, a researcher at DB Financial Investment, explained, "Based on the production capabilities of the film division, this year they will produce and air web dramas including BL (Boy’s Love) dramas. Also, Studio&New successfully raised investment worth 174 billion KRW in September last year and plans to go public this year."

Growth is also expected in the film investment and distribution business this year. NEW plans to release ‘The Witch: Part 2,’ the new work of director Park Hoonjung, who directed ‘New World,’ this year. Additionally, the number of films released, which was three last year, is planned to increase to six. Since film distribution revenue rises with the increase in theater audiences, the reopening is expected to benefit the company.

Investing in Drama and VFX... Selling Loss-Making Subsidiaries

Currently, NEW is undergoing structural improvement through a strategy of selection and concentration. This involves increasing investment in drama production and the VFX (visual effects) sector while disposing of loss-making subsidiaries.

First, as part of securing production and investment funds, NEW conducted a paid-in capital increase worth 24 billion KRW at Studio&New last year. Additionally, the VFX subsidiary Engine Visual Wave also executed a paid-in capital increase of 12 billion KRW. The subsidiary ‘Bravo&New,’ which operates related businesses such as sports marketing and merchandise production, is planned to be sold this year.

As of the end of last year, Bravo&New recorded sales of 10.6 billion KRW and an operating loss of 4.5 billion KRW. Sales decreased by 46.2% from 19.7 billion KRW in 2020, and operating losses continued. The net loss reached 12.7 billion KRW. Among Bravo&New’s sales last year, 3.2 billion KRW came from internal transactions purchased by NEW. There were no such purchases by NEW until 2020. Considering this, external sales are analyzed to have decreased even further.

Also, excluding Bravo&Media, Bravo&Partners, and Billboard, subsidiaries of Bravo&New, the standalone financial status of the single legal entity shows a complete capital erosion state where liabilities exceed assets. Consequently, the 3.2 billion KRW loan NEW extended to Bravo&New is unlikely to be recovered.

Last year, NEW set aside 3.2 billion KRW of Bravo&New’s receivables as an allowance for doubtful accounts and expensed it. Lee Kihoon, a researcher at Hana Financial Investment, analyzed, "The suspension of operations at Bravo&New, which records an annual operating loss of around 4 to 4.5 billion KRW, is improving the company’s structure. The restructuring of loss-making subsidiaries, the value appreciation of the VFX subsidiary, and the box office success following the reopening will be key variables for NEW’s future."

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