Summary
- Merger Plans: CJ ENM (035760:KS) and SK Square (034730:KS) are planning to merge their OTT platforms Teevee and Wave, potentially impacting Netflix's user base in South Korea, where it has a stronghold.
- Market Impact: The merged entity is expected to capture over 30% of the market share, significantly altering the OTT landscape.
- Investment Strategies: Despite current net losses, the merger aims to streamline content companies' strategies and achieve profitability.
- Consumer Data Insights: Aicel Technologies' data highlights Netflix's dominance but suggests potential growth for Tving and Wavve post-merger.
Introduction
The South Korean OTT (Over-the-Top) industry is on the brink of a significant transformation with the merger plans of CJ ENM (035760:KS) and SK Square (034730:KS). Their respective platforms, Tving and Wavve, are set to combine forces, reshaping the competitive landscape and potentially surpassing Netflix's dominance in the market. This article delves into the details of this merger, supported by consumer transaction data from Aicel Technologies, and explores the anticipated impact on the Korean OTT industry.
Merger Plans and Market Impact
Overview of the Merger
CJ ENM (035760:KS) and SK Square (034730:KS) have signed a memorandum of understanding (MOU) to merge their South Korean OTT services, Tving and Wavve. Currently, Netflix is the largest streaming service in Korea with 11 million users. However, the combined user base of Tving, with 5 million monthly active users (MAU), and Wavve, with 4 million MAU, has the potential to surpass Netflix in the region.
Shareholding Structure
While specifics on the merger ratio remain pending, CJ ENM (035760:KS) is expected to be the primary shareholder in the merged entity, with SK Square (034730:KS) as the second-largest shareholder. The companies aim to finalize the agreement after conducting due diligence early next year. Major shareholders from Tving (Naver, SLL, KT Studio Genie) and Wavve (SBS, MBC, KBS) are also expected to participate in the combined entity.
Investment Strategies and Financial Outlook
Current Financial Status
Both Tving and Wavve have reported net losses, with Tving’s and Wavve’s annual operating costs in 2022 standing at 366.7 billion KRW and 288.3 billion KRW, respectively. A significant portion of these costs, around the mid-70% range, is attributed to content investment.
Cost Efficiencies and Profitability
The merger is anticipated to spur investment, particularly in co-produced and co-broadcast content. Expected cost efficiencies post-merger are likely to reduce content investment expenses. Given the annual operating losses of around 120 billion KRW for each company, eliminating unnecessary and redundant investments post-merger could expedite the achievement of operating profits.
Consumer Data Insights from Aicel Technologies
Current Market Dominance
According to Aicel consumer transaction data, Netflix currently dominates the South Korean market, accounting for over 78% of the total transaction volume among Netflix, Tving, and Wavve in 2023 year-to-date.
Potential Growth for Tving and Wavve
Assuming no customer churn from Teevee and Wave, the combined entity is expected to grow to over 20% of total transactions, challenging Netflix's 30% market share. This growth trajectory shows significant potential for Teevee and Wave to challenge Netflix's dominance in the South Korean OTT market.
Future Prospects for the Korean OTT Industry
Content Investment and Market Expansion
The merger between CJ ENM (035760:KS) and SK Square (034730:KS) is expected to result in increased investments in co-produced and co-broadcast content. This strategic focus on high-quality, locally relevant content is anticipated to drive subscriber growth and enhance the competitive position of the merged entity in the Korean OTT market.
Strategic Implications
For professionals in hedge funds and asset management, monitoring the developments of this merger and the subsequent market dynamics will be crucial. The consolidation of Tving and Wavve under a single entity presents robust opportunities for growth and profitability in the rapidly evolving OTT landscape.
