"Growing audience, profitability not yet"

The business showings of three major Korean multiplex cinema chains for the fourth quartile of 2023 are released. Lotte Cinema and Megabox showed a rather unsatisfactory performance while CGV garnered a four-year-awaited upturn to surplus. 

CGV·Lotte Cinema·Megabox release earnings of 2023 Q4

CGV reported its earnings from the final quarter of 2023. With 343 billion KRW of revenue and 16.9 billion KRW of operating profit in Q4, its yearly gross revenue marked 1.546 trillion and operating profit 49.1 billion. The champion of the Korean theater market has succeded in turning black for the first time since 2019. Their sound performance in the overseas sector has played a prominent role in the success: 76.9% of yearly revenue growth in China, and 12% of operating profit margin in Indonesia, to name a few.

Lotte Cultureworks, a parent company of Lotte Cinema, reported a 2023 Q4 revenue of 169 billion KRW and an operating deficit of 2.7 billion KRW; for 2023 in whole, a gross revenue of 562 billion and an operating deficit of 8.4 billion. The firm explained the deficit was due to an increase in fixed cost and failure in production investment and distribution.

Megabox Joongang reported a 2023 Q4 revenue of 100.7 billion KRW and an operating deficit of 6.9 billion KRW; for 2023 in whole, a gross revenue of 310 billion and an operating deficit of 17.9 billion. While the yearly deficit continued to swell, the sales of 2023 Q4 significantly increased by 72% compared to 2022 Q4 due to the triumph of 12.12: The Day invested and distributed by Megabox’s subsidiary distributor Plus M. Without the distributor’s share, the actual revenue that purely owes to cinema operation has slightly decreased.

Stark disparity between crowded theaters and discouraging earnings

A slightly below-par result seems unexpected considering the promising atmosphere of the industry near the end of 2023. According to Korea Film Council’s ‘Korean Film Industry Report, December 2023’, last December’s total sales of Korean films ranked second out of all December sales recorded. The total admissions in Q4 have also increased by 17% compared to the previous year.

The decreasing tendency of the average ticket price (ATP) is suggested as the key factor behind such misalignment. A ratio of total sales over a total number of viewers, ATP has shrunk from 10,675 KRW in 2022 Q4 to 9,550 KRW in 2023 Q4 for Megabox. A similar decline from 11,324 KRW to 10,284 KRW took place for CGV, contributing to their relatively weak performance in the Korean market compared to their overseas sectors.

Industry experts explain the release of Avatar: The Way of Water in December 2022 had attracted customers to premium cinema with higher ticket prices, leading to temporal heightening of ATP until the first quarter of 2023. Still, the continuous decrease of ATP after 2023 Q2 does not seem relevant to the impact of the suggested Q1 box office hit.

The increase in administrative expenses is another issue. For the case of Megabox last year, the cost of labor and venue rent have increased by 27% and 37% respectively. It seems not to be a sheer coincidence for Lotte Cinema to also point out the increase in fixed expenses as a reason for its slump, while CGV praised the enhanced effectiveness of administration for a profitable year.

Viable tactics for the upcoming quarter

The multiplex giants are on their way to securing premium viewing environments and original content as a main strategy for improving ATP. Megabox is emphasizing its prominence in adopting the cutting-edge cinema technology, recently launching its first MX4D cinema in its flagship Coex branch while also renaming its MX premium screen into Dolby Atmos theatre. CGV and Lotte Cinema focus on introducing alternative content such as live concert films and live sports event airing. An official of CGV’s ICECON (CGV’s alternative concent brand) team emphasized the virtuous cycle between original content and premium cinema: “By screening IU Concert: The Golden Hour on an IMAX screen, we were able to attract audiences who are not necessarily fans of the artist to the niche market of live concert films.”

The firms are also actively streamlining administrative processes and improving the profitability of services. Megabox announced “the deficit of 2023 was partially due to one-off expenses for effectivizing administration”, hinting at the betterment of bureaucratic costs in the following year. CGV also tightens the momentum of its successful overseas business by improving its profitability. “We aim to further develop the variety of food, beverages, and entertainment attractions both in Korea and overseas to fulfill customers’ needs”, an official of CGV stated.

Written by Sooyong Park