Stream Media Corporation (SMC) is a Japanese subsidiary of SM Entertainment (SM), South Korea’s largest entertainment company. Since 1998, SMC has provided digital content centered on Korean TV shows (K-dramas) in Japan. In 2009, SMC merged with BOF International Inc., a subsidiary of South Korea-based KEYEAST Co., Ltd. (founded by Bae Yong-joon, the lead actor of the K-drama hit “Winter Sonata”). At the time, SMC operated Japanese fan clubs for Korean actors/actresses, and broadcast Korean pop culture content through its paid TV channel DATV to communication satellite (CS) broadcasting subscribers.

In 2016, SM invested in SMC through its Japanese subsidiary SM Entertainment Japan Co., Ltd. In 2018, SM acquired KEYEAST, bringing SMC into its group as a result. SMC then acquired SMEJ Inc. (a newly formed subsidiary of SM Entertainment Japan Co., Ltd.) via an absorption-type merger. Following the merger, SMC continued to broadcast paid content and manage and operate Japanese fan clubs for Korean artists, including artists not affiliated with SM, while also operating the music business (master production and CD sales) and concert business inherited from SMEJ. SM holds 85.3% of the voting rights in SMC. The company operates in three segments: Rights & Media (in FY12/20, 75.8% of total revenue; operating loss of JPY195mn), Entertainment (24.2% of total revenue; operating loss of JPY308mn), and Other (0.0%; operating loss of JPY14mn).

In the Rights & Media segment, SMC broadcasts paid TV channels such as KNTV through CS broadcasting (via direct broadcast satellite services such as SKY PerfecTV! and SKY PerfecTV! Premium Service), cable TV (CATV), and Internet Protocol TV (IPTV). In FY12/19, broadcasting revenue was JPY2.3bn (36.1% of total revenue). Broadcasting revenue was not specifically disclosed in FY12/20 but assuming this revenue held steady YoY, broadcasting likely made up half of the total revenue of JPY4.3bn in FY12/20. Broadcasting revenue is determined by the number of subscribers and subscription fees. SMC pays a fixed percentage (undisclosed) of its subscription revenue to CS broadcasters. It had roughly 100,000 subscribers (as of 2014), mainly consisting of Korean pop culture fans in their 40s and above, including Korean residents in Japan. A KNTV subscription costs JPY3,960/month (on SKY PerfecTV!; incl. tax). In the rights business, SMC sells broadcasting rights of TV shows it has purchased in South Korea to terrestrial, CS, and other broadcasters. It also supplies DVDs of such TV shows to DVD rental chains. The company sells broadcast rights with a limited term and it also collects a portion of the revenue generated from the secondary usage for some rights it sells. However, the copyright of the TV shows is not transferred and remains with the Korean production company or TV station. SMC has not disclosed the fees from selling broadcasting rights.

In the Entertainment segment, SMC exclusively manages SM-affiliated artists in Japan, organizes concerts for them at sports stadiums and other venues, sells merchandise, and plans and operates media appearances. For Korean artists who are not affiliated with SM, the company also offers contracted support for fan club operation, mobile content delivery, and other activities in Japan. SMC has merged with SMEJ and inherited the latter’s music business, and its new subsidiary Beyond Live Corporation (BLC) has launched the world’s first online concert streaming service “Beyond LIVE.” Entertainment revenue breaks down into concert, merchandise, and music revenue. Concert revenue accounts for the largest percentage of total segment revenue, followed by merchandise revenue, fan club revenue, and then album and music streaming revenue. Concert revenue is determined by attendance and ticket price (e.g., JPY12,000/ticket for TVXQ! concerts). Gross profit margin for merchandise sales is 30%. Fan club revenue equals annual membership fees (about JPY5,000/member). Fan club revenue is derived from the operation of fan clubs for A-list Korean actors/actresses and artists not under the SM umbrella (SM-affiliated artists are managed by SMEJ PLUS Co., Ltd.). SMC has not disclosed membership data for the fan clubs it operates. SMC typically receives about 20% of CD sales (JPY3,000/album) as music revenue. Concert revenue makes up 60–70% of Entertainment revenue, and a portion of this is paid to parent company SM to cover artist training fees and future investments.

In FY12/20, SMC reported revenue of JPY4.3bn and an operating loss of JPY1.2bn. The company was unable to hold any live concerts in Japan due to the COVID-19 pandemic, resulting in no booking of concert and merchandise revenue. Its domestic concerts annually drew over 1.5mn fans in 2017–2019. In FY12/19, the year before the merger, SMEJ reported revenue of JPY6.2bn and operating profit of JPY677mn, while SMC posted revenue of JPY6.1bn and operating profit of JPY71mn. Together, the companies generated revenue of JPY12.4bn and operating profit of JPY748mn (simple sum). In FY12/21, the company’s earnings will be affected by the extent of the recovery in offline concerts from 2H. On December 27, 2020, BLC held the “Beyond LIVE - NCT: RESONANCE 'GLOBAL WAVE’ (NCT2020)” online concert in an effort to complement offline concerts. This concert was watched by 200,000 viewers in 124 countries. However, SMC says the impact of this event on earnings will be negligible because a significant portion of the generated revenue goes to the streaming platform V LIVE. Building an in-house streaming platform is therefore one of the strategic challenges the company will need to address over the medium term.

Earnings trends

In FY12/20, SMC reported consolidated revenue of JPY4.3bn, an operating loss of JPY1.2bn, a recurring loss of JPY1.2bn, and a net loss attributable to owners of the parent of JPY1.2bn. The company had expected the merger with SMEJ to drive YoY growth in revenue and profit, but it was unable to hold any offline concerts after the merger due to the pandemic. Moreover, it recorded merger costs, upfront expenses for the launch of the KNTV801 channel, and an increase in costs to close the DATV and Kchan! Hanryu TV channels, resulting in an operating loss. The company had planned to transfer “software in progress” in the Entertainment segment to its online streaming business, but booked JPY39mn in impairment losses.

For FY12/21 (forecast downwardly revised on November 10, 2021), the company forecasts revenue of JPY5.9bn (+37.4% YoY), an operating loss of JPY442mn (versus loss of JPY1.2bn in FY12/20), a recurring loss of JPY428mn (versus loss of JPY1.2bn in FY12/20), and a net loss attributable to owners of the parent of JPY423mn (versus net loss of JPY1.2bn in FY12/20). The company had previously expected a recovery from the impact of the pandemic. However, since it has been unable to hold the concerts and events originally planned for the second half of the year, the company has had to downgrade its forecast on the expectation of a significant decline in revenue and profit.

On March 1, 2021, SMC unveiled a medium-term business plan covering FY12/21 to FY12/23. The company has not disclosed numerical targets for FY12/22 and FY12/23, but outlines the following strategic directions: 1) organizational improvement of broadcasting business and cultivation of video streaming market, 2) creation of synergies between offline and online concerts, and 3) expansion of revenue and earnings through in-house development of an online platform.

Strengths and weaknesses

Shared Research sees SMC’s strengths as: 1) its 25-year broadcasting history and 100,000-strong subscriber base for the paid TV channel KNTV, which has a track record of popularizing Korean content in Japan; 2) the fan mobilization power of SMEJ, which has created bands such as TVXQ! and SHINee that can consistently sell out concerts at large stadiums; and 3) post-merger abilities to generate synergies and reap the benefits from access to content of artists managed by parent company SM and fan club member data of SMEJ PLUS (a subsidiary of SM Entertainment Japan).

We see the company’s weaknesses as: 1) the absence of a clear growth path for its paid TV channel KNTV amid a general downtrend in subscribers of premium TV channels and the rise of free video streaming services; 2) a high earnings dependence on offline concerts, and a delay in developing an in-house video streaming platform; and 3) difficulties in securing human resources with high planning capabilities due to the company’s low name recognition in the Japanese music and video streaming areas.

Key financial data

Income statement			FY12/11	FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21
(JPYmn)			Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Parent	Parent	Parent	Cons.	Cons. Est.
Revenue			3,907	4,409	3,796	2,497	3,328	4,534	7,770	7,059	6,114	4,270	5,869
	YoY		-33.1%	12.9%	-13.9%	-34.2%	33.3%	36.2%	71.4%	-9.2%	-13.4%	-	37.4%
Gross profit			955	735	85	548	628	801	1,378	1,140	1,155	356
	YoY		-17.3%	-23.0%	-88.5%	548.4%	14.6%	27.5%	72.0%	-17.3%	1.3%	-
	Gross profit margin		24.4%	16.7%	2.2%	21.9%	18.9%	17.7%	17.7%	16.1%	18.9%	8.3%
Operating profit			95	-188	-500	23	69	6	301	74	71	-1,200	-442
	YoY		-	-	-	-	200.8%	-91.4%	-	-75.6%	-3.1%	-	-
	Operating profit margin		2.4%	-	-	0.9%	2.1%	0.1%	3.9%	1.0%	1.2%	-
Recurring profit			68	-139	-539	37	-22	16	308	73	74	-1,207	-428
	YoY		-	-	-	-	-	-	-	-76.3%	1.0%	-	-
	Recurring profit margin		1.7%	-	-	1.5%	-	0.4%	4.0%	1.0%	1.2%	-
Net income attributable to owners of the parent			-53	-216	-434	67	-64	14	289	61	-483	-1,241	-423
	YoY		-	-	-	-	-	-	-	-78.8%	-	-	-
	Net margin		-	-	-	2.7%	-	0.3%	3.7%	0.9%	-	-
Per-share data (JPY)
Shares issued (year-end; '000)			108,785	54,393	54,393	54,393	54,393	165,204	16,520	16,520	16,520	115,214
EPS (JPY)			-0.1	-2.7	-7.4	1.7	1.2	1.3	17.5	3.7	-29.3	-22.6	-3.65
EPS (fully diluted: JPY)			0.0	0.0	0.0	0.0	1.2	0.0	17.5	0.0	0.0	0.0
Dividend per share (JPY)			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Book value per share (JPY)			21.0	40.2	31.9	33.6	34.8	261.8	279.3	282.4	253.8	49.7
Balance sheet (JPYmn)
		Cash and cash equivalents	2,018	795	1,317	771	671	1,906	3,288	1,644	953	3,485
Total current assets			2,811	2,514	2,186	1,582	1,692	5,230	6,156	5,518	4,775	8,802
Tangible fixed assets			52	21	13	13	14	33	57	39	80	34
Investments and other assets			310	790	75	752	533	165	92	773	227	106
Intangible fixed assets			130	89	41	28	26	29	76	89	109	55
Total assets			3,303	3,414	2,315	2,376	2,265	5,457	6,380	6,419	5,191	8,997
		Short-term debt	0	0	0	0	0	0	6	6	5	0
Total current liabilities			805	1,034	516	533	484	1,086	1,720	1,710	921	2,932
		Long-term debt	0	100	0	0	0	0	21	15	10	0
Total fixed liabilities			3	33	1	4	3	14	33	27	22	16
Total liabilities			808	1,067	517	537	487	1,100	1,753	1,737	943	2,948
		Shareholders' equity	2,390	2,225	1,741	1,818	1,754	4,333	4,611	4,662	4,190	5,720
Total net assets			2,495	2,347	1,798	1,839	1,778	4,357	4,627	4,681	4,248	6,049
Total interest-bearing debt			0	100	0	0	0	0	27	21	15	0
Cash flow statement (JPYmn)
Cash flows from operating activities			433	-842	323	-191	-272	-726	1,388	-947	-599	-1,228
Cash flows from investing activities			67	-96	239	-366	174	-14	5	-687	-85	-5
Cash flows from financing activities			29	177	-87	-1	-1	1,176	-4	-6	-6	2,734
Financial ratios
ROA (RP-based)			1.9%	-4.1%	-18.8%	1.6%	-0.9%	0.4%	5.2%	1.1%	1.3%	-17.0%
ROE			-2.2%	-9.4%	-21.9%	3.8%	-3.6%	0.5%	6.5%	1.3%	-10.9%	-25.0%
Payout ratio			0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
DOE			0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
Equity ratio			72.4%	65.2%	75.2%	76.5%	77.5%	79.4%	72.3%	72.6%	80.7%	63.6%
Net margin			-1.4%	-4.9%	-11.4%	2.7%	-1.9%	0.3%	3.7%	0.9%	-7.9%	-29.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Recent updates

Updated forecast for FY12/21

2021-11-11

On November 10, 2021, Stream Media Corporation (SMC) announced its updated forecast for FY12/21.

Trends and outlook

Quarterly trends and results

Cumulative		FY12/19				FY12/20				FY12/21			FY12/21
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	% of Est.	Rev. FY Est.
Revenue		1,904	3,982	5,047	6,114	1,237	2,188	3,211	4,270	1,530	2,918	4,183	71.3%	5,869
	YoY	50.9%	24.6%	-5.4%	-13.4%	-35.1%	-45.0%	-36.4%	-30.2%	-	-	30.3%		37.4%
Gross profit		293	659	891	1,155	231	402	546	356	201	531	782
	YoY	-2.6%	16.3%	-5.6%	1.3%	-21.3%	-38.9%	-38.7%	-69.2%	-	-	43.2%
	Gross profit margin	15.4%	16.5%	17.7%	18.9%	18.7%	18.4%	17.0%	8.3%	13.1%	18.2%	18.7%
SG&A expenses		299	562	815	1,083	234	505	1,102	1,556	434	852	1,248
	YoY	21.9%	9.6%	3.7%	1.6%	-21.8%	-10.2%	35.2%	43.6%	-	-	13.3%
	SG&A ratio	15.7%	14.1%	16.1%	17.7%	18.9%	23.1%	34.3%	36.4%	28.4%	29.2%	29.8%
Operating profit		-6	96	76	71	-3	-102	-555	-1,200	-233	-321	-466	-	-442
	YoY	-	80.4%	-51.8%	-3.1%	-	-	-	-	-	-	-		-
	Operating profit margin	-	2.4%	1.5%	1.2%	-	-	-	-	-	-	-		-
Recurring profit		-5	99	77	74	-4	-96	-545	-1,207	-233	-315	-455	-	-428
	YoY	-	94.9%	-51.4%	1.0%	-	-	-	-	-	-	-		-
	Recurring profit margin	-	2.5%	1.5%	1.2%	-	-	-	-	-	-	-		-
Net income		-7	73	53	-483	0	-92	-555	-1,241	-217	-301	-449	-	-423
	YoY	-	49.6%	-62.5%	-	-	-	-	-	-	-	-		-
	Net margin	-	1.8%	1.1%	-	0.0%	-	-	-	-	-	-		-
Quarterly		FY12/19				FY12/20				FY12/21
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Revenue		1,904	2,078	1,065	1,066	1,237	952	1,023	1,059	1,530	1,388	1,266
	YoY	50.9%	7.5%	-50.2%	-38.1%	-35.1%	-54.2%	-4.0%	-0.7%	-	-	23.7%
Gross profit		293	365	232	264	231	171	144	-190	201	331	251
	YoY	-2.6%	37.7%	-38.4%	34.5%	-21.3%	-53.0%	-38.2%	-	-	-	74.5%
	Gross profit margin	15.4%	17.6%	21.8%	24.8%	18.7%	18.0%	14.1%	-	13.1%	23.8%	19.8%
SG&A expenses		299	263	253	269	234	271	597	455	434	418	396
	YoY	21.9%	-1.7%	-7.4%	-4.2%	-21.8%	3.0%	136.3%	69.2%	-	-	-33.6%
	SG&A ratio	15.7%	12.7%	23.7%	25.2%	18.9%	28.4%	58.3%	43.0%	28.4%	30.1%	31.3%
Operating profit		-6	102	-20	-5	-3	-99	-453	-645	-233	-87	-146
	YoY	-	-	-	-	-	-	-	-	-	-	-
	Operating profit margin	-	4.9%	-	-	-	-	-	-	-	-	-
Recurring profit		-5	104	-23	-3	-4	-93	-449	-662	-233	-82	-140
	YoY	-	-	-	-	-	-	-	-	-	-	-
	Recurring profit margin	-	5.0%	-	-	-	-	-	-	-	-	-
Net income		-7	80	-19	-536	0	-92	-464	-686	-217	-85	-148
	YoY	-	-	-	-	-	-	-	-	-	-	-
	Net margin	-	3.8%	-	-	0.0%	-	-	-	-	-	-

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
SMC changed its segment structure from Q3 FY12/20. Through 1H FY12/20, it operated in the Broadcasting segment (channel business), the Rights & Media Communication segment (rights business, management business, events business, merchandising business, and fan club business), and the Other segment (content streaming business). In Q3 FY12/20, it reorganized its segment structure into the Rights & Media segment (channel business, rights business, and online streaming business), the Entertainment segment (management business, events business, merchandise business, fan club business, and music business), and the Other segment (karaoke app business).

By segment (cumulative)				FY12/19				FY12/20				FY12/21
(JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3
Revenue				1,904	3,982	5,047	6,114	1,237	2,188	3,211	4,270	1,530	2,918	4,183
	YoY			50.9%	24.6%	-5.4%	-13.4%	-35.1%	-45.0%	-36.4%	-30.2%	-	-	30.3%
	Rights & Media			-	-	-	-	-	-	2,475	3,246	1,048	1,840	2,710
			% of total revenue	-	-	-	-	-	-	77.1%	75.8%	68.5%	63.1%	64.8%
			YoY	-	-	-	-	-	-	-	-	-	-	9.5%
		Internal transactions		-	-	-	-	-	-	-	15	3	4	5
	Entertainment			-	-	-	-	-	-	736	1,037	481	1,076	1,472
			% of total revenue	-	-	-	-	-	-	22.9%	24.2%	31.4%	36.9%	35.2%
			YoY	-	-	-	-	-	-	-	-	-	-	100.0%
		Internal transactions		-	-	-	-	-	-	-	-	-	-	-
	Other			-	-	-	-	-	-	1	1	1	1	2
			% of total revenue	-	-	-	-	-	-	0.0%	0.0%	0.0%	0.0%	0.0%
			YoY	-	-	-	-	-	-	-	-	-	-	190.0%
		Internal transactions		-	-	-	-	-	-	-	-	-	-	-
	Inter-segment transactions, eliminations			-	-	-	-	-	-	0	-15	-3	-4	-5
	Rights & Communication			1,275	2,881	3,515	4,054	727	1,196
			% of total revenue	65.3%	70.4%	67.0%	63.9%	57.9%	54.6%
			YoY	84.9%	41.1%	-3.8%	-16.5%	-42.9%	-58.5%
		Internal transactions		49	112	198	225	18	0
	Broadcasting			677	1,212	1,729	2,287	528	995
			% of total revenue	34.6%	29.6%	33.0%	36.1%	42.1%	45.4%
			YoY	16.5%	1.9%	-1.1%	-1.1%	-21.9%	-17.9%
		Internal transactions		-	-	-	4	2	2
	Other			2	2	2	2	-	-
			% of total revenue	0.1%	0.0%	0.0%	0.0%	-	-
			YoY	-59.3%	-79.5%	-85.5%	-89.0%	-	-
		Internal transactions		-	-	-	-	-	-
	Inter-segment transactions, eliminations			-49	-112	-198	-229	-19	-3
Operating profit				-6	96	76	71	-3	-102	-555	-1,200	-233	-321	-466
	Before adjustments			123	324	421	529	89	112	8	-516	-117	-76	-83
	YoY			-	80.4%	-51.8%	-3.1%	-	-	-	-	-	-	-
	Operating profit margin			-0.3%	2.4%	1.5%	1.2%	-	-	-	-	-	-	-
	Rights & Media			-	-	-	-	-	-	142	-195	32	65	115
			% of total OP	-	-	-	-	-	-	-	-	-	-	-
			Operating profit margin	-	-	-	-	-	-	5.7%	-	3.0%	3.5%	4.2%
			YoY	-	-	-	-	-	-	-	-	-	-	-18.8%
	Entertainment			-	-	-	-	-	-	-128	-308	-142	-141	-199
			% of total OP	-	-	-	-	-	-	-	-	-	-	-
			Operating profit margin	-	-	-	-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-	-	-	-
	Other									-6	-14	-8	-16	-26
			% of total OP	-	-	-	-	-	-	-	-	-	-	-
			Operating profit margin	-	-	-	-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-	-	-	-
	Inter-segment transactions, eliminations			-	-	-	-	-	-	-	-15	-	-16	-26
	Company-wide expenses			-	-	-	-	-	-	-564	-669	-116	-229	-357
	Rights & Communication			103	400	463	493	68	122
			% of total OP	83.4%	-	-	93.2%	77.1%	-
			Operating profit margin	8.1%	13.9%	13.2%	12.2%	9.4%	10.2%
			YoY	64.4%	192.3%	72.4%	34.1%	-33.3%	-69.4%
	Broadcasting			21	-75	-41	36	20	-10
			% of total OP	16.7%	-	-	6.9%	22.9%	-
			Operating profit margin	3.0%	-6.2%	-2.4%	1.6%	3.8%	-
			YoY	-75.5%	-	-	-38.0%	-1.3%	-
	Other			-0	-1	-1	-1	-	-
			% of total OP	-	-	-	-	-	-
			Operating profit margin	-	-	-	-	-	-
			YoY	-	-	-	-	-	-
	Inter-segment transactions, eliminations			-	-	-	-	-	-
	Company-wide expenses			-129	-227	-345	-457	-92	-215

Cumulative Q3 FY12/21 results

Summary

Revenue: JPY4.2bn (+30.3% YoY, progress versus revised full-year forecast: 71.3%)
Operating loss: JPY466mn (versus loss of JPY555mn during the same period FY12/20 )
Recurring loss: JPY455mn (versus loss of JPY545mn)
Net loss attributable to owners of the parent: JPY449mn (versus loss of JPY555mn)

SMC faced a challenging business environment as the impact of the COVID-19 pandemic lingered beyond its initial expectations, substantially delaying an anticipated normalization in core businesses such as event and concert operations. Due to the delay in normalization of merchandise and CD sales accompanying restraint in holding offline concerts, the company says it still faced difficulty in returning to profitability and that the situation will remain uncertain for the time being. The company has announced a downward earnings revision.

By segment

Rights & Media

External revenue: JPY2.7bn (+9.5% YoY)
Operating profit: JPY115mn (-18.8% YoY)

In the broadcasting business, SMC focused on establishing the foundations for an improvement in earnings structure by reassigning the management resources of Kchan! Hanryu TV (closed in March 2021) and DATV (closed in May 2021) to KNTV. The linear streaming platform KNTV+ (Plus) service will be available on SKY PerfecTV! from October 1, 2012. The Company is also working to expand the platform to mobile devices.

The rights business delivered strong performance despite the tough operating environment. The company entered sublicensing contracts for major TV shows and sold broadcasting rights to terrestrial broadcasters, local TV stations, and broadcasting satellite (BS) channels.

As for the online event distribution service BeyondLIVE, a total of seven events were streamed during Q3, including the solo online fan meeting of SUPER JUNIOR YESUNG (July), NCT DREAM's 5th anniversary online fan meeting (August), and online events for JYP artists Day6 (August) and 2PM (September). In addition, the company is moving forward with bringing its total streaming service platform in-house. This will enable it to charge platform usage fees as sales that will contribute to profits. Previously, these were booked as expenses,

Entertainment

Revenue: JPY1.5bn (+100% YoY)
Operating loss: JPY199mn (versus loss of JPY128mn)

In the Entertainment segment, the company is resuming business activities in stages. In September 2021, the company released a DVD and Blu-ray of SUPER JUNIOR's fan meeting to celebrate the 10th anniversary of the Japanese fan club. In the online event business, the company organized the online fan meeting of SUPER JUNIOR YESUNG.

Other

The Other segment recorded revenue of JPY2.0mn and an operating loss of JPY26mn.

Full-year company forecast

Numerical targets

			FY12/19	FY12/20	FY12/21
(JPYmn)			FY Act.	FY Act.	Rev. FY Est.	FY Est.
Revenue			6,114	4,270	5,869	6,861
		YoY		-30.2%	37.4%	60.7%
Cost of revenue			4,959	3,914
Gross profit			1,155	356
		Gross profit margin	18.9%	8.3%	-	-
SG&A expenses			1,083	1,556
	SG&A ratio		17.7%	36.4%	-	-
Operating profit			71	-1,200	-442	-322
		YoY		-	-	-
		Operating profit margin	1.2%	-	-	-
Recurring profit			74	-1,207	-428	-307
		Recurring profit margin	1.2%	-	-	-
Net income			-483	-1,241	-423	-309
		Net margin	-	-	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

The company had expected that its operations would gradually start to recover from the impact of the pandemic. However, since it has been unable to hold the concerts and events originally planned for the second half of the year, the company has had to downgrade its forecast on the expectation of a significant decline in revenue and profit.

By segment

Rights & Media

In the broadcasting business, SMC will conduct a fundamental review of its existing structure through adopting an approach of selection and concentration. It will concentrate its resources on its flagship channel KNTV to improve its earnings structure. In Q4, the company will launch a video streaming service for KNTV to enhance the premium nature of this channel.

In the new online video streaming business, the company will continue to actively develop the online concert service Beyond LIVE (operated by its subsidiary Beyond Live Corporation) into a global platform. While working to expand its artist lineup and customer base, the company will take steps to strengthen its monetization strategies by building in-house systems, securing sponsorship deals, and collaborating with the merchandise business.

In addition, the company will actively explore online video streaming services, leveraging its expertise in broadcasting TV shows and variety programs. In the rights business, the company will also seek to ensure stable and sustainable earnings by securing and selling broadcasting, distribution, and DVD rights of popular TV shows and variety programs.

Entertainment

In the Entertainment segment, the company will continue to closely monitor conditions surrounding the pandemic, and push ahead with preparations for the resumption of offline concerts in compliance with government guidelines. It aims to restore annual concert attendance to the level SMEJ had before the merger (about 1.5mn). After the pandemic is brought under control, the company looks for a rebound in its offline and online concerts—the two pillars of the business—to contribute to synergies.

Medium-term business plan

On March 1, 2021, SMC unveiled a medium-term business plan spanning from FY12/21 to FY12/23, however the company has not released numerical targets for FY12/22 and FY12/23.

Strategy

Improve broadcasting business structure, and develop video streaming market

SMC sees the broadcasting business as a core business which generates continuous and stable earnings, but earnings power of this business needs to be improved if it is to expand in scale. Previously, SMC operated three paid channels: KNTV, DATV, and Kchan! Hanryu TV. However, the latter two suffered consecutive losses in recent years, so the company decided to discontinue them.

The company plans to concentrate its management resources on KNTV from June 2021. In addition to broadcasting popular K-dramas and Korean variety programs for the first time in Japan, the company is focusing on generating synergies between existing and new businesses. For example, it will start broadcasting Beyond LIVE events held in the video streaming business. It also aims to enhance its brand recognition and strengthen customer retention by increasing the channel’s appeal.

In June 2020, the company launched the KNTV channel on communication satellite (CS) 110-degree broadcasting, which can be received without a dedicated tuner. It plans to utilize its expertise in operating channels such as KNTV to enter the linear-streaming space, and step up efforts to attract new subscribers.

In the rights business, the company plans to take advantage of the recent increase in demand for content to expand beyond Korean content, and purchase and sell rights for Chinese and other global content. By investing in such content from the production stage, it will work to rapidly procure premium content.

Generate synergies between offline and online concerts

SMC has thus far tended to manage artists affiliated with companies other than SM in Japan and held their concerts at arenas and other large venues. It has struggled to stably secure major artists due mainly to the risk of them cancelling their contracts, so the challenge for the company going forward is to avert earnings fluctuations stemming from insecure access to artists.

SMEJ—absorbed by SMC in August 2020—has a track record of exclusively managing popular artists affiliated with SM in Japan. SMEJ has a rich lineup of artists such as TVXQ!, Girls’ Generation, and NCT, leveraging it to operate its concert, music, merchandise, and other businesses.

In 2019, SMEJ reported roughly 10x the operating profit of SMC. Through the merger, SMC gained access to many artists affiliated with SM, and it therefore expects it will be able to operate the Entertainment segment on a larger scale than before while maintaining stability.

SMC still faces a challenging business environment because it cannot hold offline concerts. It assumes this predicament will continue through 1H FY12/21, but thinks it will be able to hold offline concerts from 2H. It targets a rapid recovery in concert attendance to the typical annual level of around 1.5mn fans (1.65mn in 2017, 2.2mn in 2018, 1.5mn in 2019), and has been preparing for a return to normal operations.

After the pandemic subsides, the company plans to push its offline and online concerts—two major business pillars—to not only capture larger audiences, but also expand cooperation with peripheral businesses such as the merchandising, music, and fan club businesses.

Expand revenue and earnings by developing online platform in-house

For a long time, SMC has operated TV channels such as KNTV as its core business, and developing TV-centric platforms has therefore been its main focus. However, the advancement of multimedia devices and communication networks in recent years has altered the way video content is consumed, creating a new business environment for the company. Providing services adapted to such changes has proved a challenge. However, the company was able to move into the video streaming field in earnest when Beyond Live Corporation (BLC) became a consolidated subsidiary as part of the merger with SMEJ.

BLC is a pioneer in online concerts and operates the Beyond LIVE service. In addition to its affiliation with SM, it collaborates with JYP Entertainment, and therefore a continually expanding pool of A-list artists affiliated with two major Korean entertainment companies (e.g., TVXQ!, TWICE) is making an appearance on Beyond LIVE. As such, the service has major appeal with fans, attracts many viewers, and continues to steadily generate attention.

As online concerts can be viewed by fans all over the world, BLC plans to hold concerts of global artists on the service. Beyond LIVE is currently streamed through the third-party platform V LIVE, and its earnings contributions are therefore small. However, SMC plans to build its own online platform for Beyond LIVE, and expects this will sharply boost revenue and earnings from the service in the future.

SMC has already raised funds needed to build the in-house platform. In addition to rapidly improving the earnings from Beyond LIVE, it plans to explore alternative monetization schemes through new services that leverage the in-house platform once it is completed.

Fund raising

In November 2020, SMC issued new shares worth roughly JPY2.7bn to NAVER Corporation through a third party allotment. It plans to use proceeds to push ahead with its growth and business strategies. Through this third party allotment, NAVER Corporation acquired 7.55% of the voting rights in SMC (as of December 2020), becoming a major shareholder.

Use of funds		Amount (JPYmn)	Expenditure timing
(1) Investments in new businesses including Beyond LIVE		1,722	From December 2020 through December 2023
	Technology development, operation and maintenance	700
	Operating and administrative expenses	700
	Marketing expenses	322
(2) Strengthening existing businesses		322
	(Purchase of rights and content, advertising, other)	322
(3) Hiring and training of human resources for business expansion		698
Total		2,742

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Business

Business description

SMC is a Japanese subsidiary of SM Entertainment (SM), one of the “Big 3” entertainment agencies in South Korea. In the Rights & Media segment, SMC broadcasts Korean TV shows (K-dramas) and variety programs—that have become popular as part of the “Korean wave” phenomenon—to paid subscribers. In the Entertainment segment, SMC manages K-pop artists affiliated with the parent company SM, operates fan clubs, and organizes events in Japan.

“Big 3” entertainment agencies in South Korea: The three leading entertainment agencies in South Korea are SM (founded in 1989), YG Entertainment (founded in 1996), and JYP Entertainment (founded in 1997). In some cases, HYBE (formerly Big Hit Entertainment; founded in 2005; the company behind the K-pop sensation BTS) is included as the “Big 4.” South Korea is home to some 500 entertainment companies, including independently operated businesses.
Korean wave: The Korean wave phenomenon refers to the growing popularity of South Korean culture in countries such as Japan, China, and Taiwan, since the 2000s. The first such wave in Japan was sparked by the success of K-drama “Winter Sonata” (starring Bae Yong-joon and Choi Ji-woo) around 2004. The second wave started around 2010, when K-pop bands such as TVXQ!, Girls’ Generation, and KARA rose to fame. The third wave occurred around 2017, when the girl “idol” group TWICE arrived on the scene. The fourth wave began in 2020, and was fueled by the popularity of the K-dramas “Crash Landing on You” and “Itaewon Class” and the success of K-pop band BTS.
K-pop: A genre of popular music originating in South Korea.

In August 2020, SMC merged with SMEJ Inc., a wholly owned subsidiary of SM Entertainment Japan Co., Ltd. As a result of the merger, SMC can now take full advantage of the resources of SMEJ and companies under its umbrella. This means it should be easier for SMC to increase appearances of popular artists affiliated with SM in programs under its own production, and secure other programs featuring such artists. By expanding its premium content, SMC expects to increase subscribers to its TV channel and retain them.

SMC has distributed digital content to mobile phones, and acquired, commercialized, and sold K-dramas and other programs as its core business since 1998 (under the name Digital Adventure Co., Ltd.). In 2009, it merged with BOF International Inc., a subsidiary of KEYEAST Co., Ltd. KEYEAST was founded by Bae Yong-joon (largest shareholder of the venture), who starred in the leading role of the K-drama “Winter Sonata” that kickstarted the first Korean wave in Japan. In October 2009, SMC launched the DATV channel dedicated to Asian content. In 2016, it merged with KNTV Co., Ltd., a company that broadcast content of major Korean TV stations such as MBC and SBS. In September 2016, the company received investment from SM Entertainment Japan, a subsidiary of SM. In 2018, SM acquired shares in KEYEAST, with SMC becoming a subsidiary of SM. In 2020, SMC merged with SMEJ, a company spun off from SM Entertainment Japan Co., Ltd. as a wholly owned subsidiary, and as a result, SMC inherited Everysing Japan Co., Ltd. and Beyond Live Corporation as subsidiaries as part of the merger.

The Rights & Media segment comprises broadcasting and rights businesses. In the core broadcasting business, SMC broadcasts paid TV channels such as KNTV through commercial satellite (CS) broadcasting (via direct broadcast satellite services such as SKY PerfecTV! and SKY PerfecTV! Premium Service), cable TV (CATV), and Internet Protocol TV (IPTV). It generates revenue from such operations through monthly subscription fees. In the rights business, the company chiefly sells broadcasting rights of TV shows. It acquires broadcasting, streaming, and other rights of K-dramas and Korean variety programs in collaboration with—or through joint planning with—Korean entertainment production companies, producers, and TV stations. It operates this business with a broad range of rights such as broadcasting rights, online streaming rights, and video and DVD rights. Once it has fully broadcast a show on its KNTV channel, SMC sells the broadcasting rights to domestic CATV channels, DVD rental chains, local terrestrial broadcasting stations, and streaming platforms such as Netflix as secondary and tertiary distribution channels (in this order).

In the Entertainment segment, SMC exclusively manages SM-affiliated artists in Japan, organizes concerts for these artists at sports stadiums and arenas, sells related merchandise, and plans and organizes media appearances. For famous Korean artists affiliated with other companies, SMC helps organize events, operate fan clubs, and disseminate information to mobile phones, supporting their activities in Japan. Through the merger with SMEJ in 2020, SMC inherited the SMEJ’s music business, and streams online live performances held by its subsidiary Beyond Live Corporation.

In FY12/20, SMC reported revenue of JPY4.3bn on a consolidated basis (JPY6.1bn in FY12/19) and an operating loss of JPY1.2bn (operating profit of JPY71mn in FY12/19). Its performance was weighed down by successive cancellations of live concerts due to the pandemic and swelling restructuring costs. Before being absorbed by the company, SMEJ posted revenue of JPY6.2bn and operating profit of JPY677mn in 2019. SMC expects its earnings to bounce back once live concerts resume in Japan.

By segment			FY12/11	FY12/12	FY12/13	FY12/14	FY12/15	FY12/16	FY12/17	FY12/18	FY12/19	FY12/20
(JPYmn)			Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.
Revenue			3,907	4,409	3,796	2,497	3,328	4,534	7,770	7,059	6,114	4,270
	YoY		-33.1%	12.9%	-13.9%	-34.2%	33.3%	36.2%	71.4%	-9.2%	-13.4%	-30.2%
	Rights & Media											3,246
		YoY	-	-	-	-	-	-	-	-	-	-
		% of total revenue	-	-	-	-	-	-	-	-	-	75.8%
	Entertainment											1,037
		YoY	-	-	-	-	-	-	-	-	-	-
		% of total revenue	-	-	-	-	-	-	-	-	-	24.2%
		Internal transactions
	Digital Content Delivery		745	724
		YoY	-43.0%	-2.8%	-	-	-	-	-	-	-	-
		Internal transactions
	Merchandising		988	1,483	600	637	353	144
		YoY	45.0%	50.0%	-59.6%	6.3%	-44.6%	-59.3%	-	-	-	-
		Internal transactions						20
	Rights & Communication		1,737	1,867	2,958	1,839	1,908	2,145	5,351	4,729	3,829
		YoY	-26.6%	7.5%	58.4%	-37.8%	3.8%	12.4%	149.5%	-11.6%	-19.0%	-
		Internal transactions					66	82	82	126	225
	Broadcasting						1,050	2,226	2,401	2,312	2,283
		YoY	-	-	-	-	-	112.1%	7.8%	-3.7%	-1.2%	-
		Internal transactions					4	2	2		4
	Telecommunication and Video Streaming		198
		YoY	-74.6%	-	-	-	-	-	-	-	-	-
		Internal transactions	48
	Other		239	335	239	21	19	19	18	18	2	1
		YoY	-66.1%	40.1%	-28.8%	-91.3%	-9.8%	2.0%	-5.5%	0.2%	-89.0%	-
		% of total revenue	6.1%	7.6%	6.3%	0.8%	0.6%	0.4%	0.2%	0.3%	0.0%	0.0%
		Internal transactions	0	0
	Inter-segment transactions, eliminations		-48	0			-69	-105	-85	-126	-229	-15
Operating profit			95	-188	-500	23	69	6	301	74	71	-1,200
	YoY		-	-	-	-	200.8%	-91.4%	-	-75.6%	-3.1%	-
	Operating profit margin		2.4%	-	-	0.9%	2.4%	-	8.5%	6.0%	8.3%	-
	Rights & Media											-195
		YoY	-	-	-	-	-	-	-	-	-	-
		Operating profit margin	-	-	-	-	-	-	-	-	-	-
	Entertainment											-308
		YoY	-	-	-	-	-	-	-	-	-	-
		Operating profit margin	-	-	-	-	-	-	-	-	-	-
	Digital Content Delivery		-64	93
		YoY	-	-	-	-	-	-	-	-	-	-
		Operating profit margin	-	12.9%	-	-	-	-	-	-	-	-
	Merchandising		193	252	45	30	-52	-71
		YoY	7	0	-1	0	-	-	-	-	-	-
		Operating profit margin	19.5%	17.0%	7.5%	4.8%	-	-	-	-	-	-
	Rights & Communication		-17	-488	-550	-8	113	0	384	368	493
		YoY	-	-	-	-	-	-1	-	0	0	-
		Operating profit margin	-	-	-	-	5.9%	0.0%	7.2%	7.8%	12.9%	-
	Broadcasting						17	68	284	59	36
		YoY	-	-	-	-	-	3	3	-1	0	-
		Operating profit margin	-	-	-	-	1.6%	3.0%	11.8%	2.5%	1.6%	-
	Telecommunication and Video Streaming		5
		YoY	-1	-	-	-	-	-	-	-	-	-
		Operating profit margin	2.6%	-	-	-	-	-	-	-	-	-
	Other		-22	-46	4	0	2	1	2	2	-1	-14
		YoY	-	-	-	-1	4	0	0	0	-	-
		Operating profit margin	-	-	1.9%	2.1%	11.4%	7.9%	8.5%	12.1%	-	-
		% of total revenue	-	-	-	1.9%	2.6%	-	0.2%	0.5%	-	-
	Inter-segment transactions, eliminations		0	1			-11	8				-15
	Company-wide expenses								-368	-355	-457	-669

Business Model

Rights & Media segment (75.8% of total revenue in FY12/20)

Overview of business model

Products and services

KNTV: a channel dedicated to Korean content

SMC provides the premium TV channel KNTV to communication satellite (CS), cable TV (CATV), and Internet Protocol TV (IPTV) broadcasters (mainly SKY PerfecTV!, JCOM, and Hikari TV). The channel primarily broadcasts popular K-dramas aired by Korean TV stations MBC and SBS, Korean news, K-pop (music) shows, and Korean variety programs. It is also available on CATV and IPTV (video content streamed over broadband internet such as ADSL).

SMC launched the DATV channel in 2009, and the linear-streaming channel Kchan! Hanryu TV—which was part of the dTV offerings by NTT Docomo—in 2018, but it discontinued both by May 2021, leaving KNTV as the only channel in operation from June 2021. DATV was dedicated to Asian content across the board, and included Chinese and Taiwanese programs in addition to Korean ones. Kchan! Hanryu TV was a linear-streaming channel for mobile devices that was geared toward a younger audience.

Viewing options

There are six ways fans can view K-dramas and other content on KNTV. CS broadcast services that feature the channel include SKY PerfecTV! (SKY PerfecTV! Premium Service [channel 657] and SKY PerfecTV! Premium Service Hikari [channel 657]), Hikari TV (channel 570), J:COM (channel 761), and cable TV (CATV). From June 2020, the channel became available on the SKY PerfecTV! plan of the SKY PerfecTV! service (CS801; broadcast from 7am to 2am the following day). This new channel is called KNTV801.

The primary difference between KNTV (first five options above) and KNTV801 (sixth option) is broadcasting hours. KNTV broadcasts in 24-hour cycles starting at 4am, whereas KNTV801 broadcasts from 7am to 2am the following day (no broadcasting for five hours each day). During those hours, viewers cannot watch KNTV programs. Another key difference is that a special tuner is required to view KNTV, which is not the case for KNTV801. All viewing options give fans access to new K-dramas, variety programs, and music shows of Korean terrestrial broadcasters, as well as to programs featuring SM-affiliated artists such as TVXQ!, and original programs.

Pricing structure

KNTV and KNTV801 are premium TV channels that require subscribers of broadcast services such as SKY PerfecTV! or J:COM to pay an additional monthly fee over and above their standard subscription fee (total subscription fee = standard subscription fee for broadcasting service + KNTV subscription fee). The table below shows the approximate total prices for standard and channel subscription fees by service provider as of February 2021 (all subscription fees are subject to revision due to service revisions). The standard subscription fees for broadcasting services such as J:COM (CATV) and Hikari TV are higher as they provide access to multiple channels. However, when combining these fees with internet provider service, they could end up being more affordable. The subscription fee for KNTV801 is lower than for KNTV in reflection of its shorter broadcasting hours.

	SKY PerfecTV! Premium Service	SKY PerfecTV! Premium Service Hikari	J:COM	Hikari TV	SKY PerfecTV! CS801
Basic fee (incl. tax; JPY)	429	429	From about 4,500	From about 1,650	429
KNTV fee (incl. tax; JPY)	3,960	3,960	2,750	3,300	3,300

Source: Shared Research based on company data

Programming

KNTV specializes in Korean content, and its programs largely break down into: 1) K-dramas (55%), and 2) variety, K-pop, and Korean news (45%). KNTV801, launched in June 2020, mainly broadcasts new K-dramas, variety programs, and music programs of Korean terrestrial broadcasters. It also broadcasts programs featuring SM-affiliated artists such as TVXQ!, and original content. DATV (closed in May 2021) was a channel dedicated to Asian content, and broadcast Chinese, Taiwanese, and other Asian content, in addition to K-dramas.

Subtitle production

The company produces Japanese subtitles for programs purchased in South Korea and its own shows and sells them (to CS and BS broadcasters and Netflix).

Sales of programs

Through collaboration and joint planning with Korean entertainment agencies, production companies, and TV stations, SMC acquires broadcasting, online streaming, and video and DVD creation rights for K-dramas and Korean variety programs and use them to generate revenue. After airing programs on its own channel, if they are not a good fit for the channel, the company sometimes sells their rights to operators of other channels.

・ Program broadcasting rights (including repeat broadcasts)		The rights to sells programs as "complete packages" to broadcasting stations in relevant countries/regions (providing localization through subtitling or dubbing).
・ Various rights related to programs
	Merchandising rights	The rights to sell merchandise for characters or other content featured in broadcast programs.
	Video and DVD rights	The rights to sell broadcast programs as video or DVD packaged software in relevant countries/regions.
	Online streaming rights	The rights for video streaming services in relevant countries/regions to localize broadcast programs and stream them over the internet.
	Formatting and remake rights	Formatting rights are rights to format and sell program concepts, production methods, etc. Remake rights are rights to use structural elements such as a story (drama) settings or characters in new productions, and sell these.
	Other	The rights to use parts of broadcast programs as video materials (footage).

Source: Shared Research based on “2014 Analysis of State of Overseas Use of Broadcast Content” by the Ministry of Internal Affairs and Communications’ Institute for Information and Communications Policy, “Content Business Management Strategy” (Chuokeizaisha)
Note: SMC does not sell the merchandising rights and formatting/remake rights shown in the table above.

In 2001, the purchase price of Korean content (per program) averaged USD16,000–25,000 for K-dramas, USD9,000–25,000 for documentaries, and USD8,300 for animation works (source: Growth and International Distribution of Korean Video Content, Kim Mirim, Keio University Press). According to the company, K-dramas cost between JPY2mn and 20mn per episode, with the actual price determined based on the popularity of the show and buyer competition.

Content streaming

SMC is expanding its platforms online, and already streams a wide range of content online, including live concerts. Following the merger with SMEJ in August 2020, it started streaming offline concerts through its Beyond LIVE service as a new business. Prices vary by concert, but official fan club members receive a discount (e.g., JPY3,900 for fan club members vs. JPY4,900 for non-members, both including tax).

Beyond LIVE: An online concert service operated by Beyond LIVE Corporation (BLC; currently a subsidiary of SMC), the world’s first online-only concert streaming service provider originally founded by SM and JYP Entertainment. BLC aims to grow its Beyond LIVE service into a global brand for online concerts through fusing the content production capabilities of SM with the IT technology of NAVER and also adding the global network of JYP Entertainment. The first Beyond LIVE event held in April 2020 was the world’s first paid online-only concert. BLC built a new cultural technology (CT: a system to promote Korean culture around the world) in the concert space by combining augmented reality (AR) and a multi-video connection system to achieve two-way communication between artists and viewers. Beyond LIVE events are streamed live across the world through NAVER’s video streaming app V LIVE.

Beyond LIVE

Source: Shared Research based on company data

Customer base

The customers in its broadcasting business are the subscribers of KNTV, the company’s premium TV channel accessible through paid multi-channel broadcasting services. The channel was initially geared toward Korean residents in Japan (which numbered 435,459 as of June 2020). After K-dramas rose in popularity following the release of “Winter Sonata” in 2002, K-dramas became central to the channel’s programming. In 2014, the channel topped 100,000 subscribers including Japanese fans of Korean pop culture (source: minutes of the 2014 KNTV Program Council Meeting), with many subscribers in their 50s–60s (source: minutes of the 2015 KNTV Program Council Meeting). These are core Korean content fans who are willing to pay a monthly fee to view K-dramas and music programs featuring K-pop artists. The company says it aims to expand the number of viewers in their 30s and below going forward. According to the 2016 K-drama Survey conducted by SKY PerfecTV! (1,000 respondents), fans spent an average of JPY11,834 per year to enjoy Korean content.

The main age bracket of subscribers to paid multi-channel broadcasting services is “40s and above” (source: 2020 Report on Survey of Multi-Channel Broadcasting by the Multi-Channel Broadcasting Research Institute). As of end-March 2021, subscribers totaled 3,102,004 for CS digital broadcasting services (total subscribers of SKY PerfecTV!) and 25,546,780 for BS digital broadcasting services (NHK-BS: 22,755,309 subscribers, WOWOW: 2,791,471 subscribers).

Customer value

KNTV is a channel that specializes in Korean content, with K-dramas making up half of its programs. Its subscribers are fans of the genre who are willing to pay for such content. The channel provides value to core fans by 1) supplying interesting K-dramas, 2) offering a high quantity of such content (K-drama shows with 20–50 episodes of 75–90 min each), 3) premiering shows in Japan, and 4) allowing viewers to enjoy shows without commercials (however, the channel is not entirely commercial-free).

In the aforementioned 2016 K-drama Survey, respondents attributed the appeal of K-dramas to “the depiction of pure love” (27.2% of respondents), “the complexity of human relationships” (23.0%), “improbable plot twists that are detached from reality” (21.3%), “stories underpinned by a clear sense of right and wrong” (19.5%), “the depiction of love that transcends obstacles such as differences in social status” (18.3%), and “large-scale plots” (17.8%). In other words, the main attractions appear to be the themes of romance and personal relationships, as well as sprawling story arcs.

Another benefit of a paid channel such as KNTV lies in the quantity of its content. Whereas Japanese drama shows are generally replaced every three months, K-dramas do not adhere to such rigid broadcasting schedules. If viewership rates are favorable, the number of episodes is increased. Many K-dramas have 20–50 episodes, but large historical K-dramas can span over 200 episodes. In addition, individual episodes last 75–90 minutes. On the whole, therefore, K-dramas offer more volume than Japanese dramas. Another contributing factor to viewer satisfaction is that K-dramas have an addictive structure that encourages viewers to keep watching the next episode.

The shows that appear on KNTV are typically broadcast in Japan for the first time, which is another major draw of the channel. After all, KNTV subscribers are core fans of Korean pop culture, who are very familiar with the Korean content to begin with. The fact that many such shows are premiered on KNTV in Japan is therefore enticing to subscribers. Since 2020, a fourth Korean wave has been driven by younger K-pop fans (teens to people in their 30s). By being the first to broadcast K-pop and variety shows that feature K-pop artists, KNTV can offer the same satisfaction to this audience as to its K-drama fans. SMC says that KNTV and DATV broadcast over 50% of the K-dramas that premiered in Japan (in 2020), which is higher than rival K-drama channels KBS WORLD (operated by KBS Japan, a subsidiary of Korean Broadcasting System [KBS]), and Mnet (operated by CJ ENM JAPAN).

Content suppliers

SMC purchases its content directly from 1) Korean terrestrial broadcasters MBC, KBS, and SBS, 2) Korean cable TV operators CJ ENM and JTBC, and 3) production companies that own show rights.

Content customers

The company sells the rights of the K-dramas and Korean variety programs it purchased to 1) terrestrial broadcasters such as TV Tokyo, 2) local TV stations, and 3) BS and CS broadcast services. It also sells video-on-demand (VoD) rights to video streaming services such as U-NEXT and FOD, and also sells DVD rights.

Revenue structure

Channel (broadcasting) business

Revenue in the broadcasting business is calculated using the formula: Number of subscribers x monthly subscription fee x 12 months. KNTV has roughly 100,000 subscribers, who pay a monthly subscription fee of JPY3,960 for the SKY PerfecTV! Premium Service. The service operator collects this fee, and pays a fixed percentage to SMC. In the case of KNTV801, SMC collects the subscription fee directly from subscribers, and pays a fixed percentage to SKY PerfecTV!.

Revenue in the company’s broadcasting business has held steady at around JPY2.3bn from FY12/16 to FY12/19. Shared Research understands that broadcasting revenue accounted for 36.0% of the total revenue of JPY6.1bn in FY12/19, and two-thirds of the JPY3.2bn revenue in the Rights & Media segment in FY12/20 (analysis based on FY12/19 data as figures for the broadcasting business can no longer be extracted after the changes in the segment structure from FY12/20).

Rights business

SMC sells broadcasting rights of TV shows purchased in South Korea to CS broadcasting companies and other parties under fixed-term contracts and contracts under which it collects a portion of the revenue generated from secondary use. However, the copyright of the TV shows is not transferred and remains with the Korean production company or TV station. SMC has not disclosed the fees it earns on sales of broadcasting rights.

Online streaming business

As part of the merger with SMEJ in August 2020, SMC inherited Beyond Live Corporation as a subsidiary, and moved into online streaming business. It plans to aggressively push online performances as a new business via the Beyond LIVE service. Revenue from online performances on Beyond LIVE is calculated by multiplying ticket prices and number of viewers. That said, the company earned only a fraction of this as all concerts were held in South Korea during the first year of the business through March 2021 and it needed to pay production fees, performance fees to artists, and hosting fees to the V LIVE platform. As a result, earnings contribution by this business was small, at several percent of total revenue.

Cost structure

Cost of revenue in FY12/19 totaled JPY5.0bn, including JPY1.8bn for broadcasting-related expenses (36.4% of total cost of revenue) and JPY921mn in amortization of copyright and other rights (18.6%). In FY12/19, the broadcasting business generated revenue of JPY2.3bn, but reported profit of only JPY36mn and a low OPM of 1.6% (versus 2.5% in FY12/18). (Analysis based on FY12/19 data, as figures for the broadcasting business can no longer be extracted after the changes to the segment structure implemented in FY12/20.)

Entertainment segment (24.2% of total revenue in FY12/20)

Services provided

Entertainment (including talent production) operations and management

SMC exclusively manages the activities of artists affiliated with SM—its parent company—in Japan, and also promotes the music business of SM in Japan. Its entertainment and talent production operations span 1) training of artists, 2) production, 3) management, and 4) fan club operations. SMC handles production and management for all SM-affiliated artists in Japan. It is not involved in talent recruiting and training, which are areas handled by SM. Fan club operation for SM-affiliated artists is handled by SMEJ PLUS.

SMC’s management responsibilities range from management and support of artist activities (song production and performances) to business promotion in Japan. It manages artists’ schedules, manages music and live performance quality, and disseminates information about artists. It provides value to consumers by 1) producing music, 2) organizing and operating live performances and concerts, and 3) selling merchandise. SM has an extensive lineup of artists that includes BoA, TVXQ!, SUPER JUNIOR, Girls’ Generation, SHINee, EXO, Red Velvet, and NCT. BoA was one of the early Korean artists to break out on the global stage, and TVXQ! has built up a massive and stable following in Japan. Girls’ Generation became the first Korean girl band to sell a million albums in 2011.

SM’s artist lineup