On Aug 23., KB Securities analyzed Studio Dragon, noting that despite signaling a strategic shift by appointing an external CEO, the company is facing challenges due to reduced investment in the drama industry. As a result, the investment bank has lowered its target stock price from 52,000 won to 49,000 won while maintaining a “Buy” rating.
The decision to lower the target price stems from a downward revision in the expected number of productions airing this year—about 30 fewer than initially anticipated—leading to an estimated 6% decrease in operating profit.
Studio Dragon’s unusual move to appoint an external CEO underscores its intent to pivot strategically. However, the drama industry is grappling with slowed growth due to declining investments in upstream sectors like over-the-top (OTT) services and traditional TV, coupled with rising actor fees.
Choi Yong-hyun, an analyst at KB Securities, remarked, “Studio Dragon is developing a new business model to navigate these challenges, and its future strategy as a leading content provider is critical to the domestic entertainment industry.”
The company’s reliance on intra-group transactions has decreased significantly, with captive revenue dropping from 43% of total sales in 2019 to 23.9% in the first half of this year. While this reduced dependency is a positive development, slower growth in external transactions is weighing on overall revenue.
Choi emphasized, “To drive future growth in non-captive sales, Studio Dragon needs to enhance its negotiating leverage with Netflix and expand its presence across new platforms.” Despite Studio Dragon’s content representing 3% of Netflix’s offerings, it accounts for only 1% of the streaming giant’s annual investment. With the Netflix contract approaching its end, better terms for the re-negotiation are crucial.
KB Securities expects that Studio Dragon’s focus on selective, profitable productions and tighter control of production costs will lead to improved profitability. Choi highlighted the irony that while successful productions on global OTT platforms drive up actor fees—a major cost factor—this success also imposes a future financial burden on production companies.
To manage costs, Studio Dragon is exploring contracts for multiple projects featuring new actors. Choi added, “In a market where drama supply is shrinking, production companies may gain stronger negotiating power. The strategy to focus only on highly profitable projects moving forward is also a positive step.”
