Barunson E&A, 'Parasite' Effect? Still Trusting Games

[Asia Economy Reporter Hyunseok Yoo] Barunson E&A quickly became famous as the production company of the film "Parasite." As its fame grew, the company's value more than doubled. However, despite its popularity, its financial situation is not good. Due to sluggishness in one of its main sectors, the gaming business, it has recorded losses for three consecutive years.

◆ Sale of Game Company, Two Consecutive Jackpot Years from Parasite Investment = Barunson E&A began preparing for the production of Parasite in 2017. According to Barunson E&A's Q1 2017 report, some casting for Parasite had been completed. The scenario was also finished, and filming had begun. In March of the following year, Barunson E&A signed a production contract worth 12.5 billion KRW with CJ ENM for Parasite. The film was released on May 30 last year and surpassed 10 million cumulative viewers by July 21.

Korea Investment & Securities estimated that Parasite achieved approximately 86 billion KRW in box office sales domestically. The profit, excluding production and marketing costs, was estimated at around 21.5 billion KRW. Following its four Academy Awards, including Best Picture, overseas screening revenues have also increased. According to Mojo, a U.S. box office tracking site, as of the 15th (local time), Parasite has generated global revenue of $170.42 million (201.6 billion KRW), surpassing 200 billion KRW in total revenue. Barunson E&A receives 40% of Parasite's profit. At the time of the contract, Barunson E&A explained, "If net profits occur from film screenings, 40% will be additionally distributed." Until the third quarter of last year, Barunson E&A had not recognized overseas revenue in its film business segment.

Barunson E&A has experience making large profits by investing in game companies and then divesting shares, similar to its film investments. In May 2018, Barunson E&A sold 4.7 million shares of NetGames to Nexon Korea at 20,424 KRW per share, totaling 96.1 billion KRW. The initial acquisition cost of the NetGames shares held by Barunson E&A was 1.9 billion KRW, with a book value of 28.4 billion KRW. After selling to Nexon, Barunson E&A disposed of the remaining NetGames shares on the market. As of the end of last year, its shareholding ratio had decreased to 5.77%.

◆ Barunson E&A's Next Plan = Despite hitting jackpots with the 2018 NetGames sale and the 2019 success of Parasite, Barunson E&A's financial condition is poor. Continued poor performance has led to a persistent increase in deficit. The deficit decreased from 92.3 billion KRW in 2017 to 5 billion KRW in 2018, thanks to the large profit from the NetGames sale. However, without sustained performance, fundamental structural improvements have not been achieved. The deficit, which sharply declined in 2018, rose again to 24 billion KRW as of the third quarter of last year.

Last year, Barunson E&A recorded consolidated sales of 15.3 billion KRW and an operating loss of 18.3 billion KRW. Sales decreased by 49.0%, and operating losses continued. It has posted losses for three consecutive years since 2017. Net income turned negative. The company explained, "Sales decreased due to the exclusion of NetGames from the consolidation scope. Although revenue increased from Parasite screenings, production revenue decreased due to completion. Operating losses increased due to poor performance of released games."

Although Barunson E&A became famous for Parasite, the gaming sector accounts for a large portion of its sales. The success of games greatly affects sales volume. As of the third quarter of last year, the gaming business accounted for 46.27% of Barunson E&A's revenue, followed by film at 32.39%, and others at 21.34%.

This year, expectations also lie with gaming. NX Games, in which Barunson E&A holds a 72.0% stake, launched "Last Kings" last December in over 150 countries across North America, Europe, and Asia. Additionally, EVR Studio (33.1% stake) is developing Project TH (working title). Barunson E&A holds the distribution rights for this game.