Why Have Content Production Stocks Heated Up This Month?

[Asia Economy Reporter Minji Lee] As the competition among global OTT (online video service providers) for K-content programming intensifies, expectations are growing that domestic production companies will benefit. Accordingly, institutional investors are also anticipating record-breaking performance and are buying related stocks in advance.

According to the Korea Exchange on the 17th, Studio Dragon, a content production company, has risen 8% this month to 91,500 KRW as of the previous day. The expansion of institutional investor sentiment was effective, with institutions purchasing stocks worth 31 billion KRW this month alone. Another production company, Ace Story, showed a rise of over 10% during the same period, with institutional investors net buying about 6 billion KRW.

Supporting the stock prices of production companies are the record-level investment plans of global OTTs. To increase subscribers, differentiated content is necessary, and Korean content can generate large profits with less money compared to Hollywood content. Recently, Netflix and Disney Plus announced plans to increase domestic content this year, with expected releases of 25 and 20 titles respectively. Netflix, which entered Korea first, has expanded its domestic investment ratio from around 2% two years ago to about 5%.

Along with the increase in the number of productions, the production cost recovery rate (recoup rate) is also rising, strengthening the profitability of production companies. In the past, when content was released only to Netflix and domestic broadcasters, the recoup rate of production companies was around 100-140%, but recently, with the addition of global OTTs and Chinese OTTs, the recoup rate is estimated to reach 110-170%.

Shin Eun-jung, a researcher at DB Financial Investment, explained, “As the increase in OTTs and expansion of content demand clearly benefit production companies, those with content in production can maintain favorable performance.” Furthermore, small and medium-sized production companies such as Samhwa Networks (Now, We Are Breaking Up) and Ace Story (Jirisan) are increasing works with their own IPs, so additional revenue using IPs is also expected.

Another positive factor that could boost stock prices is the possibility of resuming exports to China. The Korean drama "Something in the Rain" began broadcasting on iQIYI, one of China’s top three OTT platforms, on the 3rd of this month. This is significant as it is the first time since the Hanhanryeong (Korean content ban) fully took effect in 2017 that a program has passed censorship. Choi Min-ha, a researcher at Samsung Securities, said, “Although expectations for the lifting of the Hanhanryeong have been dashed several times in the past, the recent case is quite encouraging,” and added, “Large production companies such as Studio Dragon and J Contentree, which have many works with IPs, are likely to benefit in terms of profitability.”