FNC Entertainment Absorbs and Merges Girl Group Label 'FNC W' After 13.6 Billion KRW Loss

Girl Group 'Cherry Bullet' Label
136 Billion KRW Loss in 2 Years... Reflected Separately After Merger

FNC Entertainment, the agency representing FT Island, CNBLUE, N.Flying, SF9, and others, is absorbing and merging the girl group specialized label it ambitiously established two years ago. It is understood that this is because most of the approximately 15 billion KRW invested was lost, putting the label at risk of capital erosion. After the merger, losses incurred here will be reflected in FNC Entertainment's separate financial statements.

According to the Financial Supervisory Service's electronic disclosure on the 18th, FNC Entertainment announced that it will absorb and merge its subsidiary FNC W. Since FNC Entertainment owns 100% of FNC W's shares, the merger will proceed as a non-capital increase merger without issuing new shares.

FNC W is a girl group specialized label established in 2021 with a capital of 12 billion KRW. Earlier this year, FNC Entertainment additionally invested 2.9 billion KRW in this label, bringing the total investment to 14.9 billion KRW.

FNC W was initially led by Han Seung-hoon, the brother of FNC Entertainment CEO Han Sung-ho and a producer, who served as the first CEO. Among FNC W's artists is the girl group Cherry Bullet, which debuted in early 2021. It is also known that about 20 female trainees are being trained at FNC W.

However, the company's performance was poor. In its first year, FNC W recorded sales of 57 million KRW, an operating loss of 4.2 billion KRW, and a net loss of 5.6 billion KRW. Despite large-scale investments in girl group and album production costs, sales were almost nonexistent, resulting in deficits.

Last year, losses continued. As of last year, FNC W recorded sales of 800 million KRW, an operating loss of 4.5 billion KRW, and a net loss of 6.2 billion KRW. Notably, last year, in addition to girl group-related expenses, a 'short-term investment asset valuation loss' of about 1.9 billion KRW occurred, increasing the net loss.

The short-term investment asset was equity in a game company. Previously, in 2021, FNC W invested 2 billion KRW in the game developer PNX (now Phoenix Entertainment). This company launched a mobile action MMORPG called Aqua Phoenix early last year, but it is known that the game did not perform well.

Accordingly, FNC W wrote off most of its investment in PNX within about a year. FNC Entertainment stated regarding this investment, "There is a contract allowing recovery as the CEO of PNX's shares are held as collateral, so losses are expected to be reversed later."

However, deficits continue in FNC W's core business. In the first half of this year, FNC W recorded a net loss of 1.8 billion KRW. Consequently, out of the total 14.9 billion KRW invested by FNC Entertainment, only 1.4 billion KRW in capital remains. If losses of a similar scale occur in the second half, it could lead to capital erosion.

Once this merger is completed, future losses of FNC W will be fully borne by FNC Entertainment's main business division. Until now, as a subsidiary, FNC W's performance was reflected in FNC Entertainment's consolidated financial statements, but after the merger, it will be included in FNC Entertainment's separate financial statements.

Regarding this, an FNC Entertainment official said, "After the merger, we expect the scale of losses to be smaller than now because we can utilize personnel more efficiently and reduce various expenses such as corporate maintenance costs."

Meanwhile, FNC Entertainment will also absorb and merge FNC Academy along with FNC W. This company was also established with a capital of 2 billion KRW but is currently in a state of capital erosion. The merger date is set for January 1, 2024.