Loan to US subsidiary for 'business structure improvement' purpose
Costs incurred due to termination of long-term lease contracts
Annual deficit of 60 billion won but "No plan to withdraw business"
CJ CGV is taking steps to wind down its loss-making U.S. subsidiary. First, it closed the CGV San Francisco location, the largest in North America. Although it was the first domestic theater operator to enter the birthplace of cinema in 2010, business contraction became inevitable due to poor performance following the COVID-19 pandemic. CGV denies withdrawing from the U.S. market.
According to the Financial Supervisory Service's electronic disclosure system on the 12th, CJ CGV decided in December last year to lend 36.82 billion KRW to its U.S. subsidiary. This amount corresponds to 9.38% of its equity capital, bringing the total loan balance to 42.128 billion KRW. CJ CGV explained, "The loan was decided to improve and streamline the business structure of the U.S. subsidiary."
This decision was made to cover temporary costs related to the closure of the CGV San Francisco location. Opened in 2020, the San Francisco branch closed in March last year after three years due to severe operational losses. A CGV official explained, "Since cinemas typically have long-term leases of over 10 years, penalties for contract termination occurred, and severance payments for employees were also incurred."
CGV entered the U.S. market first among domestic theater operators by opening the 600-seat CGV LA location in June 2010. In January 2017, it expanded by opening the 1,187-seat Buena Park location. As a result, it achieved sales of 9.8 billion KRW in 2018. Subsequently, CGV opened the 2,217-seat San Francisco location in 2020, aiming to attract not only Korean but also local audiences, expanding its U.S. presence. However, the COVID-19 pandemic severely impacted attendance, making operations difficult.
The CGV U.S. subsidiary has continued to incur losses even after the COVID-19 endemic phase. With no sales, it recorded net losses of 84.9 billion KRW in 2021, 64.5 billion KRW in 2022, and 65.7 billion KRW in 2023. Consequently, business downsizing became unavoidable, leading to the closure of the largest San Francisco location.
CGV insists it is only scaling down its U.S. operations and denies withdrawing from the U.S. market. A CGV official stated, "Since CGV planting its flag in the birthplace of cinema carries significant symbolism, there are currently no plans to withdraw the subsidiary."
Currently, CGV operates two locations in the U.S.?LA and Buena Park?with a total of 11 screens.
Some voices argue that CGV should withdraw from the U.S. subsidiary, which is difficult to justify beyond symbolism. They question the necessity of maintaining a business strategy akin to "pouring water into a bottomless pit," given the hundreds of billions of KRW in annual losses.
In particular, CGV's financial situation is not favorable. Although it returned to profitability with an operating profit of 49.1 billion KRW last year, supported by the COVID-19 endemic, it recorded operating losses of 388.7 billion KRW in 2020, 241.4 billion KRW in 2021, and 76.8 billion KRW in 2022.
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