[Exclusive] The Cause Blocking the Merger of Tving and Wavve to Stop Netflix's Dominance

Native OTT Merger to Compete with Global OTTs like Netflix and Disney Plus Faces Collapse
Tving's Major Shareholder SLL Joongang's Difficult Financial Situation Cited as Cause of Merger Failure

In the K-content and investment industries, the failure of the Tving and Wavve merger is seen as the disappearance of the only card to check Netflix's dominance. In a situation where the birth of a large-scale native OTT capable of competing against overseas online video services (OTT) is urgently needed, the collapse of the Tving and Wavve merger is analyzed as a painful loss for the K-content and media industries.

Failure of Tving-Wavve Merger: Will the Card to Stop Netflix's Dominance Disappear?

Currently, the domestic OTT industry is competing among operators such as Netflix, Disney Plus, Coupang Play, Tving, Wavve, and Watcha. Among them, native OTTs continue to suffer losses due to the expanding market share of global OTTs like Netflix and Disney Plus, which leverage enormous capital power. Tving recorded operating losses of 76.2 billion KRW in 2021, 119.2 billion KRW in 2022, and 142 billion KRW in 2023, accumulating deficits. Wavve also posted operating losses of 55.8 billion KRW, 117.8 billion KRW, and 79.1 billion KRW during the same period.

Major OTT operators are fiercely competing to increase their user base by showcasing original (self-produced) content. The merger of 'Tving,' whose major shareholders include CJ ENM, KT Studio Genie, SLL Jungang, and Naver, and 'Wavve,' whose major shareholders are SK Square and the three terrestrial broadcasters, was considered an inevitable choice. Given the nature of the OTT market, where fierce competition against the giant Netflix is necessary, native platforms must pour investment into producing original content on a massive scale to secure subscribers and prevent churn. Moreover, the combined production capabilities of CJ, KT, SK, and the three terrestrial broadcasters must be fully deployed to survive global competition. Netflix invested 100 billion KRW in producing 'Squid Game 2,' and Disney Plus invested over 50 billion KRW in producing 'Moving,' demonstrating how global OTT operators manipulate the K-content market with their massive capital. With the collapse of the Tving-Wavve merger negotiations, the emergence of a native operator to counter this has become difficult for the time being.

SLL Jungang Must Achieve Qualified IPO by March 2026... Has Difficult Financial Situation Tightened the Noose?

Attention is focused on the background of SLL Jungang's stringent merger conditions, which have been identified as the cause blocking the merger negotiations between Tving and Wavve. The industry analyzes that behind SLL Jungang's unusual move to demand different supply conditions from other broadcasters lies a difficult financial situation.

SLL Jungang must succeed in a qualified IPO (Q-IPO) within a year and a half to repay borrowed funds. When SLL Jungang attracted 400 billion KRW in pre-IPO investment from Praxis Capital and Tencent in 2021, it promised investors an IPO within three years. Although the agreed deadline requires a successful listing within this year, there was an extension option of up to two years, so the target deadline is seen as March 2026. The market knows that at the time of borrowing, SLL Jungang was valued at 1.6 trillion KRW, with a condition to increase the corporate value by more than 20%. To meet this, maximizing sales and profits is necessary, but considering the current market situation, it is a realistically difficult goal. It is also speculated that to reduce existing transactions with Netflix (supplying 5-6 dramas annually) to fit the conditions of the merged Tving-Wavve entity, a corresponding compensation was required.

Above all, improving performance is urgent to succeed in the listing by the deadline. According to the Financial Supervisory Service's electronic disclosure system, SLL Jungang's consolidated sales in Q1 were 103 billion KRW, with a net loss of 14.6 billion KRW. The poor performance of SLL Jungang's U.S. subsidiary, SLL America, contributed to the losses. According to Korea Ratings, SLL Jungang's total borrowings increased from 318.6 billion KRW at the end of 2022 to 415.3 billion KRW as of March this year. The debt dependency ratio expanded by 9 percentage points from 25.4% to 34.4% during the same period. The debt ratio jumped from 113.6% to 148.9%. An SLL Jungang official responded to market concerns by saying, "SLL has sufficient financial capacity and a high possibility of achieving an IPO," adding, "This year will be the first year we surpass our competitor Studio Dragon in the number of productions."

Meanwhile, SLL Jungang has begun preparing for listing by selecting NH Investment & Securities and Shinhan Investment Corp as lead managers and conducting due diligence. SLL Jungang is a core subsidiary of the listed Contentree Jungang and has produced works such as 'The World of the Married,' 'Itaewon Class,' 'The Outlaws,' 'All of Us Are Dead,' 'The Youngest Son of a Chaebol Family,' 'Suriname,' 'My Liberation Notes,' and 'D.P.' (Deserter Pursuit).