The second-largest domestic multiplex cinema market share holder, Lotte Cultureworks (formerly Lotte Cinema), and the third-largest, Megabox Cineplex, are merging. This is a measure taken as the domestic film industry has been stagnant for a long period. Lotte and Megabox aim to create a breakthrough by merging the two cinemas rather than operating them independently. The plan is to jointly operate for the time being, streamline the organization, attract new investments, and enhance financial stability.
On the 8th, Lotte Cultureworks and Megabox Cineplex announced that they have signed a Memorandum of Understanding (MOU) for the merger. After swiftly passing through the Fair Trade Commission’s corporate merger review and obtaining approval, they plan to proceed with the merger immediately. A Lotte Group official stated, “Initially, we will operate jointly, but the specific merger method and ratio will be finalized later.” Lotte Cultureworks and Megabox Cineplex are subsidiaries of Lotte Shopping (86.3% stake) and Contentsri Central (95.9%), respectIVEly. If these cinemas are merged into one company, Lotte Shopping and Contentsri Central will almost evenly split the shares.
Once the merger is completed, the total number of screens in the two cinemas will exceed the leading CGV’s screen count (1346 screens) as of the end of last year, reaching a total of 1682 screens. They also expect synergy effects in production and distribution. Lotte Entertainment, a subsidiary of Lotte, distributed films such as the ‘Along with the Gods’ series, ‘The Pirates: Band of Misfits,’ ‘War of the Arrows,’ and ‘The Outlaws.’ Plus Media Entertainment, a subsidiary of Megabox, owns hit films like ‘Spring in Seoul’ and ‘The Outlaws’ sequels 2 to 4.
The purpose of the merger is also significant for improving the financial structure. Multiplex cinemas have experienced a sharp decline since the COVID-19 outbreak in 2020. In just one year, the operating losses of both companies exceeded 200 billion won. Although some recovery in revenue has occurred since then, profitability remains poor. Lotte Cultureworks barely crossed the break-even point last year but still accumulated losses amounting to billions of won. Megabox Cineplex continued to operate at a loss last year, recording an operating loss of 12.7 billion won. With online video streaming services such as Netflix and Tving rapidly encroaching on the cinema market, a pessimistic outlook prevails that achieving pre-COVID-19 performance levels will be challenging.
The significant increase in movie ticket prices since the COVID-19 outbreak has also led people to turn away from cinemas. The average movie ticket price in South Korea surged from around 8,100 won before the pandemic to 11,900 won in the first quarter of 2023. Cinemas competitIVEly raised prices to offset losses during the pandemic, but even after lowering prices back below 10,000 won, audiences did not return in large numbers.
The difficulties faced by cinemas have intensified as even highly anticipated blockbuster films struggle to attract audiences. The most successful film released this year, ‘Mickey 17,’ barely surpassed 3 million viewers. Considering that films like ‘Pawn’ and ‘The Outlaws 4’ exceeded 11 million viewers last year, the current situation is quite disappointing.
Through the merger, the two cinemas expect to significantly improve their cost structure by adjusting overlapping cinema locations, optimizing workforce deployment, and securing new funding for the merged entity to enhance liquidity. They also plan to increase consumer satisfaction by expanding special theaters and differentiate themselves from OTT platforms.