Orion Group Decides to Sell MegaBox

Orion’s decision to abandon the multiplex business has been widely viewed as an indication that the Korean film industry is facing a crisis.

One hundred and eight Korean films were released in theaters last year. That’s roughly two films every week. However, only six of them – “The King and the Clown,” “The Art of Seduction,” “My Boss, My Teacher,” “My Scary Girl,” “The War of Flowers,” and “The Host” - yielded more than 50 percent profit.

“Marrying the Mafia 3: The Rebirth of the family,” and “Maundy Thursday,” made a profit margin of about 30 percent; “Radio Star,” “Forbidden Quest,” “Bloody Tie,” “Almost Love,” “Barefoot Gi-bong,” “Vampire Cop Ricky,” and “Oh My God,” barely reached the break-even point. Eighty eight of them (81.5 percent) made a loss.

Korean films might have appeared to be enjoying continued success due to the box office hits of a few local movies and Jeon Do-yeon’s winning of the Best Actress Award at the 2007 Cannes Film Festival, but industry experts point out that while there were some alluring flowers, they bore little fruit

They say the primary reason for the fall is excessive competition. With the rise of the film industry, investors rushed to this film market with a shallow understanding, dreaming of hitting the jackpot. However, production companies exploited the favorable market situation, churning out B-graded films.

This resulted in a poor box-office performance and had an adverse effect on attracting investment. It also led to the reduction of production budgets which degraded the quality of films, creating a vicious circle.

It dealt a severe blow to film production companies. For instance, MK Pictures, a joint venture between renowned film director Kang Je-gyu, who directed Shiri, and Shim Jae-myung, the president of Myung Film which produced JSA, was sold to Gangwon Broadcasting. The worsened market situation also affected Orion, one of the major players in the Korean film industry.

Many say that the sale of Orion’s multiplex MegaBox came as no surprise. With a decline in the profitability of the film industry, it was only natural for Orion, which has a shallower pocket than CJ or Letter, to be forced to out of the race.

The performance of MegaBox was much worse last year compared to that of 2005. Although the sales increased from 99.9 billion won to 109.1 billion won during this period, the operating profits dropped from 14.1 to 14.0 billion won and the net profits plunged from 10.3 billion won to 8.7 billion won.

“Knocked down by CJ and Lotte, Orion was not able to make any aggressive investment,” said Choi Yeong-seok, a senior researcher at Mirae Asset. “With the money from the sale, Orion will find another growth engine or may invest it in the Chinese or U.S. film markets.”

Some suggest that Orion may give up on all its entertainment-related businesses. Experts point out that the abandonment of the multiplex implies Orion’s desire to back out of the entertainment business, since it entered the film market with an emphasis on its “vertical systematization” – the possession of production, distribution and exhibition channels.

Rival companies such as CJ’s CGV and Lotte Cinema are paying close attention to the sale. If MegaBox is sold to a foreign company, it may cause a big change in the landscape of the theater industry.

The local film industry forecasts that 20th Century Fox, SK Telecom or KT may takeover MegaBox.

If 20th Century Fox buys it, the Korean film will suffer a blow as Hollywood films will be able to secure more theaters to screen their films.

If SK Telecom or KT purchases MegaBox, there will be no major change in the near future. However, if one of those telecommunication companies enters into the showbiz content business, such as the production of films, dramas, or TV dramas, the entertainment industry will experience a big change.

“If a local telecommunication company buys MegaBox, it can be regarded as a signal for the convergence of the entertainment industry and the telecommunication industry,” said Lee Sang-moo, the publicity director of CJ Entertainment. “It will create a new industry that has never existed before.”