Betting on China
CJ E&M, the largest media conglomerate in Korea, was formed in 2011 from a merger of five entertainment and media companies under the umbrella of CJ Group. The company bet big on the high-growth Chinese market for entertainment, opening offices in Beijing and Shanghai and setting in motion numerous co-productions with Chinese studios.
For a time the bet seemed to be paying off, as Korean entertainment products from TV series to films to music rode the Hallyu wave—that is, the growing craze for Korean pop culture. At the beginning of the supply chain, Chinese studios licensed Korean intellectual property (IP) to produce localized versions. Near the end of the supply chain, Chinese theater chains, TV stations, and digital platforms purchased Korean content and added Chinese subtitles or dubbing before distributing it to local audiences.
When Korean and American military officials made a July 2016 announcement that the Terminal High Altitude Area Defense System (THAAD) would be deployed in rural Korea, the Chinese response was swift. THAAD was designed to shoot down missiles and primarily aimed at neutralizing North Korea’s growing ballistic capabilities. The Chinese government issued a firm declaration that the system undermined China’s security interests, and orchestrated a de facto ban of Korean content in the domestic market.
In the aftermath, CJ E&M’s stock price tumbled by 25.92% compared to just one year prior to announcement of deployment. Profits were hit even harder, declining 35.73% in the same timespan.
Localizing Korean Content
As content starring Korean actors or based on Korean IPs was pulled from the air, CJ E&M’s China employees found themselves sitting idle. CJ E&M management responded by rapidly downsizing its Beijing and Shanghai staff, but refrained from closing the offices completely in hopes that political relations would normalize in the next few years.
On a longer time horizon, CJ E&M hoped to mitigate the effects of China’s governmental policies on its bottom line by doubling down on content production in other territories. In October 2017, Jeong announced at a press conference that the company planned to produce at least 20 titles in over 10 different languages every year starting in 2020. Keenly aware of the limited global appeal of Korean-language media, CJ E&M would focus on adapting existing IPs to fit local cultural contexts.
CJ E&M also planned to take advantage of substantial synergies with sister company CJ CGV, a multiplex cinema chain that was rapidly expanding in Southeast Asian markets such as Vietnam. Since entering Vietnam in 2011, CJ CGV had risen to 43% market share and become the country’s number 1 exhibitor, with plans to open 12-15 more locations per year until 2020. As a result, CJ E&M could bypass lengthy negotiations and unfavorable deal terms when distributing its films in Vietnam.
The Global Market
In 2017 Korea was rocked by a political scandal involving conservative President Geun-hye Park, who had pushed for deployment of THAAD. In the aftermath of Park’s impeachment, liberal candidate Jae-in Moon was elected President and set out to normalize relations with China.
Yet the THAAD crisis must serve as a warning against perpetuating CJ E&M’s dependence on the Chinese market. After all, this is only one episode in China’s recent history of using regulations to protect domestic industries, and in invoking nationalism to turn local audiences’ attention to homegrown entertainment. While producing localized content for smaller but growing markets in Southeast Asia is a step in the right direction, CJ E&M would be remiss to ignore the growing market for truly global content.
One compelling option is to replicate the success of CJ E&M’s 2014 English-language film Snowpiercer, but on a smaller scale. The prestige project starred Hollywood talent like Chris Evans and Tilda Swinton and was aimed at the international market, with a budget several times the size of the most expensive Korean films. Yet with digital platforms such as Netflix offering a more aggregated distribution process than theater chains, even smaller films can reach a global audience in one fell swoop. Furthermore, digital platforms offer sophisticated recommendation algorithms that allow content with low marketing budgets to reach narrow-interest audiences around the world. This means that CJ E&M can monetize global projects that are less expensive than Snowpiercer.
Another possibility is to take advantage of CJ E&M’s existing inventory of content, built up over years of being an industry leader in Korea. Once again, digital platforms offer new opportunities by reinvigorating interest in older content through recommendations. More importantly, CJ E&M can gauge interest in older intellectual property by making it readily and globally available online, then collecting data on different territories’ appetite for localized remakes or spin-offs.
But having established that digital platforms offer unique distribution alternatives, to what extent do these same platforms pose a threat to more traditional entertainment studios like CJ E&M?
(Word count, not including citations: 795)
 Swaine, Michael D. “Chinese Views on South Korea’s Deployment of THAAD.” China Leadership Monitor, no. 52, Feb. 2017, p. 1.
 Swaine, Michael D. “Chinese Views on South Korea’s Deployment of THAAD.” China Leadership Monitor, no. 52, Feb. 2017, p. 3.
 김진성. “CJ, 콘텐츠 실적 회복 외부 악재 해소가 관건.” 한국경제, 28 Nov. 2016, p. 1.
 Kil, Sonia. “China’s Blockade of Cultural Korea Marks Troublesome Anniversary.” Variety, 24 Aug. 2017.
 Brzeski, Patrick and Hyo-won Lee. “CJ Entertainment Chief on South Korea’s Global Film Plan (Despite China’s Ban).” The Hollywood Reporter, 3 Nov. 2017.
 Lee, Hyo-won. “CJ Entertainment to Expand Slate of Overseas Productions.” The Hollywood Reporter, 13 Sept. 2017.
 Lee, Hyo-won. “South Korea’s CJ CGV to Invest $200M in Vietnamese Theaters by 2020.” The Hollywood Reporter, 4 Sept. 2017.