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The Crisis of Korean Cinemas: The Fall of the CGV Empire and a New Future

phoue

• 11 min read • --

Amid the Pandemic and the OTT Revolution, the Korean cinema industry is undergoing a painful yet inevitable reconstruction process rather than a simple collapse.

  • Comparison of the financial status and survival strategies of the three major multiplexes (CGV, Lotte, Megabox)
  • Analysis of key external factors shaking the cinema industry in the OTT era
  • Recommendations for theaters, production companies, and policymakers for the future of the film industry

The provocative question of “The Fall of the CGV Empire” marks the beginning of a significant paradigm shift known as the Crisis of Korean Cinemas. The shock of the pandemic, the fierce waves of the OTT revolution, and the structural vulnerabilities accumulated over decades have converged into a ‘perfect storm’ that has put the cinema industry at a crossroads of survival. This article starts from the perspective that the current crisis proves the past success formula is no longer valid and compels the search for new survival strategies.

1. Anatomy of the Crisis: Financial Health of the Three Major Multiplexes

1.1. The Peak Before the Pandemic (2019): A Benchmark of the Past

Before COVID-19, in 2019, the Korean cinema industry enjoyed a golden age. The financial indicators from this period serve as an important benchmark for assessing the current crisis. The market was vibrant, with five films surpassing 10 million viewers in a single year.

Key Indicators of the Korean Film Market in 2019
2019 was a golden age with five films reaching 10 million viewers.

In particular, CJ CGV achieved remarkable results with consolidated sales of 1.9423 trillion won and operating profit of 123.2 billion won in 2019. Lotte Cinema also maintained a stable profit trend. This data remains a poignant benchmark of past glory that is now shattered and a target for recovery.

1.2. Pandemic Shock and Slow, Uneven Recovery

The recovery after the pandemic has been slow and unstable. The total number of viewers in 2023 was 125.13 million, only 56% of the pre-pandemic average (220.98 million).

The financial impact was immense. Megabox recorded losses for five consecutive years, and Lotte Cinema barely achieved an operating profit of 300 million won in 2023. Even the once-dominant CGV had to implement voluntary retirement and drastic cost-cutting measures. This illustrates how deep the wounds left by the pandemic are and how challenging the recovery path is.

1.3. Diverging Fates: CGV’s Global Hedge and Domestic Quagmire

In the midst of the crisis, CGV’s extensive overseas network became a lifeline, while Lotte Cinema and Megabox, focused on the domestic market, were fully exposed to the crisis.

In Q2 2024, CGV’s domestic operating profit plummeted, but its overall consolidated operating profit surged. This was thanks to explosive growth in Southeast Asian markets like Vietnam and Indonesia. The ‘global hedge’ strategy of defending domestic market downturns with overseas profits succeeded. In contrast, Lotte Cinema and Megabox lacked such a global shield.

Company Indicator 2019 (Annual) 2023 (Annual) 2024 (First Half)
CJ CGV Revenue 1.9423 trillion won 1.5458 trillion won 822.9 billion won
Operating Profit 123.2 billion won 49.1 billion won 26.9 billion won
Lotte Cinema Revenue 771 billion won 451.7 billion won 229.2 billion won
Operating Profit 1.4 billion won 300 million won 7.3 billion won
Megabox Revenue 353.3 billion won* 291.6 billion won 156.6 billion won
Operating Profit -12.7 billion won* -13.4 billion won -1.3 billion won

This table shows that the crisis acted as a catalyst to maximize existing strategic differences.

2. Tectonic Shifts: External Pressures Reshaping the Industry

2.1. The OTT Behemoth and the Collapse of the Theatrical Window

Growth of OTT Platforms
OTT platforms have now become the dominant force in the video market.

The emergence of OTT platforms has fundamentally changed content consumption habits. At the core is the collapse of the ‘holdback’, the exclusive screening period before distribution on other platforms after theatrical release.

Audiences now perceive that “if they wait, they can watch it at home,” which has diminished the value of visiting theaters. The industry is sharply divided between those advocating for legal enforcement of holdback periods like in France and those fearing that rigid legislation could stifle the industry.

2.2. The Weight of a Ticket: The Barrier of Price

The sharply rising price of movie tickets has become a major reason for the decline in audience numbers. Prices nearing 15,000 won on weekends have led to complaints that “a family of four going to the movies with popcorn costs 100,000 won,” turning movie viewing into a ‘special event.’ I too have felt the burden of costs nearing 100,000 won for a family of four going to the movies.

Compounding the issue, the controversy over ‘opaque settlements’ regarding the distribution of revenue from expensive tickets has acted as a poison eroding trust between production companies and theaters.

2.3. The Hollowing Out of Korean Cinema: The Danger of a Disappearing Middle

The increased ticket prices and competition from OTT have led to a ‘hollowing out’ phenomenon that drastically polarizes the Korean film market. Audiences flock only to a few guaranteed blockbuster hits, while ‘mid-budget films’ that used to play a crucial role are losing their place.

Polarization of the Korean Film Market
The market is polarizing into a few blockbuster films and many low-budget films.

This threatens the diversity of creation and solidifies a dangerous structure that makes the entire Korean film industry reliant on a few tentpole films.

[Insight] The Doom Loop These external pressures form a ‘doom loop’ where individual issues become causes and effects of one another. High ticket prices → Blockbuster concentration → Screen monopolization → Reduced film options → Audience migration to OTT → Shortened holdback → Decreased theater value → Audience decline and price increase pressure

3. The Empire Strikes Back: Strategic Maneuvers for Survival

3.1. CGV’s 1 Trillion Won Bet: A Controversial Lifeline or a Strategic Gamble?

In the midst of the crisis, CGV undertook a large-scale capital increase of 1 trillion won. This is a massive gamble to transform into a technology-based ‘Space Operator’ through the acquisition of its IT subsidiary, CJ Olive Networks, beyond just a cash infusion.

Despite fierce backlash from minority shareholders, this is a concrete execution plan of the ‘NEXT CGV’ vision to create differentiated value that OTT cannot provide through the enhancement of special theaters like 4DX and ScreenX and the development of new alternative content platforms.

3.2. The Birth of a Duopoly? Merger of Lotte Cinema and Megabox

The second and third largest players, Lotte Cinema and Megabox, have chosen defensive integration for survival. The merger of the two companies is a desperate survival strategy to reduce redundant costs and improve financial structure.

If the merger is successful, the Korean cinema market will be restructured from ‘Big 3’ to a ‘Duopoly.’ This could lead to the emergence of a strong competitor against CGV, but it also raises concerns that the birth of large theaters may limit choices for consumers and producers.

Theater Number of Screens
CJ CGV 1,345
Lotte+Megabox (if merged) 1,682

3.3. Beyond Movies: Rebirth as a ‘Cultureplex’

The most creative response is the attempt to reinvent cinemas as ‘Cultureplexes’ where various cultures can be experienced.

Cinemas Evolving into Cultureplexes
The transformation of cinemas continues with live broadcasts of concerts, climbing gyms, etc.

Live broadcasts of concerts, climbing gyms, musical theaters, and pop-up stores are fundamental attempts to shift the essence of cinema business from ‘film distribution’ to ’lifestyle space provision.’

4. Internal Fractures: Debates Surrounding the Soul of the Industry

4.1. Screen Monopoly Debate: An Anatomy of a Blockbuster

‘Crime City 4’ occupied 82% of the national screens during its opening weekend, reigniting the screen monopoly debate. Critics argue this deprives audiences of choice, while defenders claim it is a rational response to overwhelming demand.

4.2. The ‘Opaque Settlement’ Issue: Erosion of Trust in the Value Chain

Filmmakers have reported to the Fair Trade Commission that the three multiplexes are unfairly passing on promotional costs, such as telecom discounts, to production and investment companies, reducing creators’ shares. Such opaque settlement practices are undermining the trust that underpins the industry ecosystem.

4.3. The Policy Dilemma: Seeking a Panacea

Amid criticism that the industry has lost its self-regulatory capacity, calls for government intervention are growing.

  • Screen Cap Regulation: Proposals to legally limit the screen ratio of specific films.
  • Holdback Legislation: Proposals to legally specify the exclusive screening period for theaters.
  • OTT Film Development Fund Collection: Proposals to impose fund collection on global OTTs like Netflix.

These policies are caught in a dilemma amid complex interests. Internal divisions and distrust are weakening the ability to respond collectively to external threats.

Comparison: Two Blockbuster Stories - ‘Crime City 4’ vs. ‘Burial’

To better understand the screen monopoly debate, we can compare two films that reached 10 million viewers. This illustrates the difference between the ‘demand-driven’ approach that creates hits and the ‘supply-driven’ approach.

Indicator Crime City 4 Burial
Screen Share in Opening Week 81~82% 45~52%
Seat Sales Rate in Opening Week 39.3% Over 50%
Average Audience per Screening in Opening Week 43 55

‘Burial’ achieved box office success through word of mouth despite relatively low screen share, while ‘Crime City 4’ led the box office with overwhelming screen supply, but its efficiency metrics were relatively low. This suggests that while screen monopolization can maximize short-term profits, it may lead to inefficiencies and ecosystem destruction in the long run.

Step-by-Step Guide to Overcoming the Crisis

1. Theater Operators (Multiplexes)

  • Adopt a Hybrid Model: Elevate ‘Cultureplex’ as a core strategy and set revenue targets for non-film segments.
  • Implement Flexible Pricing Policies: Various experiments such as subscription models and demand-based pricing are necessary.
  • Invest in Premium Experiences: Focus on special theater experiences like IMAX and 4DX, emphasizing the intrinsic value of ’enjoying together.’

2. Film Ecosystem (Production, Distribution, Investment Companies)

  • Seek a ‘Grand Bargain’: Establish new transparent and fair revenue-sharing standards through an independent mediation body.
  • Rediscover Mid-Budget Films: Explore new models to reduce risks for mid-budget films through co-production with OTT platforms and the creation of a premium VOD market.

3. Policymakers

  • Role as Facilitators: Focus on mediating stakeholders within the industry to establish ‘fair trade agreements’ rather than imposing mandatory regulations.
  • Incentive-Centric Approach: Impose obligations for global OTTs to invest in Korean content, but provide incentives like tax benefits for compliance to encourage partnerships.

Conclusion

The crisis of Korean cinemas is not a ‘collapse’ but a process of being forcibly ‘deconstructed and reconstructed’ due to external shocks.

  • Key Summary:

    1. Paradigm Shift: The past cinema-centric business model has reached its limits, and a transition to diversified models is essential.
    2. Divergence of Strategies: CGV is seeking to become a technology-based ‘space operator,’ while Lotte-Megabox is pursuing ’efficiency’ through economies of scale, and the industry as a whole is exploring ‘Cultureplex’ as its survival path.
    3. Restoration of Trust is Key: Resolving internal conflicts such as screen monopolization and opaque settlements is a prerequisite for responding to external crises and restoring trust within the industry ecosystem.

The tears of cinemas are a reality, but those tears can become the nutrients that nurture the seeds of a new industry. For those who successfully navigate this wave of change, a more diverse and sustainable future awaits beyond the screen.

What do you think the future of cinemas should be? Share your thoughts in the comments.

References
#Korean Cinema Crisis#CGV#Lotte Cinema#Megabox#OTT#Film Industry#Cultureplex

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