The Korean film industry seemed to be in full bloom in 2006 with hits such as "The Host" and "The Royal Jester (formerly "The King and the Clown")" attracting more than 10 million customers at the box office.
A total of 108 domestic films, including this week's "My Wife is a Gangster 3", have opened in theaters nationwide. The number has skyrocketed since 2005's 83 films and is the biggest number of films made since 1990. And in 2007 over 60 percent of the films shown here were Korean made.
Even with these record-breaking numbers, the reality in Chungmuro (the area where Korean film production companies have been concentrated, to such an extent that the word is now synonymous with the phrase "Korean film industry") is very different. Although there have been more movies, they have made less profit than in previous years. In short ― the industry is not making enough money.
Return on Investment is minus 30 percent
Based on theater profits alone, the return on investment this year is estimated to be minus 30 percent. This figure was produced by CJ Entertainment on the basis of 85 films (which includes all the big releases and only excludes a few low budget movies) that were made by the major production companies.
This is the worst figure for the Korean film industry since 2002, when it suffered a string of movies that failed at the box office. Since then, the industry has been dragging itself along with foreign imports and has been only marginally profitable.
Production costs this year were close to 5.3 billion won ($5.7 million) per movie, which means that to break even a film must be seen by at least 1.8 million paying customers, according to data released by the Korean Film Council. The council says that only 15 of this year's movies attracted a large enough audience to make a profit. Roughly speaking, this means that only one out of five movies reached break-even point.
This year also saw fewer big hits. Although two movies had audiences of over 10 million, the number of movies attracting 3 million people or more was less than last year. Additionally, the number of movies which did not meet the 300,000 mark has increased. So although two hits were record-breakers the rest did not do so well.
Anxiety concerning over-investment becomes a reality
Although the data produced by CJ Entertainment did not include exports or additional royalties from video and DVD sales, the situation doesn't look much brighter when those figures are included. Exports due to hallyu, or the Korean wave craze, have diminished, and DVD sales have also decreased.
"Even though the secondary market (imports, video and DVD) has not grown, the Korean film industry has produced more movies because their production abilities have strengthened, which has created an imbalance between supply and demand", said Kim Young-jin, a film critic and professor at Myongji University. "The decline in the market is partly related to this problem", he added.
There has been speculation since the beginning of this year that next year will see an increase in the number of movies produced compared to 2006. This is due to an improvement in the process of securing investors as a result of a large influx of production, management and telecommunication companies onto the Chungmuro scene. Although the number of movies that opened this year totalled 108, there were an additional 120 movies produced in 2006 that will be shown next year.
This flood of Korean movies has made the competition to claim a profitable slice of the market much more intense and has pushed up marketing costs. Within total production fees, marketing costs have increased dramatically to an average of 2 billion won per film ― a third of the total production cost. These figures would be acceptable if the money poured into promotion and advertising paid off, but in most cases that has not happened. "This bipolar state has been made worse as movie producers began to risk everything to bring in a mass of people during the first weekend of a film's run", said Mr. Kim.
Chungmuro's bubble may be bursting
Chungmuro is already trying to improve its position. Although major production companies are showcasing next year's movies on the basis of films that they made this year, the production process for new movies to be made in 2007 looks different from 2006. The atmosphere at the Namyangju film studio is one example. "The number of films that asked to use this set has been decreasing dramatically since this September", said Han Hwa-sung, the deputy manager at the studio, adding, "At present, the studio is only booked until March for films that require a lot of shooting on the set".
The same goes for Sidus FNH, one of the major production companies in Korea, which released 12 films this year. With the exception of two movies that have already finished shooting, the company has no firm plans to produce another film until a 30 billion won investment from KT becomes available.
Investment companies are being more cautious as well and they have begun to stay away from risky "package investments", that is, investing in several films by the same production company. "After the Chuseok holidays (early October), almost none of the films have made a profit", said Suh Young-hwan, the president of U Contents, adding, "It is no wonder that investors drew back. A year ago, it was easy to get investments just by casting top stars but now, investment decisions are not made just on those simple grounds alone".
There were more people watching films but production companies still shed tears
In 2006 Chungmuro experienced a rollercoaster of ups and downs. Although the overall audience size increased to over 160 million, the reality was that few films grossed a sufficient profit due to inadequate production and excessive investment. Many investors and production companies have been complaining and some seek a solution in a switch in the cut of movie receipts. Many want a 60/40 split (40 percent going to theaters and 60 percent going to investors) as opposed to the current 50/50.
Two major theater companies did make it into the black this year. CGV saw a 204.6 billion won increase in ticket sales and 20.4 billion won in pure profits. Their sales have gone up 14 percent compared to 2005 (178.9 billion in 2005) and their profit (20 billion won in 2005) has gone up as well. The Century Co., Ltd which operates Daehan Cinema made 1 billion won in profit so far this year compared to 800 million won in 2005.
However, production companies, with the exception of Taewon Entertainment, are not doing as well. Taewon, which produced movies such as "Barefoot Ki-bong" and "Now and Forever", had grossed 3.7 billion won as of this September. Compared to their position at the same time last year, when they were losing 6.8 million won, they have done remarkably well. MK Pictures, which produced "Bloody Tie" and "Bewitching Attraction", barely broke even with only 2.7 million won in profits after tax. Popcorn Film ("Almost Love") and Tube Pictures ("No Mercy for the Rude") each suffered net losses of 3.7 billion and 9.9 billion won respectively
The country's top film distribution companies, CJ Entertainment and Showbox, are in radically different situations. Showbox went into the black with 5.7 billion won as CJ Entertainment is presumed to be in the red.
Management companies have mostly gone into the red. As star entertainers got bigger paychecks, their companies received less and less. iHQ Entertainment and Contents Group, the company managing top stars such as Jo In-Seong, Song Hye-kyo and Im Soo-jeong, is 2.7 billion won in the red; Star M Entertainment, which manages Jang Dong-gun, is minus 5 billion won; Yuri International, which manages kwon Sang-woo is 5.8 million in the red; and Key East Inc., Bae Yong-joon's management group, shows a loss of 1.6 billion won.
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