SEOUL, August 11 (AJP) - Webtoon Entertainment is buying its way into the business of turning its own comics into games and films, ending years in which the company handed its biggest hits to outside studios and collected a fee while somebody else kept the franchise.
The Nasdaq-listed operator of Naver Webtoon disclosed two deals on Monday alongside second quarter results. It agreed to buy a 60 percent stake in RI Games Holdings for about $100 million in cash, paid across two closings, and signed a limited partnership agreement with Naver Corporation in July to establish a $100 million fund that will invest in adaptations of its titles. The company has not said how much of the fund it is putting up itself.
Both moves target the same weakness. Webtoon publishes the comics that have fed South Korea's streaming boom, including Sweet Home, All of Us Are Dead, Hellbound and Bloodhounds, and it has almost always sold the screen rights rather than produced the adaptation itself.
That distinction decides who gets rich. Under a licensing deal, a streamer pays an agreed amount for the right to make the series, and the payment is set before anyone knows whether it will work. If the show becomes a global hit and runs three seasons, the fee does not grow.
Company president Kim Yong-soo said the pattern is now a problem the company intends to fix.
"Historically, our adaptation business has been based on a licensing model, which means that the success of those adaptations has not always translated directly into meaningful economics for [Webtoon Entertainment]," he said on the earnings call.
RI Games Holdings was founded by Kevin Han, who built Redice Studio, the production house behind the Solo Leveling comic, serialized in South Korea on the rival KakaoPage platform. It operates two game studios, GrayGames and Offbeat, and the companies plan to release multiple games over the next four years drawn from webcomic titles including Doom Breaker and Omniscient Reader, both of which run on Naver Webtoon, and Overgeared, another KakaoPage title. Webtoon intends to time game launches to coincide with animated versions of the same stories.
Chief financial officer David Lee said the arrangement lets Webtoon skip the part most publishers get wrong.
"We are not seeking to build ground-up capability in gaming," he said. "We have 120,000 stories arriving every day from 27 million creators, and we know from data what can be a hit, not just on our platform, but off it."
Lee said certain terms of the agreement were redacted in the company's filing, and that the structure includes put options on both sides, obliging each party to buy the other out under conditions Webtoon has not disclosed.
The strategy shift landed on a quarter that looked worse in dollars than it was in practice.
Revenue came in at $338.5 million, about 508 billion won at the quarter's average rate of 1,500.7 won to the dollar, down 2.8 percent from a year earlier. Almost all of that decline is a currency effect. Webtoon earns most of its money in won and yen but reports in dollars, and both weakened over the quarter, so identical sales in Seoul and Tokyo converted into fewer dollars. Strip the exchange rate out and revenue grew 5.2 percent.
The net loss widened to $14.6 million from $3.9 million a year earlier, which the company attributed to a tax bill and to advertising spending. Measured before those items, the quarter beat expectations, with adjusted earnings of four cents a share and gross margin up almost a full percentage point to 26 percent.
The two core markets moved in opposite directions. South Korean revenue grew 20 percent in constant currency, with paying readers up 10.4 percent to 3.8 million. Japan fell 6.7 percent, with paying readers down 9.5 percent to 2.1 million.
Guidance for the current quarter implies constant currency growth of 0.7 to 3.3 percent, well below the pace just reported. Management maintained a commitment to double-digit growth by the end of the year, then clarified under questioning that the figure refers to the rate the company expects to be running at as the fourth quarter closes, not to the quarter as a whole.
Shares closed the regular session at $9.45 before the results, then fell 6.2 percent in after-hours trading to $8.86, against a 52-week range that runs from $8.30 to $22.47.
The RI Games purchase alone accounts for about a sixth of the $583 million in cash Webtoon Entertainment held at the end of the quarter.
Copyright ⓒ Aju Press All rights reserved.