Overseas operations of Lotte Cultureworks, which runs the Lotte Cinema theater chain and distributor Lotte Entertainment, are being assessed as effectively having failed. With overseas business struggling and no meaningful results in Korea's film industry either, the company has begun restructuring, including offering voluntary retirement to employees.
According to the industry on the 11th, Lotte Cinema's overseas business has seen lackluster results in recent years and has not found an opportunity to rebound. As of on Sept., Lotte Cultureworks' debt guarantee for its Vietnam subsidiary alone amounts to about 92.9 billion won. Since the headquarters has been continuously providing financial guarantees, the Vietnam subsidiary's weak performance could add to Lotte Cultureworks' financial burden going forward.
Lotte Cultureworks was established in 2018 when Lotte Shopping's cinema institutional sector was partitioning. In Oct. of the same year, Lotte Shopping transferred its overseas Lotte Cinema subsidiaries, which included the Vietnam unit. Expectations were high at the time because Vietnam was emerging as a key overseas market for Korea.
But the Vietnam subsidiary has turned into a headache. As of last year, it was in a capital impairment of 206 billion won, and the size of the impairment has grown every year since 2021. Despite steady revenue growth, it posted a net loss of about 86 billion won from 2021 to 2024. While its asset base shrank, liabilities expanded from 23.5 billion won in 2021 to 27.7 billion won last year. With fixed costs unchecked and structural limits slowing profitability improvements, losses have continued to pile up.
The situation is no different in other overseas businesses. As poor results persisted at the Hong Kong and Indonesia subsidiaries, Lotte Cultureworks liquidated and sold them, respectively, in 2021. The Shandong, China theater subsidiary posted a comprehensive loss of about 1.8 billion won in 2021, which widened to 9.2 billion won the following year. It is now undergoing liquidation after failing to withstand the losses.
The U.S. film investment entity "Hemisphere Film Investors" also failed to generate the expected revenue. Lotte Cultureworks operated Hemisphere Film Investor 2 and 3. Hemisphere Film Investor 2 reported a loss of about 1.2 billion won in 2022 and exited its equity stake, while Investor 3 posted operating profit of a little over 670 million won in 2023 but incurred losses of more than about 700 million won in the process of recouping investment in 2023 and last year. Investor 3 was ultimately sold as well.
The company is also struggling to maintain its position in the domestic film business. Lotte Cultureworks drew 14.87 million moviegoers in 2023 for a market share of 11.9%, placing it among the top players, but last year it managed only 9.18 million moviegoers and a 7.5% share. Competitors such as CJ ENM and SHOWBOX all recorded double-digit shares.
Through Sept. this year, Lotte Cultureworks has drawn 6.5 million moviegoers and holds an 8.6% share. The highly anticipated film "Omniscient Reader's Viewpoint" stalled at around 1 million admissions. The drama "Pro Bono," produced with Studio Dragon and others, has gained buzz and is being viewed as a "defensive success" in the content portfolio.
Having failed to gain traction at home or abroad, Lotte Cultureworks posted about 364 billion won in consolidated net losses over four years and has begun internal restructuring. The company accepted voluntary retirement applications through on the 4th from employees with 10 or more years of service, regardless of rank. Lotte Cultureworks is also pursuing a merger with Megabox JoongAng.
A Lotte Cultureworks representative said, "This voluntary retirement is a strategic decision to secure future growth engines and strengthen competitiveness," adding, "We will push to transform into a future-oriented growth organization in a rapidly changing external environment and secure sustainable growth."