When a borrower fails to make a scheduled payment, it is called a default. It placed several JoongAng affiliates under court-led rehabilitation. That is a legal process where the court oversees debt restructuring to help the company survive.
The total debt burden is massive. JoongAng Group and its major units saw debt increase 41% over five years. The group is trying to service $1.8 billion in total debt.
The group made costly bets on the Korean entertainment boom. It paid $500 million for domestic broadcast rights to the Olympics and World Cup. It also spent $120 million in 2021 to buy US production company Wiip. These investments did not pay off as expected.
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Public broadcasters refused to pay the high licensing fees JoongAng wanted. TV audiences shrank. Over three years, South Korea's annual TV drama output dropped from 141 to 115.
TV advertising revenue is estimated to drop 40% from 2022 to 2026. On top of that, the South Korean World Cup team exited early, hurting the value of those broadcast rights.
"This is the toughest moment in JoongAng Group's history," said Vice Chairman Hong Jeongdo in a letter to employees. He had earlier told employees that the group's goal was "creating a company like Disney in Korea" through an initial public offering for its studio SLL. That dream is now in doubt.
The Seoul Bankruptcy Court has placed JoongAng Holdings, Contentree JoongAng, and movie theater operator Megabox under court-led rehabilitation. The studio SLL, which produced hit Netflix series "All of Us Are Dead" and "Culinary Class Wars," remains outside the process. After the court receivership hearing, Lee Wan-shik, an attorney from Lee & Ko representing JoongAng, informed reporters: "Ultimately, the most important issue is the broadcasting-rights contracts with the IOC and FIFA." He said the group will work to reduce losses through negotiations over those contracts.
Joongang Group, founded in 1965, is a sprawling media empire that includes the JoongAng Ilbo newspaper, the JTBC broadcast network, film production and distribution units, and a chain of movie theaters. The court-led rehabilitation process gives the group breathing room to negotiate with creditors and potentially sell non-core assets. Whether the conglomerate can survive depends largely on renegotiating the expensive sports broadcasting deals that drove it into debt. Analysts will watch closely to see if JoongAng can restructure its debt and renegotiate its sports contracts to avoid liquidation.
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