SM ENTERTAINMENT JAPAN Co.,Ltd. Q1 FY2025 earnings call

Corporate Updates

• The company will change its trade name to SM ENTERTAINMENT JAPAN effective June 1, 2025, to leverage the global brand recognition of SM ENTERTAINMENT and reduce investor communication barriers.
• A 226 million yen special profit will be recorded due to the expiry of unexercised stock options from the merged SMEJ entity.
• The planned full-year dividend is 2 yen per share, double last year's inaugural 1 yen per share dividend; management will consider further adjustments if full-year results exceed expectations.

Entertainment Segment Operational Highlights

• The lower Q1 revenue is intentional, as the 30th anniversary of SM ENTERTAINMENT group has shifted artist schedules to the global SMTOWN LIVE tour in H1, moving most Japanese concerts to H2 2025. Total annual concert attendance is targeted at 170,000 people, a ~10% increase from 2024's 157,000 attendees.
• The segment is strategically growing non-concert revenue (merchandise, pop-up stores, brand advertising) to reduce reliance on concert ticket sales. Non-concert revenue reached 51% of segment revenue in Q1 2025, up from 31% in Q1 2024, with a full-year target of 55%. The company has already secured global brand advertising deals with Louis Vuitton and Crocs this quarter.
• A new internally-developed girl group IP is scheduled to debut in October 2025, delayed from an earlier spring/summer target to increase the debut's success probability amid fierce K-pop competition. This internally owned IP will not require royalty payments to the parent group, supporting higher long-term profit margins.

Rights & Media Segment Operational Highlights

• KNTV has shifted its strategy from exclusively premiering new Korean dramas to a mixed content model including live K-pop concert broadcasts, targeting 20 premium K-pop content titles per year; 5 titles were delivered on schedule in Q1. KNTV remains profitable and management is working to strengthen its sustainable profitability structure.
• The drama licensing business acquired 6 new titles in Q1 2025, including a popular large-scale Korean historical drama that fills a gap in Japanese broadcasters' local production. New acquisitions will generate recurring revenue over 3-5 years, building on the company's portfolio of 150-180 total licensed titles.

1. Entertainment Segment: Revenue was 1.623 billion yen, a year-over-year decrease of approximately 0.8 billion yen. This segment accounted for 74.45% of total company revenue in the quarter. The quarter saw a total of 300,000 concert attendees, with non-concert business reaching 51% of the segment's revenue share.
2. Rights & Media Segment: Revenue was 556 million yen, a year-over-year decrease of approximately 10%, with operating profit down 30 million yen year-over-year. This segment accounted for 25.55% of total company revenue. Within the segment, KNTV broadcast operations performed in line with or slightly better than plan, while the rights (drama licensing) business missed Q1 sales targets, though management expects full-year results to meet or exceed 2024 levels. Total company revenue for the quarter was 2.18 billion yen, a 28.7% year-over-year decrease, with operating profit of 42 million yen, an 81.7% year-over-year decrease.

• The full-year revenue target remains 9.866 billion yen, with Q1 revenue reaching 22.1% of the full-year target, consistent with the company's H2-heavy planned schedule.
• Management maintains that full-year total concert attendance will hit 170,000, a 10% increase over 2024, and expects this target to be comfortably achieved due to the large volume of concerts scheduled for the second half.
• Management remains open to upward revisions of full-year earnings results, and will make a timely public disclosure once unplanned incremental business (such as unexpected pop-up events or additional concert dates) becomes clearer. The Q1 special profit from expired stock options will be evaluated before any revision is announced.

• The global traditional pay TV industry is facing headwinds, and KNTV is experiencing operational challenges, though it remains unprofitable, and management is still working to build a stable profitable structure for the business.
• K-pop market competition is extremely intense, which increases the risk of failure for the company's new internally developed IP. The delayed debut is intended to mitigate this risk, but it pushes back expected revenue and profit contributions from the new IP.
• Concert business growth is constrained by the limited available schedule of artists and venue capacity in Japan, making large continuous annual attendance growth unsustainable long-term.

Q: Will the company update full-year guidance upward following the special profit from the expired stock options? / A: Management notes the special profit was just finalized in early May, and will wait for clearer visibility on additional unplanned business like unexpected pop-up events and extra concerts before making any changes. The company has historically released conservative forecasts, and will issue a prompt disclosure if it determines an upward revision is appropriate. The lower Q1 performance is planned, not an unexpected negative.

Q: What is the current status of the delayed new original IP, and why was the debut pushed back? / A: The new original girl group IP is a critical long-term strategic priority for the company, as it will not require royalty payments to the Korean parent SM group unlike existing imported artists. The debut was delayed by several months from the original spring/summer target to October 2025, to invest additional time in improving the group's completeness and raise its probability of success amid fierce K-pop competition. The delay reduces near-term capital spending (supporting 2025 operating profit) and revenue contributions will start after October, with long-term growth starting in 2026 and beyond. Teaser content will be released soon to build market awareness.

Q: Do non-concert businesses have long-term sustainability and room for expansion? / A: Management confirms that large continuous growth in Japanese concert attendance is not feasible long-term, even after hitting the 170,000 target this year. The core strategy is to use concerts (which keep K-pop IP visible to Japanese fans over 100-150 days annually) as a marketing tool to grow non-concert revenue. The company targets raising non-concert revenue share to 55% this year, and 80% over the next 5 years, which will drive overall sales and profit growth. The firm is already hiring specialized external talent to build new non-concert businesses including a dedicated music team and travel-related business, and the expansion trajectory is sustainable over the long term.