South Korea's cinema industry, which contracted sharply during the COVID-19 pandemic, is showing signs of recovery on the back of box-office hits such as "The King and the Man Living Together" and "Goonche." Still, the lingering effects of accumulated losses are weighing on the sector. Industry observers widely believe that a merger between Lotte Cinema and Megabox is effectively falling through.
According to the Financial Supervisory Service on Tuesday, Contentree JoongAng (036420) submitted applications to the Seoul Rehabilitation Court on Monday for the commencement of rehabilitation proceedings, a preservation order and a comprehensive prohibition order, following a board decision. As a result, JoongAng Group affiliates including JoongAng Holdings, Contentree JoongAng and its subsidiary Megabox began rehabilitation proceedings at the Seoul Rehabilitation Court. The company cited "management normalization and the preservation of value as a going concern" as the reason for the filing. Trading of Contentree JoongAng shares was suspended starting that day in line with the rehabilitation filing.
Megabox JoongAng also filed for the commencement of rehabilitation proceedings at the Seoul Rehabilitation Court the same day. Megabox JoongAng is a major subsidiary of Contentree JoongAng and operates movie theaters. Megabox JoongAng's total assets stand at 890.6 billion won, equivalent to 35.76 percent of the 2.49 trillion won in consolidated total assets of its parent company, Contentree JoongAng.
The cinema industry took a direct hit as annual attendance plunged from around 200 million before the pandemic to roughly half that, in the 100 million range, afterward. While a gradual recovery has followed, the prevailing assessment is that it is not enough to make up for five years of poor performance since 2020.
Against this backdrop, merger talks between Lotte Cinema and Megabox, pursued since May last year, had been regarded as a key variable that could reshape Korea's cinema market from the existing three-way multiplex system (CGV, Lotte Cinema and Megabox) into a two-player structure. However, the memorandum of understanding (MOU) deadline for the merger had been extended three times to June 30, yet there had been no clear progress to date.
Within the industry, views that the merger is unlikely to materialize prevail. Uncertainty grew further as Contentree JoongAng disclosed rehabilitation proceedings for its subsidiary Megabox JoongAng that day. Efforts to attract external strategic investment, which had drawn expectations from the investment community, are also said to have effectively reached a collapse stage amid deteriorating profitability across the cinema industry.
Megabox had previously sought to raise up to 400 billion won in investment, but struggled to recruit investors amid the market downturn. As a result, analysts say the merger scenario is also losing momentum.
Securing liquidity has likewise remained only a stopgap measure. The company has continued to rely on short-term funding, borrowing 34 billion won from JoongAng Holdings and an additional 20 billion won in May.
Meanwhile, major multiplex operators including industry leader CJ CGV (079160), along with Lotte Cinema and Megabox, are building hopes for a recovery based on the rebound in attendance. Still, the prevailing view is that more time is needed before their profit structures normalize. "Unlike the signals that the cinema market has entered a recovery phase, the 'post-COVID' restructuring scenario remains unclear as industry-wide restructuring and funding shortages overlap," an industry official said.
