A Bell for a New Round:
Locus Holdings Takes Over Cinema Service

Kwan, Jaehyun (bururung@hotmail.com)

Locus Holdings, a newly found affiliate of Locus Corp. reached an agreement with Cinema Service on its acquisition of the company in March 9, 2001. Cinema Service which has its origin in the old Chungmuro is one of the two main player in Korean film distribution, the other being CJ entertainment. With this contract, Locus Holdings acquires 62.7% of Cinema Service, making Locus Holdings its largest stockholder. By the agreement, Warburg Pincus, a US-based investment firm, which decided to invest US$17 (200 billion won) million in Cinema Service last year, becomes the biggest stockholder in Locus Holdings.

Cinema Service, which has a stable supply source from cooperative ties with 10 production companies and a nationwide distribution network centered on Seoul Theater, held 31.3% of box office audiences in 2000. In May 2000 Cinema Service acquired US$17 (200 billion won) million in capital from Warburg Pincus, becoming the first instance of a Korean film company acquiring foreign capital for the Korean market. With its established subsidiaries, Sidus, an film production company and the Core Tech Industry Division, along with Cinema Service and a future record distribution business, Locus Holdings is now aiming to construct an AOL-TimeWarner-like media corporation in Korea.

By the Locus HoldingĄ¯s acquisition of Cinema Service, the most representative Chungmuro-based company, the Korea film industry seems to complete its departure from the old Chungmuro tradition and have enter into the financial-capital stage, the highest stage and the purest form of modern capitalism. During the last several years, Korean film industry has experienced a few radical changes in terms of the financial resource for its film production. From the beginning of the 1990s, large conglomerates in Korea started to invest in the film business. They were eager to find out a new field of investment that would substitute some of their less feasible businesses and soon started to invest in newly emerging markets of the so-called New Media, such as Cable/Satellite TV, the Internet, and communication services. Driven by the need to secure contents for their projected foray into the media channels, conglomerates including Samsung, Jaeil Jaedang and Daewoo stepped into the film business. The participation of large manufacturing companies gave unexpected relief to Korean filmmakers, who had depended almost exclusively on financial sources indigenous to the conventional film circulation and had struggled to finance their projects. From this time, the capacity of Korean film industry started to grow quickly as a whole. However, by 1999, most of those companies had withdrawn from film production after repeating several years of trial-and-error and severe restructuring since the nationĄ¯s financial crisis and shifted their focus on construction of multiplexes. Instead of manufacturing-based conglomerates, financial ventures, which entered into the business in the mid-1990s, have quickly filled the financial vacuum in film production. Since recent domestic film industry offered higher returns than stock/real-estate market and deposits at domestic banks, financial ventures have come to have increasing interest in the film business in search for an investment alternative.

According to the recent report of magazine, more than 15 financial funds and joint-financial-ventures, of various scales from 5 billion to 15 billion won, are in operation for film production, and the total amount of new investments from these financial companies is assumed to be over 100 billion won. Given the fact that the total box-office gross of domestic pictures is slightly over 100 billion won, this amount is quite remarkable. Even though many experts have strong suspicions on the new comers due to the opportunistic and speculative nature of financial capital, it is true that the absolute majority of new film projects in Korea are now financed, either partly or completely, by these financial companies, and they have already become an indispensable financial source for domestic filmmakers. Now it seems undeniable that Korean film industry has entered into an unprecedented stage, in which the rule of investment returns defines the nature of film production. A bell for a new round rang.