Tackling a challenge with creativity

CGV's 3D theater in Seoul. / Korea Times file

CGV redefined its mission as total entertainment provider

By Choi Won-seok, Cho Seung-ah

Founded in 1998, CGV was the first multiplex cinema chain in Korea and remained as a market leader until 2006. As the name suggests, it started as a joint venture of CJ Corporation (Korea), Golden Harvest (Hong Kong) and Village Roadshow (Australia).
Although the multiplex industry attracted numerous rivals in the early days, most of them disappeared by 2006 and only three remained as sizable forces in this highly concentrated market: CGV, Lotte Cinema and Megabox.

Challenge

In mid-2006, Park Dong-ho, CEO of CGV, anticipated formidable challenges that could threaten its position as the market leader. The market was rapidly being saturated and the facilities and services were becoming undistinguishable among the big three players. Due to the capital-intensive nature of the industry, high fixed cost threatened CGV’s bottom line and opening of new cinemas brought a considerable financial burden. The multiplex theater chains were forced to initiate dramatic cost reductions, which was sometimes described as “squeezing a dry towel”.

In addition, the domestic film industry faced a deep recession due to a number of reasons: decreased mandatory screening quota on Korean films; dominance of a few blockbuster titles; and decreasing investment in movie production. This led to a reduction of domestic films released in 2007. It was not surprising that multiplexes lost as much as 30 percent of their customers that year.

Strategy: Building “hybrid entertainment platform”

“All that Cinema, Over the Cinema, Beyond the Cinema” was CGV’s new slogan in Korean. Park thought of giving customers more than they expect from an ordinary movie night. In this sense, he thought of offering unprecedented customer experience. On its web site, CGV claimed a new business model based on a "hybrid platform."

CGV chains introduced several innovative schemes by breaking the conventional boundary of theater. These included: a hybrid of a restaurant and a cinema (Cine de Chef); a screen for families (Private Cinema); a screen for educational purpose (Smartplex); A screen for musical performances (CGV Live).

In Park’s master plan, CGV would become a multi-purpose platform for entertainment and networking and even for business meetings. He dreamed that CGV theaters would ultimately function as a “social hub.”

With this vision in his mind, Park continued to open new sites despite the shrinking domestic movie market and against a potential financial risk. CGV expanded its network at a remarkable pace even though it focused on highly populated areas. In 2006 and 2007, respectively, they opened 1.5 and 2.8 times more sites than its biggest rival, Lotte Cinema. Through this aggressive expansion, CGV could enjoy the first-mover’s advantage in many towns and economies of scale. This benefit was most apparent in the sales of snacks and screen advertisements where margin is higher than ticket sales.

Result

During the implementation of aforementioned strategies from 2006 to 2008, CGV enjoyed an increasing market share in spite of an industry downturn ― its share increased by 27.3 percent in 2006, 30.6 percent in 2007 and 35.5 percent in 2008. Financial performances, too, improved. In 2007, sales, operating profit and net profit increased by 12 percent, 34 percent and 65 percent.

CGV’s transformation into a multi-purpose “platform” provider is still on the way. The firm hopes it will be able to exploit the first-mover’s advantage once again with this business model, as it had done when introducing the multiplex model to Korea back in 1998. The “hybrid platform” strategy would be the basis for the firm’s core competency in the future. Stock analysts seem to recognize this as CGV’s potential for future growth.
Lessons

Find a way to differentiate from rivals. This is especially relevant when competitors have similar market and resource configurations. CGV was situated in a red-ocean market. Lotte Cinema had formidable capital power and a distribution channel, while Megabox possessed superior marketing capabilities. Furthermore, the industry as a whole was undergoing a downturn. Despite these unfavorable conditions, CGV redefined its own business as a comprehensive entertainment provider and successfully articulated its strategic vision to its employees.

Be quick with implementation of strategy, but be patient with outcome. If top executives are confident that their vision will bring additional value to the firm and to the customers, they should waste no time in implementing the strategy. Given the mission of offering new customer experiences and superior accessibility, CGV was nimble in taking actions.

This wasn’t always a smooth process, however. The cost of expansion made CGV frequently report disappointing financial outcomes. The top management team had to deal with a great pressure and resistance from shareholders and stakeholders. But now CGV has overcome the internal skepticism, and its efforts have come to fruitful results with an increased market share, a better financial outcome and an edge in the subsequent competition.