● Disney`s interest in Twitter and Netflix underscores focus on digital

Walt Disney, which is preparing to make a bid for Twitter, is also reportedly interested in buying Netflix. Disney is an American media conglomerate with a market cap of W165tr. Notably, the group is suffering from sluggish growth in its broadcasting and digital businesses. Thus, the media giant is trying to find ways to break away from sluggish broadcasting and improve its digital revenue. The group`s apparent interest in buying Netflix and Twitter underscores its focus on digital and suggests it wants to expand streaming digital content.

Global media giants including Disney are aggressively seeking to strengthen their digital capabilities. In our view, CJ E&M already has a profitable digital business model. In 2Q, the broadcasting division`s "other" revenue, which includes digital ads, spiked 68% YoY. TV ad revenue is also growing in the high single digits. We expect the digitally proficient company to command higher multiples even among media groups with content capabilities. We maintain our Buy rating on CJ E&M with a target price of W110,000.

● US media groups lack a strong link between content and digital



Disney has been struggling with weak growth in its broadcasting (media networks) and digital media/consumer product businesses. In particular, the company`s cable networks, including ESPN, are growing even slower than its terrestrial networks. Disney`s film studio business, on the other hand, expanded nearly 40% YoY in 2Q16, backed by the robust content portfolio of its studios, which include Marvel Studios (superhero genre), Lucasfilm (Star Wars), and Pixar (animation). The problem for Disney has been the lack of a strong digital presence for its sports and entertainment content.

In September, the US media giant began streaming its movies exclusively through Netflix in North America. In late September, news reports suggested Disney was looking to buy Twitter. If Disney does indeed acquire Twitter, it is likely to focus on strengthening its digital platform for ESPN, as there is strong demand among viewers to watch sports games in real time through mobile streaming.

● CJ E&M is already monetizing digital content



Along with its strong content production capabilities, CJ E&M`s digital business has lately drawn attention. The broadcasting division`s "other" revenue, which includes digital ads, soared roughly 68% YoY in 2Q. The digital business generates far higher revenue than either films or music/performance.

CJ E&M, which has a new media rep (subsidiary MezzoMedia) as part of its digital value chain, launched its own digital streaming service (Tving) this year. Also, digital ad revenue is generated by video clips distributed through online and mobile platforms (e.g., NAVER TVcast). Smart Media Rep is in charge of the digital ad business. Given that global media companies are pushing to bolster their digital capabilities, CJ E&M`s digital value chain and quick monetization should gain traction.

By Moon Jee-hyun, analyst at Mirae Asset Daewoo Securities

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