South Korean telecom operator SK Telecom is to pay 500 billion Korean won (US$440 million) for a 30% stake in CJ Hellovision, South Korea's largest cable TV company, as it looks to offset a decline in revenues at its core business, the operator has announced.
The offer values CJ Hellovision at nearly $1.47 billion and came as SK Telecom flagged a 2.4% year-on-year drop in revenues for the third quarter, to KRW4.26 trillion ($3.7 billion), because of declines in traditional business areas.
Like other major service providers, SK Telecom (Nasdaq: SKM) has been trying to move into adjacent business areas such as TV and web services to offset those declines and spur sales growth.
Although SK Telecom flagged an increase in revenues at its SK Broadband unit during the third quarter, it has been lagging rival KT Corp in the market for broadband and TV services, according to local press reports.
SK Telecom is to buy the 30% stake from CJ O Shopping, another major South Korean conglomerate that owns 53.9% of CJ Hellovision.
The operator has flagged plans to acquire the remaining 23.9% stake in the business owned by CJ O Shopping through call and put options agreements.
Its intention then is to merge CJ Hellovision with SK Broadband, leaving it with a 75.3% stake in the combined entity by April next year, when it expects to finalize the deal, and giving CJ O Shopping 8.4% of the business.
CJ O Shopping is reportedly keen on reducing its interest in the cable and TV business so that it can focus on other activities, but it obviously sees the attractions of forming a partnership as a minority shareholder with one of South Korea's biggest technology companies.
The companies believe they can realize synergies in areas such as content sourcing and international sales by combining SK Telecom's platform expertise with CJ Hellovision's content capabilities.
The deal between the two organizations also includes a plan to create two KRW50 billion ($43.8 million) funds to invest in media content and IT startups.
"[A] strong partnership between SK Telecom and CJ Corporation will lead us to innovative next-generation platforms going beyond the media industry through convergence and integration of telecommunications, devices and contents," said Hwang Keun-joo, SK Telecom's executive vice president and head of strategic planning.
SK Telecom saw its net income plummet by 149% in the third quarter, to KRW382 billion ($335 million), due to sales pressure and lower equity gains from SK Hynix, a semiconductor business.
The operator had around 28.5 million customers at the end of September -- up from 28.4 million in September last year -- of which 20.3 million were smartphone subscribers.
Operators in other markets have also been acquiring cable and TV businesses as they look to provide the full "quad-play" of fixed voice, broadband, mobile and TV services to their customers.
In Europe, Vodafone Group plc (NYSE: VOD) has been especially active on this front in the last couple of years, buying cable operators in Spain and Germany and holding asset-swap discussions with cable giant Liberty Global Inc. (Nasdaq: LBTY) that ultimately proved fruitless. (See Vodafone, Liberty Call Off Asset-Swap Talks and IBC: Fuzzy Picture of Broadcasting Future.)
While service providers hope TV will provide a source of revenue growth, this business is under threat from web players such as Netflix, offering access to libraries of online video content for just a few dollars a month.
Those fees are typically much lower than subscribers pay for traditional TV services, although traditional service providers often hold exclusive sports or movie rights that have continued to lure customers.
Even so, operators in various parts of the world are now developing their own OTT services, and SK Telecom's deal with CJ Hellovision is interesting in that it appears to include provision for the development of new-look media offerings.
— Iain Morris, , News Editor, Light Reading