Have you ever heard of Understanding Tiny Ping, which encompasses all the knowledge of the world? Tiny Ping, Tiny Ping. Have you, as a journalist, heard of it? Oh, I don't know. I haven't watched it either. I looked it up briefly. To understand Tiny Ping, you first need to have a daughter, and she should be at an age where she finds it interesting. Nowadays, what's trending is Tiny Ping. It seems that kids don't watch Pororo as much anymore. By the way, Pororo is already 20 years old. Yes, it's quite old now. Of course, kids still watch Pororo. Typically, Pororo is watched by toddlers, around 4 to 5 years old. There was a slight gap in content suitable for children just before they start school, and that space has been filled by Tiny Ping. In the chat, some have mentioned they've heard of Xi Jinping, so our subscribers seem to be aware of it.

It seems that things have gotten quite chaotic lately. Now, let me explain as I bring up the overview. This character design features very large eyes and is made up of characters that resemble children. They are called Tinypings, and each has its own name, such as Hotping, Muping, and so on. I’ve heard about these characters before; they have a body that is larger compared to their heads and shorter limbs, which is similar to how young children look. Because of this, children tend to find these characters more relatable. If they looked elongated like a typical eight-headed figure, children might find them strange. So, they feel a sense of familiarity with characters that have a big head and short limbs. The Tinypings release about one season per year, and since starting in 2020, four seasons have been released.

그런데 이 티니핑에는 별명이 있습니다. 별명은 '파산 핑'인데, 왜 그러냐면 캐릭터가 엄청나게 많거든요. 각 캐릭터마다 장난감이 몇 가지 종류씩 있어요. 그렇게 사 주다 보면 부모가 파산한다는 거예요. 아이들이 하나씩 다 사 달라고 하니까요. 그래서 무슨 핑, 무슨 핑, 무슨 핑, 다 더 맞아. 이게 시즌이 보통 추석 전쯤에 시작하거든요. 날이 쌀쌀해질 때 새로운 시즌이 나오는데, 부모들은 걱정이 많아요. 아, 또 새 시즌이야. 그러면 새로운 캐릭터가 나오는 거죠. 또 친구가 생겼다 하면, 마트 가면 또 사 달라고 하잖아요. 그런데 한 마리가 아니라, 20마리씩 있어요. 그러니까 이걸 다 사 주면 몇십만 원이 금방 깨지거나 하죠. 그래서 요즘 티니핑 애들이 그렇게 좋아하는 거구나.

So based on that, the company that operates Tiny Ping is called Samg Entertainment, commonly referred to as 3G Enra. This company went public in December 2022 and I thought it would thrive in the stock market. If you could show the screen for a moment, I initially expected it to do well, but the stock price hasn't been thriving. It did rise, but not to the extent I expected; it has actually dropped significantly. Since its initial public offering, it has fallen by about 54%, and compared to its peak, it has dropped around 75%. I looked into why that happened, and it turned out they were in the red. My daughter is the target audience for Tiny Ping and she loves it, so I have several Tiny Ping dolls at home. It's like a bankruptcy situation. I did buy her a few things, but still, it feels like a bankruptcy for the company. It's just strange.

There seems to be a slight decline happening, right? I mean, we bought so many toys, but why is it in the red? It's surprising, and now I've started to dig into the financial statements. Along the way, I've been looking at various companies because I've recently become interested in the character industry. It's ironic that I'm starting to pay attention to entertainment and such. It's really frustrating, isn't it? So why is it that so many parents are going bankrupt, but the companies themselves are in the red? Is there an issue within this industry? I want to delve into the problems a bit. I've never really thought about the character industry before. It seems like it could be a pretty good business, a high-margin business, but how expensive can it be? And what can you really do?

When it comes to characters, you can easily generate a few with just a few hundred thousand. In reality, there aren't any remarkable features; it's just something that has been churned out. If you consider the cost, it doesn't seem like it would be very high. Additionally, if the character does well, the benefit is that you can license it. For example, if a company that makes spoons and cutlery comes to me, they might say, Please use this character, but pay us a 10% royalty. This creates a structure where revenue continues to come in without any cost. So, yes, it seems like a deficit. But why is it a deficit? Let's take a look. I have a lot of materials today, so let's go through them quickly. First, this is the order for the years 2021, 2022, and 2023. As you can see, the sales figures are 383, 683, and 91, showing a rapid rise in revenue.

Now, around the end of 2022, we went public. If you look at the operating profit, in 2021, the operating profit was about 3.3 billion won. There was a slight transition to a deficit, but at that time, we went public. People thought, Oh, it will be a temporary deficit; they have invested a bit. However, after a year, the deficit increased to 9.4 billion won. Looking at this, one might wonder what the problem is. You've seen this quite a bit, right? What do you think is the issue, CEO Ahn? 

If you look at the financial revenue, the cost of sales has significantly increased. It's quite strange, considering it's a character industry. Why are the costs so high? I looked at the ratios to analyze this.

If we look at the ratio, the cost of sales ratio is about 75% in recent years. Yes, 75% means that 75% of sales go towards costs, which is higher than that of typical products. At that level, it’s almost like a manufacturing business, almost repetitive mass production with a manufacturing cost of 75%. However, our business is not mass production; it’s a toy business that produces a variety of products in small quantities. So, having such a high cost isn’t acceptable. First of all, that’s a surprising percentage point. Additionally, the selling and administrative expenses are increasing very quickly relative to sales. Originally, it was about 17% of sales, but now it has increased to 29% to 34%. We are also spending a lot on marketing. In companies where costs are tight, they tend to spend very little on selling and administrative expenses.

Because now we have to write something to leave behind, we showed that until 2021. Suddenly, the cost remains the same; normally, when sales increase, the cost ratio should decrease. However, even though sales are increasing, the selling expenses are also rising. So, the operating loss came out to -10%. But I heard about that Pink Pink, or whatever it is, and I don't really know much about it, but I heard it's very popular. It's incredibly popular, right? If it's that popular, I wouldn't expect them to spend so much on marketing. Right? Marketing shouldn't be necessary; the target audience already knows about it. The ratings are at 20%. But this is on a channel called Jeonung TV, which is in the 500s on the channel list. For a channel we've never even looked at, getting a real-time rating of 20% is amazing.

Oh, so it's not the whole country, but based on the standard of 5 years old. Roughly, around 20% of 5 to 6-year-olds have seen it. Most kids aged 5 to 6 have seen it, like BTS. So, this is available on Netflix and also on YouTube. Considering that, almost everyone has watched it. But despite that, why is the cost ratio so high? Is the manufacturing cost that high? Why is that? Yes, we are starting to explore that. I have gathered a bit more data. 

First of all, we need to figure out what the problem is by looking at the sales and the cost of sales. We should check what is included in those figures. If you look at the financial statements, it will all be there. The financial statements and the business reports are all available in the electronic system. If you look at the sales figures, basically, this company still has a lot of sales in Korea, but these days it’s also selling a bit in Japan and China.

There is about 17 billion in sales, but still, Korea has 77.4 billion, which is much higher. Pre-orders and merchandise account for 78 billion, while content is 3.3 billion, licensing is 11 billion, and services are 2.3 billion. The services refer to things like the monthly Tiny Ping World, which is somewhat like a theme park for kids located in Pangyo. When you look at it this way, overall, the revenue distribution shows that toys are overwhelmingly dominant. Ultimately, the toys that led us to bankruptcy account for 78 billion. Other areas like content and licensing haven't seen much growth. So we should suspect that the significant increase in sales has resulted in a larger deficit due to selling a lot of toys. It’s a bit contradictory, right? So now, the cost of goods sold for the products...

I think I need to find out what percentage that is, so I drew another table. When looking at the cost ratio for each product, the total profit from products or goods is around 26%. That's not much. By the way, content production is always at a loss. Why is that? Content is outsourced. That's right, it's outsourced, and we also use internal staff. Animation, in particular, has to be done by hand, right? It has to be done by hand, but it's hard to get a good rate for it. I'm planning to sell it to broadcasters, but it's challenging to get a high rate for animation. So, it's definitely a loss. But why do we engage in that business? Because there are product sales above it. That's why we do it; it's definitely at a loss.

There’s no other way. No matter what, this is the president, and even if we see it a lot, we have to start with a deficit of about 2 billion in content. However, the total revenue from product sales only accounts for about 26%. If that's the case, the profit from selling those toys has to exceed the costs of content production for it to make sense as a business network. Why is it so high? It seems too high to me. I think half of it should remain. I believe there are probably parents among the viewers here, and they might think it doesn’t make sense. They might think, I’m paying so much, and the cost rate is 75%? That doesn’t make sense. If they think about it, they might consider that both the sales price and the purchase cost could be problematic. Yes, the purchase cost. So, they might have either sold the sales price too cheaply or the purchase cost is too high.

I think it's either that we bought it at a high price or both. What I mean is that the sales price from the company's perspective differs from the sales price that our customers pay. It makes sense, right? Because there are distribution stages in between. Yes, it's expensive. Compared to its appearance, it's incredibly overpriced. So, what's the problem? After looking into it, the first issue was this. Let's take a look here. The main sales channels in the business report are revealed, and for products, sales to Samjin International were very high until around 2022. What does that mean? It seems that there is a separate distribution company selling those toys. That's right; they are providing the distribution. Because Samjin Entertainment is an animation production company. So, I wonder where...

I don't know the phone number of the purchasing manager at E-Mart, and I also don't know the phone number of the purchasing manager at Homeplus. Oh, right. And those people don't meet with us. Who do you think you are? From the perspective of a large corporation, it's difficult to appeal to them. It smells fishy, so I looked for something that has a similar odor. The company names are similar, right? Samji Enter and Samjin, so I'm not sure. But anyway, this Samjin... The reason is that they make great animations, but this company has never made toys before. Usually, animation production companies are like that. The fields of toy manufacturing and animation production are completely different; it’s like understanding that making T-shirts is similar. They can't do it. Who would they ask to make it for them? They would just say, Please make it for us.

애니메이션을 만드는 회사와 장난감을 만드는 회사가 있습니다. 그래서 저희가 그 장난감을 하나 팔 때마다 2,000원이 들어옵니다. 이게 똑같은 구조예요. 그러다 보니까 이제 만들어 본 사람과 연락을 하게 되는 거죠. 그래서 삼진 엔터가 이제 만들어 본 경험이 있다고 하니까, 자기가 유통도 해주고 제작하는 노하우도 있다고 합니다. 제작사와 공장에 대해서도 알고 있다고 하니까, 같이 한번 만들어 보자고 제안한 거예요. 그 대신 내가 너를 통해 유통을 할게라고 시작한 것입니다. 그렇게 해서 삼진 엔터가 이제 성공하게 되었죠. 티니핑이 대박이 났고, 삼진 엔터는 참고로 2022년에 매출액 46억 원에 영업이익 132억 원을 기록했습니다. 이게 전기 대비 매출액이 85% 상승하고, 영업이익이 215% 상승한 거예요. 참고로 이때는 삼진 엔터가 적자였고, 100억 원을 넘게 벌려고 했습니다.

Now, here we go again, with E-Mart and Homeplus, right? So, they take all the money. But how can that be? I mean, even if they have the character, it's all owned by Samji Entertainment. Initially, that's what I find unfortunate because I have the character but I don't know how to create it. And I don't even know the phone numbers of the discount stores. So, it becomes a disadvantage for me. From the start of the contract, it's a bit unfair for me, meaning the unit price is set in a way that, for example, if it's a 10,000 won toy, I might have to supply it for 5,000 won. They take all of it like that. I don't know the actual ratio, but in economics, the party that has less power usually ends up giving more. So, when creating this royalty, the animation production company feels the pressure. They end up giving more because they are in a tough spot. That's why when we sell T-shirts, how much do we make?

안 남잖아요. 그러면 삼진 엔터테인먼트가 장난감을 만들어 주고 판매까지 해주고, 그렇죠? 만드는 것도 도와주고, 만드는 것은 밑에 또 공장이 따로 있어요. 제가 알고 있는 공장도 몇 개 있으니까, 거기서 소수에서 제가 만드는 것을 같이 도와줄게요. 중간 유통사가 있으니까, 이마트나 거기까지 가기 전에 중간 유통사가 팔아야 되는 거네요. 장난감은 단가가 낮은 거군요. 그렇죠? 그러니까 가격에 문제가 있어요. 지금 원가율이 75% 나오는 거예요. 그래서 그렇다고 해서 엔터가 영원히 삼진에 의존할 수는 없어요. 삼진 이름도 헷갈리네요. 삼진 인터테크 보니까, 삼진 엔터 같은 경우도 삼진의 의존도를 낮춰야 해요. 그래서 실제로 2023년의 매출액이 확 줄어듭니다. 즉, 인터에 대한 의존도가 줄어드는 거죠.

Sales have now decreased from last year's 28.7 billion to 9.6 billion. Why is that? Starting from 2023, I realized that this isn't working. The reason is that we’re giving everything away, and we have nothing left. I need to handle distribution myself. So, I called the person in charge at E-Mart and the person in charge at Homeplus directly. I even went to the factory and called the factory myself. I need to create this myself because after going through one or two cycles, or maybe three cycles, I’ve seen and heard enough from the side. So, I started to set up my own sales organization and manufacturing organization. I mean, why do I need to look back? I can just make a phone call. I’m Pong, Pong! Don’t you know? It’s Tinyping! The Ping, Ping! You don’t know? Because, of course, Tinyping is famous in the Wanggu industry, but it’s not that significant in terms of volume.

The volume is still not there. Because of that, there's no strength or sales power, so the organization is gradually being built up. First of all, despite that, the cost rate in 2023 did not decrease even though there was direct trading. It seems that it hasn't been very successful so far. The reason is that even if we exclude the middle costs, the cost should have been lowered in 2023, but it hasn't. It's completely like before; there needs to be a touch from Lee Soo-man of SM Entertainment. We need to pay a similar cost for that touch. I feel like it's similar. However, I don't know the detailed circumstances, but the problem is that as we move toward a direct trading structure, administrative expenses have increased. Yes, yes, the reason for the administrative expenses is...

Originally, there were things that Samjin Inter used to do, right? They would make phone calls to E-Mart, collect payments, and handle various tasks. Additionally, logistics is a significant aspect; this needs to be distributed nationwide, so logistics must also be managed. If you could show me the logistics details... Yes, look at this. The salary is 5.2 billion, and 8.2 billion is needed for management positions. We need many management staff because sales and management both need to be handled. And the other sales costs are mostly logistics expenses, which are estimated to be around 1 billion. Logistics costs have significantly increased to 1.9 billion and 6.4 billion. It's quite strange, isn't it? Because, in the middle, the distribution network is supposed to handle the logistics, so why should they incur selling and administrative expenses? That's fine. In 2023, we need to reduce those costs, and we need more personnel for logistics as well as advertising expenses because now I am going to do this alone.

I have to take over the duties that Samjin Inter used to handle. However, despite that, the sales unit price has not yet been properly recognized. As a result, the margins have not increased, but the operating costs have risen significantly. Consequently, the deficit for 2023 has grown larger. From this, we can somewhat infer the issues surrounding the sales unit price, and there may have also been issues related to procurement. This is because, naturally, China has the largest share in terms of suppliers. We have raw material procurement from various companies, including those in China and South Korea, but primarily, we do not have any factories or facilities of our own. We rely entirely on outsourcing for production, as we are originally an animation production company. The characteristic of this company is that there is an immense variety of product types.

So far, a total of 100 Tiny Pings have been released from Seasons 1 and 2 combined. If we consider each character along with dolls, toys, stationery, and so on, the number of product types multiplies significantly. We must have thousands of different products. However, the overall product volume is not yet at the level of several hundred billion, so to achieve that, we need to secure financing for each individual product. From the buyer's perspective, factories require a minimum order quantity (MOQ), and we need to place substantial orders to get better pricing. However, we currently lack the scale and funding. Still, we can manage several hundred to a few thousand types of products. Therefore, we inevitably have to rely on factories, and we have to consider the names of over a million characters.

I can't memorize it. Ah, but that's okay. There are over a thousand Pokémon, right? So, it's Pokémon. The Pokémon is the issue. Other places might be able to manage it, but because of that, it leads to an enormous variety of small-scale production, which means we can't lower the purchase price. To reduce the purchase price, we would need to use a single product in large quantities, but it's the exact opposite. Therefore, we have no choice but to raise the cost price. Now, since I can't do direct distribution, and the purchase cost is really high due to the ultra diverse small-scale production, the cost of sales ratio of 75% is a problem on both ends. I should have just focused on things like photo cards, but it’s more like a mission with a hundred items or something. However, kids usually want to engage with something tangible, so in the end...

From the company's perspective, homework is homework. What kind of homework? First of all, we need to manage distribution very well. I have to contact all the discount stores nationwide, and we need to have a lot of know-how regarding manufacturing. We also need to carefully select products that have potential and produce them in large quantities. So, we need to have manufacturing know-how and sales know-how. However, the initial creators were people who made animations, and now they have to take on roles that require them to be out in the field. In my opinion, they didn't know how to do anything other than animation. Just understanding this, they have created a thousand different dolls. Can you imagine? The Jae-yong doll, the Jong-hoon doll, the If doll—everything is right. They are just running around and constantly visiting the factory.

There are thousands of stores like Dullaknalak Mart across the country, right? It's funny that we have to do that. Yes, the character business is difficult. I wonder if it would have been enough just to create the character and license it. Unfortunately, that doesn't generate profit. So, what's the problem? When it comes to licensing, the sales volume becomes too small. This is because we have to show revenue due to external investments. Moreover, I need to sell my own products; I need to have something concrete to offer for licensing. From the perspective of the companies that are licensing, they need to have a role model to consider purchasing. It's not feasible for me to suddenly approach a stationery company and ask them to license my character when there's no data or background on the stationery they produce.

I see that the Tiny Ping products are selling well, and I want to do licensing too. It's just that it's hard to think that since some animations are doing well, licensing them will also succeed. Ultimately, it's very important that the company that owns the rights has a strong lineup of products. However, I don't have the know-how, there are no contact points, and I lack experience. This is an understanding issue; there are many things I want to do, but it costs money. Nevertheless, this company has particularly succeeded in animation, and somehow, they have managed to achieve an IPO and have successfully raised funds to some extent. If you look at their funding, after going public, they raised 28.5 billion won through a capital increase. Then, there are also offline businesses and various other ventures.

We issued a convertible bond worth 30 billion and also issued preferred shares convertible at 4.5 billion. Combined, we reached about 62 to 63 billion in funding. However, despite this, we still have around 25 billion in cash left. Additionally, we have inventory piling up, now at about 18 billion. This is because when the season changes from one to four, children stop buying the first and second seasons. There’s no way everything will sell out; there will definitely be stock accumulating in the warehouse. If we consider it over a year, we have about four months' worth of inventory piled up, which will certainly lead to a problematic inventory issue. Consequently, our cash keeps dwindling. In just one to two years, we raised 63 billion, but now, less than a year later, we only have about 22 billion left. Then, in the following year, we have recently...

The first quarter has been disclosed, and in the first quarter of the previous year, there was a profit. However, this year, there has been a loss of 5.9 billion over the course of a year and a quarter. They are rapidly depleting their cash. They are trying out direct distribution and marketing, which they haven't done before. Once they get past this stage, they can take over the margins that the intermediary distributors used to take. So, it might be a transitional phase that incurs higher costs. However, the company needs to survive until then, and the rate at which cash is being depleted is astounding. It's been a short time since they issued bonds, so additional fundraising doesn't seem easy for the time being. Considering that, last year they had only about 23 billion left, and with a quarterly loss exceeding 5 billion, it means they have very little left now.

I have this thought that it's quite dangerous. We shouldn't just carelessly go into bankruptcy. We can't talk about it lightly here. What I'm feeling here is that we have to go public and show something, so we need to expand quickly and aggressively. Originally, we could have taken our time to create offline experiences or some kind of world, but we spent an enormous amount of money on that. In terms of product lines and animations, we are making one a year, but the costs have increased significantly. The content expenses, including labor costs, have risen a lot, and our technological capabilities have also grown, leading to content deficits. Initially, we had a deficit of about 800 million, but now it's around 2 billion. We have scaled up, so now I have this ambition for the next season.

We need to improve the quality, and as we bring more people in, the content deficit is worsening. However, despite this, the distribution issues are not being resolved well. To sustain the product in the long term, a financially advantageous business structure would be one where the brand can grow. The best scenario is for it to become appealing to elementary and middle school students, rather than just ending with preschoolers. Right now, the interest has dropped significantly for those who are at that preschool level, and it only satisfies children in that age group. To reach elementary and middle school students, we need to add another layer of development. They can certainly grow; they were once in elementary school, and now they are in middle school.

As they continue to grow, they can go to middle school, and it's not that complicated for them. The best way is to expand the time frame. So, in the Teenieping world, there is a Teenieping area, and then there are these middle-ping characters that exist in a slightly different dimension within that same world. They can create their own worlds and structure things in that way, which would be the best option. It would be fun because as they go to middle school, their legs get longer, their personalities change, and the characters start to become more complex. Because of this, it can be structurally challenging to make money in the character business, especially in the preschool sector, which is quite difficult. However, I think the opposite is true for characters aimed at older children; they don't necessarily require very complex content. Once kids like something, they keep watching it, and when they graduate from that phase, they move on to the next.

Other kids come in, right? So, something like Pororo has been claiming success for 20 years. Isn’t that a really good business? But for that, we need to let go of some greed. I mean, we should scale down a bit. Rather, we could reduce the scale and shrink the characters. The thing is, the Pororo party members haven’t changed for 20 years; there are only a few of them. So, even if there is stock, it's manageable. After all, the toys are the same; Pororo from 20 years ago and Pororo now are identical. However, in the case of Tini Pings, they change every season, introducing 20 new characters each year. So, people don’t buy them. There’s the main character, Hotcho Ping, but the season Hotcho Ping...

It looks different from Hot Shopping. My daughter also, as time goes by, doesn’t want Season 1 Hot Shopping anymore. The visuals of Season 4 Hot Ping feel different, so it doesn’t accumulate over time; it just passes by. The business of characters, well, originally, animated content is all about accumulation being a complete asset. Content continues to accumulate like an asset; those who have seen it watch it again, then the next sibling watches it, and then another sibling watches it. This is very advantageous, right? So, I think that in Season 5, we might need to bring back some characters from Season 1. They could come back and have some kind of battle or something; I’m not sure. I was thinking about that too. Just like Marvel brings back characters as Avengers, all those characters from back then.

It seems like we should create a world where we mix things together and interact with each other. I think it could be worth exploring that through content. However, it’s not easy. Perhaps I was too ambitious, trying to constantly sell new toys and changing the content frequently, which might have backfired on us. Right?

[하이라이트] 티니핑 잘 나가도 제작사는 적자행진인 구조적 이유 (파인드어스 이재용 회계사)

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[하이라이트] 티니핑 잘 나가도 제작사는 적자행진인 구조적 이유 (파인드어스 이재용 회계사)

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