By Sunny Um WIRED Korea
An increasing number of people, many of them confined to their homes because of the coronavirus, have watched video contents on over-the-top (OTT) platforms during the past few months in Korea. Not to be left out on the emerging trend, new businesses are jumping into the OTT market, and content creators are investing in streaming platforms.
Recently, two large broadcasting companies in Korea, CJ ENM and JTBC, concluded a formal contract to jointly launch a new OTT service to fight against global OTT giants, such as Netflix and YouTube. Last year, three terrestrial networks -- KBS, MBC, and SBS -- also joined hands with a mobile network carrier SK Telecom to launch an OTT platform, Wavve.
But some experts say that local OTT service providers will be no match for those with global reach, as their platforms have huge audiences, are capable of making large investments in diverse contents, and are not obliged to make any payment to the local telecom operators as domestic OTT service providers do.
In Korea, Netflix reigns as the biggest OTT platform with 3.9 million subscribers per month. It is followed by Wavve with 2.4 million and TVING with 1.3 million, according to an IGA Works report in March.
The gap is even bigger in the global market. As of today, Netflix has almost 180 million subscribers outside of Korea. Wavve, which aims to attain the goal of 5 million subscribers by 2023, will pose little threat to Netflix in many years to come, if at all.
Lack of Original Contents
One way for OTT service providers to increase subscriptions is to stock high-quality original content -- movies or drama series of their own making.
Last year, Wavve created a drama series, titled “The Tale of Nokdu,” in cooperation with terrestrial broadcaster KBS. The drama series drew keen attention from viewers, taking up about 5 percent of the entire viewing time on the platform. Apparently encouraged by the performance, Wavve announced that it would sink 50 billion won ($40 million) into content production this year.
Wavve is also making efforts to attract global viewers, too. On April 12, the service provider signed a partnership contract with NBC Universal Media, under which it said it would send its original content for viewers outside of Korea in the next three years.
Besides, the new joint OTT service to be launched by CJ ENM and JTBC will focus on producing original content that would stand out in the global market, said the companies in their joint statement last September. “It is important to secure distinguished content in the global OTT service market,” the statement said.
But the problem is that global brands spend much more on original content than their local counterparts. Netflix, for instance, is planning to spend more than $17 billion on original content this year, according to a January estimate by analysts at BMO Capital Markets.
Moreover, global giants do not shy away from competition with Korean service providers in the category of movies and dramas made in the Korean context. Among Netflix’s original series are Korean-language contents such as “Kingdom” and “Okja,” both of which are written and produced by local staff.
Network Use Payment
Another disadvantage for Korean service providers is that they pay for the use of the broadband networks operated by SK Broadband, KT and LG Uplus when global streaming services are free riders.
Afreeca TV, a video streaming platform, reportedly spent almost 15 billion won for its data traffic in 2017. Korea's biggest web portal Naver paid about 70 billion won to internet service providers in 2016. They made the payments, though they are not legally obligated.
The Korean internet service providers are demanding that non-Korean platforms as well as Korean platforms share the cost of data traffic, and all the more so because the demand for data traffic is soaring, thanks to an increasing popularity of movies and dramas being streamed on the internet.
Global content providers take up over 67 percent of the total LTE network traffic generated by the top 10 providers, Rep. Byun Jae-il of the Democratic Party of Korea said, quoting a report from the Ministry of Science and ICT.
But global firms are balking. Netflix said that the demand for payment constitutes an infringement upon the network neutrality principle, claiming that internet networks are a public good that should be non-excludable.
SK Broadband, one of the local internet service providers, brought the case involving Netflix to the Korea Communications Commission (KCC) for arbitration. Before the KCC came up with its decision, Netflix filed a lawsuit against SK Broadband, arguing that it is not obligated to pay the internet network usage fee. The court ruling has yet to be made.
Economies of Scale
Korean OTT services are also disadvantaged when it comes to economies of scale, as noted by Wonki Min, president of the State University of New York Korea and the former Vice Minister of the Ministry of Science and ICT.
Min says that once a platform achieves an economy of scale, with more content produced with less cost, other platforms find it difficult to win over that platform due to the “network effect,” a phenomenon in which people feel more content with a good or service they use when an increasing number of people are also using it.
“Local OTT platforms have good original contents too,” says Min. “What they don’t have is a platform with a global influence like YouTube or Netflix.”
As more people subscribe to its service, Netflix can afford to spend more on original content or partner with more content creators, which in turn attracts new subscriptions. “I doubt if Korea-based platforms can compete with such global platforms,” Min says.
Yet, Waave is not daunted as shown by the remarks of Kim Yong-bae, a director at Wavve.
“We may not compete with global giants when it comes to an amount of investment, but we do have quality contents that they do not have,” Kim told an online news outlet OhmyNews. “Now we should work together with other content providers. We should make our contents better and try to reach out to viewers outside of Korea, too.”
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