[Vol.82] Netflix and Its Impact on Korea

 150,000,000—is the number of worldwide paid subscribers who pay a monthly fee to Netflix and enjoy services. Netflix, which started as a DVD rental business, has become the world's largest Over-the-top(OTT) media service provider. The Economist, an economic weekly newspaper, coined the word "Netflixonomics(Netflix+economics)" in that Netflix has created a new economic ecosystem. It vertically integrates content production, purchase, and distribution and circulates it to global consumers at lower prices. In other words, Netflix can be seen as an economic phenomenon. How far does Netflix's impact reach?

 Over-the-top means providing streaming content over the Internet that goes beyond traditional TV set-top boxes. The reason why OTT service is so popular is that it has lots of content to watch at a lower price than previous set-top boxes. Also, it recommends videos based on user preferences and is available on any device. Meanwhile, big-budget entertainments who own numerous Intellectual Property(IP) on the videos, characters, and so on, are planning to take on Netflix by releasing new streaming media. Disney, which includes Pixar, Marvel Studios, and Fox’s contents, released ‘Disney+’ in November. Besides, AT&T, a U.S. telecommunication company that owns HBO, Warner Bros., and CNN, decided to launch ‘HBO Max’ early next year. Both are considered strong rivals for Netflix based on their content capabilities. Furthermore, Apple also discharged the ‘Apple TV+’ in more than 100 countries.

 According to research firm Nielsen Koreanclick, the number of paid subscribers to Netflix in Korea reached 1.86 million as of July this year, which has increased 4.4 times in a year. In contrast, the number of paid subscribers to the seven domestic OTT services has decreased by 10.4 percent from last year. In response to the growing influence of the global OTT service, large Korean media companies are also releasing new media platforms. SK Telecom and three terrestrial television—KBS, SBS, and MBC—launched ‘Wavve’ that incorporates their previous streaming media ‘Oksusu’ and ‘POOK’. Moreover, CJ ENM that had been providing content to ‘Oksusu’, will set up a joint venture with JTBC and launch the OTT platform early next year.

 Lee Hui-joo, head of ‘Wavve’, told at a media forum that he cannot entrust Korean culture to OTT from the U.S., adding the term "cultural imperialism." As such, domestic companies explain the background of the launch, expressing concerns about Korean media contents being subordinate to foreign media platforms. In fact, Netflix blocks the secondary copyright market by requiring exclusive rights from content providers. It is also criticized for not paying network operators fees, which puts local telecommunication carriers on the shoulders of heavy traffic burdens and costs.

 Then, does Netflix have only a negative impact on the Korean industry? Not really. Fortune Korea, an economic and business magazine, said Netflix is creating a ‘backward linkage effect.’ It says Netflix will play its role as a "global content distribution channel" that expands the scope of distribution for Korean content to the global market. From TV programs and film production to animation, scenario, special effects, dubbing, music and performance industries, all areas related to video contents are experiencing ‘Netflixonomics.’ Among them, Netflix's economic effect is most evident in the content production industry.

 Sales of Korean soap opera production companies have been growing rapidly recently. According to industry sources, Studio Dragon, number one soap opera production company, overseas drama sales reached 110.6 billion won last year, escalated 64.1 percent compared to the previous year. "Studio Dragon's proportion of foreign market sales has increased from 58.7 percent in 2016 to 76.9 percent in the first quarter of 2019," said Chun Hye-sun, head of the Media & Future Institute. She described Netflix has provided a new distribution network for Chief Producers who were having trouble to find distribution channels due to China’s law that bans Korean culture including media contents.

 Furthermore, Netflix is boosting the ecosystem of the domestic content industry, triggering both the outward growth and qualitative growth in the industry. Hwang Yoo-sun, an associate researcher at the Korea Information Society Development Institute, said Netflix is providing a system that has improved problems in the country's existing production system: pre-production, setting proper production cost and payment, and systematic negotiations based on contracts. Moreover, Netflix is enlivening jobs that have received relatively less attention, such as screenplay or broadcasting writers, voice actors, stage art, and so on.

 The Korean Foundation for International Cultural Exchange suggested that local companies should actively cooperate with Netflix, which has a huge source of content demand, to secure a global distribution network. It added the Korean Wave, which used to stay in Japan, China, and Southeast Asia, is further expanding its area to the world thanks to Netflix. Unlike other streaming services, Netflix offers the same content to users around the world. Thus, it is possible to make a big hit around the world with only using Netflix, without the help of other media platforms.

 Critics of Netflix are partially right. If Korean media depend on foreign platforms, they become subject to monopoly and cannot resist its power trip or respond to the market in time. However, it is also true that Netflix has stimulated the domestic media market. There was a time when terrestrial broadcasters also abused their power on production companies, but the emergence of Netflix broke it down.

 Currently, more players are participating in the video streaming market in the world. The fierce competition between domestic and foreign companies not only boosts developing the pie in the creative industry but also increases users' options for better platforms. OTT is a highly liquid market that has low loyalty and high subscriber churn rates. This means that users are free to move, following the contents it has. Who do you think will steal users’ time?