[2020 National Audit] Is Netflix's Free Network Facing a 'Crossfire'?

Comprehensive Audit by the Korea Communications Commission on the 23rd
Netflix Executives to Appear
Focus Expected on Free-Riding on Networks Questions

[Asia Economy Reporter Koo Chae-eun] At today's comprehensive audit of the Korea Communications Commission, the issue of Netflix, the 'content giant' and 'traffic hippo,' using free networks is expected to be the biggest point of contention.

The so-called 'Netflix Act,' which aims to prevent content providers (CPs) from free-riding on networks, is currently preparing enforcement ordinances, and there is also a fierce legal battle between SK Broadband and Netflix over network usage fees.

According to the industry on the 23rd, Yeon Joo-hwan, team leader of Netflix Services Korea, will attend the KCC audit. Reginald Sean Thompson, CEO of Netflix Services, who was requested to appear by the Science, ICT, Broadcasting and Communications Committee, submitted a letter of non-attendance citing "residence in the U.S. and the need to undergo quarantine procedures" as reasons for not attending.

As a witness, Team Leader Yeon Joo-hwan is expected to face concentrated questioning from the committee members regarding the issue of free-riding on network usage fees.

Netflix generates massive traffic domestically but has not paid network usage fees in Korea, sparking controversy over 'free network usage.' However, since no executive from the headquarters is attending, it is unlikely that responsible answers regarding Netflix's internal policies will be expected.

As of the end of September, Netflix has about 3.3 million paid subscribers in Korea, doubling in one year. In particular, since 2015, it has invested $700 million (approximately 790 billion KRW) in Korean content and is currently providing over 70 Korean dramas and movies worldwide. However, despite generating enormous traffic domestically, it has not paid network usage fees, leading to claims of unfair discrimination against domestic companies. Naver pays about 70 billion KRW annually, and Kakao pays about 30 billion KRW in network usage fees to domestic telecom companies. Netflix is currently engaged in litigation with SK Broadband over the payment of 'network usage fees.' The amendment to the Telecommunications Business Act, which imposes network quality obligations on content providers, is known as the 'Netflix Act,' and enforcement ordinance preparations are underway.

Meanwhile, Netflix announced in its Q3 (July-September) earnings report that as of the end of September, the total number of paid subscribers worldwide reached 195 million, an increase of 2.2 million from the previous quarter. This already surpasses the annual increase of 27.8 million in 2019. Of the new paid subscribers added in Q3, 46% came from the Asia-Pacific region.