Tax Credit Announced a Year Ago Still 'In the Dark'... Native OTT Platforms Growing Impatient

[Asia Economy Reporter Seulgina Jo] South Korea's native online video service (OTT) development policy has yet to take its first step.

The pan-government OTT promotion policy, which planned to expand tax credits for OTT content production costs and grant a self-rating system in line with the rapidly growing market, has been stalled in the National Assembly for a year since its announcement. If this continues, there are growing concerns that the country will miss the optimal timing for OTT growth, allowing overseas OTT platforms like Netflix to dominate the domestic market and reducing Korean content to a subcontracting base.

According to the related industry on the 17th, the "Telecommunications Business Act Amendment," which contains the legal basis for OTT support, has been pending in the National Assembly's Science, ICT, Broadcasting and Communications Committee (Science and ICT Committee) Subcommittee 2 for five months. This bill, proposed by the Ministry of Science and ICT on February 10, defines OTT as a "special type of value-added telecommunications business operator." This is a follow-up measure to the "Digital Media Ecosystem Development Plan" jointly announced by related ministries last June.

One year ago, through the Digital Media Ecosystem Development Plan, the government decided to expand the current production cost tax credit applied to film and broadcasting content to OTT and to grant a self-rating system for OTT content without going through the Video Rating Board. The goal was to nurture at least five global OTT platform companies.

To implement the OTT support policy, it is urgent to first clarify the legal status of OTT through the amendment of the Telecommunications Business Act, but it has been blocked in the National Assembly without progress. This is why Minister Lim Hyesook of the Ministry of Science and ICT cited the Telecommunications Business Act amendment as a law that must be urgently processed during the Science and ICT Committee's plenary meeting yesterday. Some criticize that political logic, such as the TBS audit request rights, is causing friction in the Science and ICT Committee, preventing proper discussion of the bill.

The "Restriction of Special Taxation Act Amendment," which expands the production cost tax credit to OTT, can only be possible after the legal basis for OTT is established. On December 2 last year, the National Assembly passed a supplementary opinion during the plenary session, instructing to prepare the legal basis for OTT and the tax credit plan for OTT content production costs upon the passage of the Special Taxation Act amendment. Previously, Rep. Choo Kyung-ho of the People Power Party proposed a partial amendment to the Special Taxation Act, but the Ministry of Economy and Finance acknowledged the necessity of introduction while drawing a line due to the lack of legal basis for OTT. The Ministry of Culture, Sports and Tourism also plans to propose an amendment to the "Act on the Promotion of Films and Videos," which introduces a self-rating system based on the amendment of the Telecommunications Business Act. This bill was announced for legislative notice on the 24th of last month.

With the COVID-19 pandemic accelerating the rapid growth of the borderless global OTT market, global expansion has become essential for domestic OTT companies such as Wavve, Watcha, and TVING. However, concerns are rising that domestic OTT platforms are losing ground to OTT giants like Netflix and Disney Plus, which have enormous capital power. There are also concerns that the Korean content industry is becoming dependent on global OTT platforms as the reliance on global OTT for content production costs surpasses the domestic market size.

Moreover, contrary to the government's declaration to nurture at least five global OTT platforms, the principle of "minimal regulation" is fading, and conflicts are intensifying due to competition for OTT leadership among the Ministry of Science and ICT, the Korea Communications Commission, and the Ministry of Culture, Sports and Tourism. An industry insider said, "To respond to global OTT and secure competitiveness, OTT policies need nurturing support rather than strong regulation," adding, "To proceed with OTT support policies in a timely manner, the National Assembly must speed up the legislative process."