[Inside Chodong] Global OTT Contracts: Avoiding Short-Term Gains, Long-Term Losses

Limitations of the Existing Model: Full Production Cost Support and Daily Revenue No Longer Enough
"If Monopoly Solidifies, Domestic Platform Companies Will Disappear and the Content Industry Will Shrink"

[Image source=AP Yonhap News]

The Walt Disney Company's online video service (OTT), Disney Plus (+), will launch in South Korea in mid-November. The preparations have already begun. It has stopped supplying VOD content to the three major domestic Internet TV (IPTV) providers in the first half of the year. It also signed a five-year content supply contract with NEW, the parent company of Studio&New, which produced dramas such as "Descendants of the Sun" and "Chief of Staff: The People Who Move the World." Original domestic content like "Grid" and "Moving" will also be produced.

The competition for market share in the OTT sector is expected to intensify. Netflix, as well as TVING, Wavve, and Watcha, are all increasing their own productions to secure content competitiveness. Large-scale investments have also been announced. The strategy is to expand the lineup of movies and drama content to capture market share. The production industry cannot help but welcome the increase in work. However, recently, a producer said, "I will never make global OTT original content again." The reason was that intellectual property rights (IP) belong to the OTT, not the production company. "Only a certain level of profit is guaranteed, but all IP must be surrendered. It's like the bear does the trick, but the money goes to the bad guy. Even if good results are achieved, nothing can be expected."

[Image source=Yonhap News]

There have been concerns that the production industry could become a content production base for global OTTs. This is because most contracts are structured around recovering production costs and profit sharing of around 10%. Additional profits from broadcasting rights, remake rights, etc., cannot be expected. Bae Dae-sik, Secretary General of the Korea Drama Production Association, pointed out, "Overseas expansion is important, but it is a serious problem that global OTTs monopolize IP. This is not just a problem for small and medium-sized production companies. Almost all production companies are in the same situation."

The exclusive position was similar for broadcasters in the past. Production companies gradually raised their voices and secured IP. However, with the advent of the OTT era, they are retreating by handing over more rights. This is related to the inherent limitation of high dependence on overseas markets. Production companies cannot cover high production costs with the domestic market alone. They need to generate profits through overseas rights. The targets used to be Japan or China, but now it is global OTTs. Oh Seung-jun, head of KeyEast, said, "We are a fairly large production company, but in the money game, we cannot help but fall behind OTTs. If the content is successful, I think we should at least receive a level of reward that allows us to continue the next work."

[Image source=AP Yonhap News]

New contracts should also consider business diversification, which is currently centered on recent content. Netflix launched the "Netflix Shop" in June, selling its own planned products. Although it is currently only available in the U.S., the service will be extended to other countries within a few months. Netflix also officially announced its entry into the gaming business in its Q2 earnings report in July. This signals a shift in the competition for time occupancy from video content to comprehensive entertainment content.

Imagine Netflix's movie "Space Sweepers" being made into an online game. If the contract terms are no different from other content, the producer, Bidangil, would not receive a single penny. The same applies even if the business expands to amusement parks, comics, clothing, characters, etc. Multiple production insiders agreed, "Contracts must consider the high added value of content to minimize the risk of being reduced to contract manufacturing." "If the current global OTT monopoly solidifies with Disney+ joining, domestic platform companies will disappear, and the content industry will also shrink."

Drama 'Jirisan' still cut

There are signs of change. AStory, which produced the Netflix original "Kingdom" series, is starting to produce its own IP content beginning with the new work "Jirisan." They have already recovered the production costs of "Jirisan" solely through domestic broadcasting rights and overseas distribution rights. Studio&New, which started OTT content production this year, is also building a stable revenue model by securing IPs such as "The Witch: Part 2." They must have felt clear limitations in the existing model, which involved receiving full production support and additional daily revenue.