[The Editors' Verdict] The Dilemma of Raising Content Usage Fees

Seong-Yeop Lee, Professor at Korea University Graduate School of Technology Management and Director of the Technology Law Policy Center

We receive broadcast content through paid broadcasting platforms such as cable and IPTV. In this process, paid broadcasting platforms deliver programs from content providers like tvN to subscribers and collect subscription fees, a portion of which is paid to content providers as content usage fees.

However, conflicts between the two parties have repeatedly arisen over the appropriate scale of content usage fees. In February, CJ ENM demanded a usage fee increase of more than 25% compared to the previous year from the IPTV industry, but the IPTV industry rejected this. In June, negotiations with LG Uplus broke down, resulting in the suspension of U+mobiletv live broadcasts.

Underlying these conflicts is the issue of limited resources amid rising costs. While mobile advertising is increasing, the main source of funding?the broadcasting advertising market?is stagnating, whereas content production costs are rising due to increased salaries of lead actors and others.

Content providers want to increase the content usage fees they receive from paid broadcasting platforms, but they are also facing difficulties. Due to low subscription fees?less than half the OECD average average revenue per user?and the code-cutting phenomenon caused by the market expansion of OTT services like Netflix, the situation is challenging.

Since 2008, the government has required cable operators to pay at least 25% of broadcasting reception fees as content usage fees as a condition for license renewal. Currently, proposals are based on the previous year's usage fees, content evaluation, and negotiation items. As conflicts continue, the government has formed a council to discuss improvements in the calculation of broadcasting channel fees.

A recently discussed alternative is fee rationalization. To break the vicious cycle of low fees, low content fees, low content investment, declining content quality, and low user satisfaction, fee increases are considered necessary.

However, it is not easy to raise fees amid increasing platform competition pressure due to the spread of OTT services, and the government is also reluctant to accept fee increases that would increase the burden on the public. Additionally, the practice of “pre-supply and post-contract,” where content is supplied to platforms before contracts are signed, has been criticized as disadvantageous to content providers because it is similar to delivering goods without knowing their price. Although “pre-contract and post-supply” is being discussed, there is criticism that this could make channel entry difficult for small and medium-sized operators rather than large operators.

Although it is difficult to find a solution that everyone agrees on, there is a consensus that, in principle, government intervention in price setting between operators in a market economy is inappropriate. Rather, it is necessary to significantly ease regulations so that operators can compete in the internet convergence market. Creating a competitive foundation through the relaxation of various ownership, cross-ownership, and advertising regulations is important.

The outlook for the broadcasting market is very uncertain. Nevertheless, there is concern that our broadcasting market and regulations are becoming isolated islands, locking the gates under the pretext of public interest while ignoring the digital transformation.

Seong-Yeop Lee, Professor at Korea University Graduate School of Technology Management and Director of the Technology Law Policy Center