[Square] To Save Korean OTT, Tax Benefits Should Also Apply to Production Investment

The National Assembly has passed an amendment to the Telecommunications Business Act that defines OTT services as value-added telecommunications services providing video content through information and communication networks, thereby establishing a basis for tax support for OTT companies.

Tax support for video content was previously only provided for broadcasting and film content. Overseas, OTT companies also receive tax benefits. This is why domestic OTT operators have consistently requested tax support from the government and the National Assembly. During the recent presidential election, both ruling and opposition parties announced media-related pledges, and now the first step has finally been taken.

Tax support is a system with various advantages. Government support can be divided into direct and indirect support. In the case of direct support, only a relatively small number of operators can be supported, which can lead to competition among operators for support. However, since the results of the support are clearly visible, it is effective to measure outcomes and easier to prepare follow-up support policies.

On the other hand, indirect support such as tax benefits can be provided to a broader range of recipients without competition. Anyone who meets the requirements can receive the benefits. In a way, it guarantees a certain level of return to content investors, which also serves as a motivation for them to decide to invest with a higher probability.

Expanded content investment through this has a significant ripple effect not only on the media industry but also on related industries such as tourism and beauty. There is even research showing that the domestic related industry effect derived from BTS topping the Billboard charts exceeds 1 trillion won. However, tax credits are targeted at businesses that pay corporate tax, so there is a drawback in that support for struggling operators who do not generate operating profits is insufficient.

Due to the many advantages of indirect support, various countries provide tax benefits for content production in diverse forms. Although the methods of tax support vary slightly by country, typically about 20-30% of content production costs are supported through refunds or reductions. Countries such as the United States, France, New Zealand, and the United Kingdom support companies regardless of their size to maintain the competitiveness of their domestic media industries.

The problem is that the current government tax support benefits for video content are limited to direct content production. OTT operators can receive tax benefits if they produce content themselves, but if they outsource content production to external studios, they cannot obtain tax benefits. Since tax credits are only given for direct production, the benefits go to the production companies rather than the OTT operators who invested in content production.

In particular, recently, in the form of 'exclusive works,' OTT operators bear 100% of the total production costs while specialized external production companies only handle content production. Considering this situation, many overseas countries provide tax benefits not only for actual content production costs but also for production investment costs according to the investment ratio of OTT operators.

The reason why various government ministries and the transition committee are working to grant legal status to OTT is to help domestic OTTs struggling against global giants like Netflix. Under the current system, benefits go only to content production companies, and OTT operators inevitably remain in difficulty. Since content production is outsourced but decision-making and investment for content production are made by platform operators including OTTs, policy consideration reflecting this is necessary.

Kim Yong-hee, OpenRoute Senior Advisor