[OTT and Disruptive Innovation] OTT Swallows Media Market... Crisis of Legacy Media like TV

OTT Represented by New Media
Domestic Market Rapidly Restructuring Around OTT

[Asia Economy Reporter Lim Hye-seon] There was a time when no cars were on the road when a drama started. If you missed it once, you had to wait for an uncertain rerun, so people even canceled appointments and went home early to 'catch the live broadcast' of the drama. This was just about 20 years ago. The way legacy media like TV interacted with viewers was through 'real-time viewing.' Popular dramas such as 'First Love,' 'Sandglass,' and 'What Is Love' recorded ratings exceeding 60%. This means that 6 out of 10 people watched the same drama at the same time. There were even battles over the TV remote between dads who wanted to watch the news and moms who wanted to watch dramas.

However, as media usage shifted from traditional television and other legacy media to the internet, interest in TV disappeared. In particular, the advent of OTT changed the landscape of the media content market. As content consumption became possible 'at the preferred time and screen in the preferred way,' people no longer waited. Television, which had dominated living rooms for over 60 years, was cornered, and media power shifted toward new media such as OTT.

OTT Representing New Media

Robert Tercek, known as a pioneer in digital media, asserted in his book "Vaporized" that "the first screen in the future will be the mobile phone." Mobile changes the media ecosystem, and all legacy media related to TV will be reorganized into a new order. Leading this trend is undoubtedly OTT. Netflix, which launched streaming services in 2007, shook the global media market.

Netflix's introduction of 'binge viewing' rendered TV's linear programming schedule powerless. Netflix, based on massive capital, relayed media content from around the world, breaking down content boundaries. It also directly engaged in film and drama production, securing intellectual property (IP) and attracting people. Netflix proved the qualitative level of its content by winning Emmy Awards for directing and cinematography with 'House of Cards.'

OTT, including Netflix, is rapidly encroaching on the paid broadcasting market. Netflix's paid subscriber households have exceeded 221 million across about 190 countries worldwide. Due to OTT's offensive, U.S. paid broadcasting experienced subscriber losses of 5.8 million and 5.5 million in 2019 and 2020 respectively, showing a continuous decline. As a result, according to U.S. TV ratings research firm Nielsen, streaming platforms accounted for 34.8% of viewing time in July, surpassing cable TV (34.4%) for the first time. According to U.S. market research firm Grand View Research, the global OTT market size is expected to expand from $50.1 billion (about 67.7 trillion KRW) in 2020 to $184.3 billion (about 249 trillion KRW) by 2027. Conversely, research firm eMarketer predicted that by 2024, more than one-third of all paid broadcasting subscribers will cancel U.S. paid broadcasting services (code cutting).

Lee Sun-mi, a researcher at KT Economic Research Institute, analyzed, "Paid OTT has a competitive advantage over paid broadcasting services because it is provided not only on fixed TVs but also on mobile devices, thus having no spatiotemporal constraints, and its fees are relatively cheaper."

The Advent of OTT Popularization

The domestic market is also rapidly reorganizing around OTT. Until five years ago, OTT was a neglected entity. Director Bong Joon-ho's film 'Okja,' produced with a 57 billion KRW investment from Netflix, is a typical example. 'Okja' broke the traditional film industry structure, which involved theatrical release followed by a holdback period (three weeks after release) before VOD service, by being released simultaneously on Netflix and in theaters, but the process was not smooth. It was accused of disrupting the film industry's ecosystem. Major multiplex chains boycotted it, and ultimately 'Okja' was screened only in about 80 independent theaters.

In 2017, Netflix's domestic subscriber count was only 100,000. As of July this year, the number of subscribers exceeds 11.17 million. The total number of subscribers to OTT services operating domestically, including Tving, Wavve, and Coupang Play alongside Netflix, is about 27 million. Considering Korea's population of 51 million, more than half are using OTT. According to the Korea Communications Commission, the domestic OTT market size grew from 192.6 billion KRW in 2014 to 780.1 billion KRW in 2020, an average annual increase of 26.3%. This year, the market size is expected to exceed 1 trillion KRW. Conversely, the domestic paid broadcasting market has already entered a mature phase, with subscriber base quantitative growth slowing down.

Do Jun-ho, professor of media studies at Sookmyung Women's University, said, "The spread of OTT shows the most dramatic restructuring movement in the recent media industry," adding, "The rise of global OTT operators, who overwhelm the content production and marketing capabilities of existing media companies, is changing the media industry's value chain and leading to significant changes in consumers' content consumption behavior." He further explained, "These changes affect almost all participants in the media industry?from terrestrial broadcasters, paid broadcasting platform operators, PP, independent producers, to film production companies?in various ways, creating different dynamics among operators compared to the existing media ecosystem. In the paid broadcasting industry, the core competencies of platform operators, such as securing consumer touchpoints and marketing capabilities, are shrinking due to the aggressive market expansion strategies of OTT operators."