[OTT and Disruptive Innovation] Netflix Recognized K-Content First... Investors Bringing Big Money

The Changing Landscape of Korean Content by Netflix
Busy Production Companies Amid Domestic and Global OTT Platform Competition
Love Calls from IB Industry to Small and New Enterprises

On the 31st, citizens are visiting a booth related to the drama Extraordinary Attorney Woo at the international broadcasting and video market 'BCWW (BroadCast WorldWide) 2022' held at Dongdaemun Design Plaza in Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Cha Min-young] Despite the global stock market downturn, domestic content production companies are showing strong momentum. From June 29, when the drama "Extraordinary Attorney Woo" began airing, until August 31, the stock price of the production company AStory surged by 38.7%. Considering that the KOSDAQ index rose by 5.9% during the same period, this significantly outperformed the market return. The success of the drama Woo Young-woo has also increased expectations for the production companies holding the Woo Young-woo intellectual property (IP).

If the content is good, it gets rewarded... K-Content draws global attention

In the second half of 2022, despite the bleak market conditions, the Korean content production industry maintains a relatively hopeful atmosphere. This contrasts with Netflix, which had recognized the potential of K-content early on with hits like "Squid Game" last year and has been steadily investing, but is now showing sluggish performance in the post-COVID environment. Celebrating its 25th anniversary this year, Netflix has faced unprecedented crises, even considering an ad-supported business model due to declining subscribers. Professor Lee Byung-min of Konkuk University's Department of Cultural Contents stated, "In the past, securing a channel like Netflix felt like a condition for success, but nowadays, with more diverse criteria for selecting works, the production industry has come to realize that if a work is competitive, it can succeed anywhere in the world."

The primary driver increasing the value of the domestic content production industry is the competition among domestic and international over-the-top (OTT) service providers to acquire content. Overseas platforms such as Netflix, Disney Plus (+), and Apple TV+ are competing alongside domestic services like TVING, Wavve, Watcha, Season, and Coupang Play. Netflix announced plans to produce 25 Korean series domestically this year, exceeding last year's investment of 550 billion KRW for 15 series. Assuming the same investment amount as last year, this is estimated at about 920 billion KRW. Wavve has declared plans to invest 1 trillion KRW in content by 2025, and CJ ENM announced a 5 trillion KRW investment over the next five years. Newcomer Coupang Play, which recently gained subscriber attraction with the Suzy-led "Anna," has also secured licenses for major productions such as "Hansan" and "Emergency Landing."

The production industry, which was previously focused on poor subcontracting, has evolved in line with market changes. Companies now come to the negotiation table holding IP that can generate secondary and tertiary added value. While it is not new that excellent IP leads to high added value, the one-source multi-use (OSMU) approach has become mainstream, making it common for a well-made drama to be reborn as a movie, webtoon, music, or game. The drama Woo Young-woo has also been developed into a webtoon on Naver Webtoon since July 27, a month after its first broadcast. This webtoon ranked first in new releases and was included in the top 30 weekly female reader rankings. Holding IP allows producers to recover production costs through overseas pre-sales of broadcasting rights even if the work fails domestically.

Investment increased 4.4 times in 2 years... General investors also invest indirectly via ETFs

As the potential of K-content is recognized worldwide, investment industry love calls continue. According to Startup Alliance's content & social sector investment data, investments steadily increased from 326.1 billion KRW in 2020 to 600.4 billion KRW in 2021, and 835.8 billion KRW as of July 2022. On a monthly average basis, this year’s 119.4 billion KRW is 4.4 times higher than 27.2 billion KRW in 2020. The number of general investors engaging in indirect investment through exchange-traded funds (ETFs) composed of media and entertainment stocks has also increased.

Content is a popular sector among private equity funds and venture capital (VC) as well. Imagineus, a newly established company founded by Choi Jin-hee, known as the "Midas touch" of drama production and former CEO of CJ-affiliated Studio Dragon, received a 50 billion KRW investment from J&PE in June. Westworld, a 5-year-old company specializing in visual effects (VFX) that started in 2018, secured a 20 billion KRW Series A investment from IMM Investment in May. Studio LuluLala JoongAng (formerly JTBC Studio·SLL) reportedly raised a total of 400 billion KRW in external funds through pre-IPO equity investments in the second half of 2020. SLL is said to be seeking additional investments recently.

However, there are subtle changes detected in the content industry compared to the peak boom during 2020-2021, which benefited from COVID-19. A production company CEO said, "Compared to the overall market atmosphere, the content market has more work orders than manpower," but added, "Since OTT and other channels are facing difficulties and the funding market is not smooth, the content industry is considering reducing the number of productions, increasing production costs per work, or improving the efficiency of fund execution."