[OTT and Disruptive Innovation] How to Sustain Growth in the Domestic OTT Market

Competition with Overseas OTTs, Tax Credit Support Must Be Expanded

[Asia Economy Reporter Lim Hye-seon] "An effective tax credit system must be introduced to support content production."

As K-content is gaining attention in the global market, voices are emerging that urgent improvements are needed in the system that has hindered the growth of the online video service (OTT) industry, including expanding tax credit support to secure global competitiveness.

The production cost of the drama 'WandaVision,' released on Disney Plus last year, was 266.4 billion KRW. The production company Marvel Studios received a tax credit of around 20%, saving more than 60 billion KRW in production costs. If 'WandaVision' had been produced in Korea instead of the United States, it would have received a 3% tax credit, resulting in a refund of 8 billion KRW. This is a difference of more than seven times.

Professor Kim Yong-hee of Dongguk University Graduate School of Film recently stated at a seminar, "To revitalize global content production, it is necessary to introduce a system at the level of advanced countries to increase the production willingness of domestic content companies," adding, "In the case of the UK, tax relief benefits have led to increased tax revenue due to future industry revitalization and sales growth."

The Korean government decided in the tax reform plan announced last July to expand tax credits for video content production costs to the OTT sector. However, the tax credit rates remain the same as before: 3% for large corporations, 7% for mid-sized companies, and 10% for small businesses. There is a significant difference in credit rates depending on company size, and the amounts are small. Looking at overseas tax credit rates, the US offers 20-35%, Australia 16-40%, the UK 20-25%, and France 30%, showing no significant difference relative to company size.

On the 18th, Ahn Jeong-sang, Senior Specialist of the Democratic Party of Korea, stated in an analysis report titled "Improvement Plan for Tax Credit System Supporting Video Content and OTT Content Production," "There is a need to introduce an effective tax credit system to support content production," and analyzed, "At minimum, the tax credit rate should be raised from 10% to 15% for large corporations, from 7% to 15% for mid-sized companies, and from 10% to 20% for small businesses to realize the value of tax credits for revitalizing video content production."

The OTT industry's long-awaited OTT self-rating system (voluntary rating system) has passed the full meeting of the National Assembly's Culture, Sports and Tourism Committee. If it passes the Legislation and Judiciary Committee and is approved in the plenary session, the 'voluntary rating system' will be introduced. The industry views this positively as it allows them to classify viewing ratings independently and provide services quickly.

Until now, OTTs had to undergo a pre-rating classification procedure from the Korea Media Rating Board to showcase content. This process often took more than a month. Overseas, OTT voluntary rating systems are already in operation. An OTT industry official said, "If the voluntary rating system is implemented, the speed of content supply will increase," adding, "While the introduction of the voluntary rating system itself is welcome, making the status of voluntary rating system operators a designation system rather than a notification system could act as a new regulation."