As the online video service (OTT) market enters a boom, investments in IT infrastructure and content are also becoming active. / Photo by Song Hyun-do, Asia Economy intern reporter
[Asia Economy Reporter Lim Juhyung, Intern Reporter Song Hyundo] The online video service (OTT) market, which has grown rapidly due to the COVID-19 pandemic, is even changing the landscape of the IT industry. Streaming high-definition videos stably on websites requires advanced IT infrastructure, and because of this, competition among OTT companies has intensified, leading to increased technological investments. Which industries are benefiting the most in this 'OTT Warring States Period'?
Netflix also in the palm of Amazon AWS... IaaS Cloud Service
OTT companies, which must manage hundreds or thousands of video data, require massive IT infrastructure investments such as networks, computing, and data storage devices. Since it is costly for companies to build all of this themselves, most entrust management to cloud companies specializing in database services. This is called 'Infrastructure as a Service (IaaS)'.
The data of the world's largest OTT company, the US-based 'Netflix,' is managed by the IaaS provider 'Amazon Web Services (AWS)'. Naturally, AWS has grown in tandem with Netflix's revenue increase. As of last year, AWS's revenue was $62.2 billion. This accounts for about 13.2% of its parent company Amazon's total revenue, and its operating profit ratio is 74.4%. It is no exaggeration to say that AWS drives the overall performance of the Amazon Group.
Amazon Web Services (AWS), a cloud company under the US e-commerce giant Amazon / Photo by Yonhap News
Having gained IaaS expertise by managing Netflix's data, AWS provides services not only to Amazon's own OTT, Amazon Prime, but also to other major OTT companies such as Disney Plus, HBO Max, and Hulu.
Dedicated servers for streaming, Content Delivery Network (CDN)
OTT competitiveness depends on technology that streams long-duration videos like movies and dramas to customers smoothly and without interruption. According to a 2019 report by network equipment supplier Sandvine, OTT streaming videos accounted for over 60% of global internet bandwidth. This means that OTT companies must manage traffic to provide smooth service, and failure to do so could inconvenience other internet users as well.
OTT providers minimize content loading times by distributing servers across each service region. / Photo by Yonhap News
To prevent such traffic overload, OTT companies actively invest in 'Content Delivery Networks (CDN)'. CDN technology reduces the physical distance between content users and servers by distributing servers across regions, thereby shortening content loading times.
For example, if Netflix's US headquarters were to deliver videos directly to users in Korea, loading times and server bandwidth consumption would increase significantly. To solve this, Netflix pre-delivers content to 'cache servers' in Japan and Hong Kong, then streams it to Korean consumers upon request, minimizing the load.
Thanks to demand from OTT companies, the CDN market is expected to continue growing rapidly. According to market research firm MarketsandMarkets, the global CDN market size was $14.4 billion (about 16.5 trillion KRW) in 2020 and is projected to grow to $27.9 billion (about 32 trillion KRW) by 2025. The compound annual growth rate (CAGR) is 14.1%.
Currently, the domestic and international CDN markets are fiercely competitive battlegrounds between server management specialists and cloud companies. 'Akamai,' founded in 1998 by developers from MIT in the US, is a representative example, operating CDN businesses with servers in 4,233 locations across 135 countries worldwide. According to market research firm IDC, Akamai holds a 42% share of the CDN market, leading the industry. In Korea, 'CDNetworks,' established in 2000, is a representative company specializing in CDN business for internet content delivery based in Korea, Japan, and China.
Meanwhile, existing cloud companies like AWS and Microsoft Azure have entered the CDN market by offering comprehensive solutions that combine data management and content delivery services. AWS has built a CDN called 'CloudFront,' and Azure also operates its own server business called 'Azure CDN.'
OTT Investment Funds Pouring into the Content Industry
The industry benefiting from the OTT boom is not limited to the IT sector. OTT companies develop their own 'original content' that competitors cannot access to maintain loyal customers and attract new ones. Because of this, OTT companies pour massive investments into independent studios and the video production industry.
For example, after the success of the drama 'Squid Game,' Netflix has become a major player in the Korean content market. Last year alone, Netflix invested 550 billion KRW in content production in Korea, a level comparable to the annual production costs of domestic terrestrial broadcasters.
Domestic OTT companies competing with Netflix are also accelerating content investments. KT, the number one IPTV provider in Korea, announced plans to invest 400 billion KRW in content by 2023. The drama 'Extraordinary Attorney Woo,' which sparked the Woo Young-woo syndrome this year, is also a fruit of KT's original content investment.
Another domestic OTT, Wavve, plans to invest more than 80 billion KRW in content production this year and will pour 1 trillion KRW by 2025 to establish a separate production company and produce independent content.
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