Growth Slows Amid COVID-19 Endemic... Rethinking Revenue Models
[Asia Economy Reporter Oh Su-yeon] Video streaming companies that enjoyed a COVID-19 boom are seeing their growth slow down as the world shifts to an endemic phase, prompting them to seek self-help measures.
According to industry sources on the 30th, Twitch announced on the 29th that it will lower video quality from a maximum of 1080p to 720p due to increased network fees and other costs.
In a blog notice, Twitch stated, "To find a new solution to continue operating services in Korea, starting September 30, we will adjust the original video quality for Korean viewers on channels where transcoding (quality adjustment) is provided."
As the reason for the quality adjustment, Twitch explained, "While continuing to comply with local regulations and requirements in Korea and faithfully paying all network fees and other related costs, the cost of operating services in Korea has been steadily increasing and is expected to continue. Therefore, a new solution is necessary to maintain service operations within Korea."
Although the company did not specify the exact reasons for the cost increase, it is interpreted as an attempt to reduce the burden by limiting video quality due to rising network usage fees.
Recently, seven bills related to network usage fees have been proposed in the National Assembly, aiming to mandate global content providers (CPs) that generate excessive traffic to enter into contracts regarding network usage fees with domestic internet service providers (ISPs).
However, industry insiders believe that the burden from network usage fees is only a superficial reason. An industry official said, "Twitch uses Amazon Web Services (AWS), its parent company Amazon's cloud service. Does that mean AWS is expensive? The reason for cost reduction seems to be related to the business model, not network usage fees. After COVID-19 ended, people no longer watch TV or video platforms at home as much as before."
Earlier, on the 21st, Twitch also adjusted the revenue-sharing ratio with creators. Previously, creators and Twitch split the sponsorship amount 30:70, but starting June next year, if earnings exceed $100,000 (approximately 143.4 million KRW), the split will be 50:50.
With the start of the endemic phase and increased outdoor activities, streaming companies that enjoyed a COVID-19 boom in 2020-2021 are struggling with deteriorating profitability.
According to the Consumer Insight "2022 First Half Mobile Communication Planning Survey Report," the paid usage rate of domestic online video services (OTT) in the first half of last year was 61%, increasing by only 2 percentage points compared to the previous half. Considering that the paid usage rate increased by 9 percentage points in the second half of 2021 compared to the previous half, the growth rate has slowed.
A representative example is Netflix, the world's number one OTT. Netflix recently experienced a decline in subscribers for the first time in 11 years. In the first quarter, it lost 200,000 subscribers, and in the second quarter, 970,000, bringing the total to 220.7 million.
Netflix is focusing on securing profitability by introducing an ad-supported plan. In a shareholder letter last July, Netflix announced it would launch a new ad-supported service early next year. Foreign media such as The Wall Street Journal (WSJ) reported that Netflix plans to launch the ad-supported plan in November. Additionally, Netflix is exploring new revenue sources beyond video content, such as establishing its fourth game studio in Helsinki, Finland, on the 26th.
Domestically, Season merged with TVING, and Watcha is facing difficulties in attracting investment, sparking rumors of a sale.
YouTube's advertising revenue growth is also slowing down recently. YouTube's ad revenue reached $19.772 billion (approximately 28 trillion KRW) in 2020, a 30.5% increase from the previous year. Last year, it surged 45.9% to $28.845 billion (approximately 41 trillion KRW). However, in the first half of this year, it only increased 9.2% year-on-year to $14.29 billion (approximately 20 trillion KRW). YouTube has decided to introduce ads on its short video 'Shorts' service starting next year.
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