Discussion on 'Current Status and Sustainable Growth Challenges of the Domestic OTT Industry' Held
Participants of the 'Current Status and Sustainable Growth Challenges of the Domestic OTT Industry' are taking a commemorative photo.
[Asia Economy Reporter Oh Su-yeon] "If the keyword for 2022 was growth, then 2023 is survival."
As content production costs continue to rise daily, the offensive from global OTTs is intensifying. On top of this, with the economic downturn causing companies to tighten their investment budgets, domestic online video service (OTT) providers are facing deep concerns. The OTT industry is calling for active government support to survive competition with global OTTs.
On the 12th, Lee In-young, a member of the Democratic Party of Korea, and the Korea OTT Forum jointly hosted a discussion titled "The Current State and Sustainable Growth Tasks of the Domestic OTT Industry."
Yoo Geon-sik, director of the KBS Public Media Research Institute, stated in his presentation, "Production costs will be the key factor that changes the order of the media market," expressing concerns about the deteriorating profitability of the domestic OTT industry. Yoo said, "Original content production is continuously increasing, and production costs are rising every year. The problem is that profitability is very low. Overseas, except for Netflix, all are operating at a loss. I heard that domestic OTTs’ deficits increased compared to last year. However, since the trend is moving toward original content, OTT investment cannot be stopped."
In the subsequent comprehensive discussion, major OTT operators also voiced difficulties caused by rising production costs.
Ko Chang-nam, director of TVING, named "survival" as the keyword for the OTT industry next year and urged active government support. He said, "This year, we invested about 200 billion KRW in original content production. We acted to grow this year, but it was all cost," adding, "In 2021, the deficit was 70 billion KRW, and this year it will exceed that amount. Next year looks even more bleak." He also stated, "For K-OTT to survive, direct support is urgent. While indirect support such as the voluntary rating system has helped operations so far, it is necessary to increase the scale of tax benefit support and establish a large-scale content investment fund exceeding 100 billion KRW."
In fact, domestic OTTs continue to run deficits while bearing enormous content acquisition costs. Last year, TVING recorded sales of 131.5 billion KRW with an operating loss of 76.2 billion KRW, and Content Wave posted sales of 230.1 billion KRW with an operating loss of 55.8 billion KRW. Wavve’s operating expenses were 286 billion KRW, with 145.2 billion KRW, nearly half, being CP settlement fees. For TVING, operating expenses were 297.8 billion KRW, with content usage costs at 70.7 billion KRW and commission fees at 40.5 billion KRW.
To cope with the ever-increasing content costs, global expansion has become not a choice but a necessity. Participants emphasized the need for a control tower to systematically support global expansion.
Im Seok-bong, JTBC’s media policy officer, said, "The Netflix series 'Suriname' was produced by a JTBC affiliate, with a production cost of 5.5 billion KRW per episode. Production costs have increased exponentially," adding, "As production costs rose, quality improved and it began to be recognized overseas, but it is worrisome whether the domestic market can continue to bear these production costs." Im said, "In the past, content was produced to fit a market of 50 million people, but now it has to be made globally," and added, "For industry promotion, it would be good to create an organization like KOTRA to support global content expansion."
Professor Lee Sang-won of Kyung Hee University said, "To realize economies of scale in content, it is necessary to link localization strategies with trade and diplomatic strategies, such as diplomatically supporting overseas expansion, helping build distribution networks, or expanding tax credits."
There were also opinions that delicate support and regulation tailored to the situations of domestic and global OTTs are needed. Regulations aimed at global OTTs often affect domestic OTTs that are still in the growth stage. An example is the proposed amendment to the Copyright Act, which guarantees the right for content creators to claim compensation proportional to revenue from broadcasters, theaters, OTTs, etc., even if they transfer intellectual property rights (IP).
Lee Hee-joo, director of Content Wave, said, "Using Netflix’s 'Squid Game' as an example to talk about additional compensation claims sounds like applying the claim right to all OTT services from the perspective of K-OTT," adding, "Like the European case that drew a line based on revenue structure, I hope policies distinguish between global OTTs and K-OTT and implement appropriate measures."
Government ministries also expressed sympathy for the survival concerns of the domestic OTT industry. Lee Dong-jung, director of the Broadcasting Promotion Planning Division at the Ministry of Science and ICT, said, "The industry’s most urgent request for an increase in content tax credits seems difficult this year. Since OTT content will be eligible for tax credits for the first time next year, the Ministry of Economy and Finance is cautious, saying it cannot be satisfied at the first attempt and asks for patience," adding, "We will work with the Ministry of Economy and Finance to relax cost deduction requirements in subordinate laws to ensure practical tax credit benefits."
Lee Heon, director of the Broadcasting Policy Planning Division at the Korea Communications Commission, said, "The need to reform the media regulatory system has been raised for a long time, but the current stalemate is a reality we feel responsible for. We will disclose an integrated legislative proposal soon and gather opinions."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
