While K-content is enjoying global popularity, the domestic content industry cannot simply smile. Production costs are soaring due to rising expectations for content and increased labor costs, but the tax credit rates are disproportionately low compared to major advanced countries, leading to a loss of reinvestment capacity. The industry voices that to strengthen domestic content competitiveness and establish a virtuous ecosystem, tax benefits should be increased to at least half the level of advanced countries.
On the 4th, the global content industry forecasted that the Writers Guild of America (WGA) strike, triggered by issues of AI-related writer rights infringement, will serve as a major turning point for future content production activities. There is an expectation that the center stage of the global content and film industry will shift from 'Hollywood' to a global scale.
The basis for this outlook lies in strong tax support by country. Overseas advanced countries are competitively raising tax credit rates for content production to foster their domestic content industries and create jobs.
This year, the UK raised its rate from 25% to 34%, and Spain also increased its credit rates to 30% for foreign content and 25% for domestic content. Australia and Canada have credit rates reaching up to 40%. These countries are known to have actively promoted tax benefits and engaged individually with writers and production companies during the period when content production in the US was halted due to the strike, aiming to attract content production.
In contrast, South Korea is struggling not only to attract global content production but also to supply domestic content. The average production cost of domestic commercial films (net production cost over 3 billion KRW) more than doubled from 5.3 billion KRW in 2015 to 12.4 billion KRW last year due to rising labor costs, but the production cost tax credit rate is only about one-tenth (3% for large companies, 7% for mid-sized companies, and 10% for small companies), leaving no room for reinvestment.
Disney's "The Little Mermaid," which had a production cost of 322.4 billion KRW, is estimated to have received about 80.6 billion KRW back assuming the 25% US tax credit rate. However, if "The Little Mermaid" had been produced domestically, it would have received only about 9.6 billion KRW back based on the 3% credit rate for large companies.
The performance of the three leading domestic OTT companies also continues to deteriorate. Tving recorded an operating loss of 119.1 billion KRW in 2022, Wave posted a deficit of 21.3 billion KRW during the same period, and Watcha also reported a loss of 55.5 billion KRW. The combined losses of the three companies last year reached 286.9 billion KRW.
Domestic industry players and experts are concerned that if the tax credit rates, which are disproportionately low compared to competing countries, are not raised, the production of films and dramas in Korea will significantly decrease. To overcome this, they are calling for raising the credit rates to about 15% for large companies, 15% for mid-sized companies, and 20-25% for small companies.
Kim Yong-hee, a research fellow at Open Route, said, "It is not just about production cost refunds but a way to preserve investment returns. When investing heavily in content, if a certain level of profitability is maintained, bold investments can be made."
The government is also showing signs of expanding tax support by reflecting the industry's voices, but progress remains sluggish. The Media and Content Industry Convergence Development Committee, an advisory body under the Prime Minister, reviewed the expansion of content tax credits as a key task during its first and second meetings held last month, but has yet to produce any significant results.
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