"Unprecedented Event"... Growing Concerns Over Domino Effect of Home Shopping 'Blackout'

CJ OnStyle, Hyundai Home Shopping, Lotte Home Shopping Notified of Broadcast Suspension

Conflicts are intensifying between home shopping companies and pay-TV operators over TV transmission fee negotiations. Major home shopping channels such as Lotte Home Shopping, Hyundai Home Shopping, and CJ OnStyle have even pulled out the card of suspending broadcasts on cable TV operators. They mean that if the fees are not lowered, they will stop broadcasting, raising concerns in the industry that a blackout could become a reality due to the significant gap between the two sides' positions.

CJ OnStyle broadcast scenes and studio on-site photos. [Photo by CJ OnStyle]

According to the home shopping industry on the 28th, CJ OnStyle notified LG HelloVision that it will suspend broadcast transmission after the end of next month. CJ OnStyle stated, "As the basic negotiation period specified in the government's ‘Home Shopping Transmission Fee Guideline Amendment’ has ended, we are proceeding with contract termination procedures," adding, "Broadcast transmission is expected to be suspended as early as October."

Earlier, Hyundai Home Shopping also notified LG HelloVision of its intention to suspend broadcast transmission. If the suspension becomes a reality, viewers watching pay TV through LG HelloVision in 23 areas including Seoul (Yangcheon-gu, Eunpyeong-gu), Gyeonggi (Bucheon, Gimpo, Uijeongbu, Yangju, Dongducheon, Pocheon, Yeoncheon), Gangwon, Chungnam, and Gyeongbuk will no longer be able to watch CJ OnStyle and Hyundai Home Shopping. The number of LG HelloVision subscribers in these areas is 3.68 million households.

Lotte Home Shopping recently announced that its broadcast transmission contract with D'Live Gangnam Cable TV has ended, and broadcasts will cease from 0:00 on October 1. GS Home Shopping has stated that it will seek a consensus through additional negotiations with cable TV operators.

The reason major home shopping companies decided to suspend broadcast transmission is that negotiations over the transmission fee ratio with cable TV operators did not proceed smoothly. Transmission fees are channel usage fees that home shopping companies pay to pay-TV operators. Home shopping companies and cable TV operators negotiate the transmission fee ratio annually, but this year the negotiations did not go smoothly. Home shopping companies argue that the transmission fees are excessively high, making it difficult to sustain their businesses, and demand fee reductions, while cable TV operators oppose fee reductions because most of their revenue comes from home shopping transmission fees.

In fact, last year's transmission fee scale was 1.9065 trillion won, a 33.3% increase compared to 2018 (1.4304 trillion won). According to the Korea TV Home Shopping Association, transmission fees have increased by an average of 8% annually, and last year accounted for nearly 65.7% of broadcasting sales revenue.

On the other hand, the performance of home shopping companies has sharply declined. In the second quarter of this year, the combined operating profit of the top four home shopping companies (Hyundai, GS, CJ, Lotte) was 56 billion won, down by half (47%) from 106.5 billion won a year ago. A home shopping industry insider said, "There is a huge gap between the operating profits of home shopping companies and the fees paid to pay-TV operators," emphasizing, "It feels like we are working hard in business only to bring money to pay-TV operators."

Industry insiders say that the decision by major home shopping companies to suspend transmission is an unprecedented situation. Although there have been past cases where negotiations with pay-TV operators, including cable TV operators, broke down, there has never been a case where transmission suspensions were notified in succession. Moreover, there has never been a case where suspension notices were issued directly to consumers. According to the ‘Home Shopping Broadcast Channel Usage Contract Guidelines,’ broadcasters must inform viewers of scheduled broadcast suspensions at least one month in advance via their websites, social media, or text messages. On the 21st, Lotte Home Shopping posted a notice regarding the suspension of broadcast transmission, asking for understanding from viewers in the affected areas.

However, some argue that it is necessary to wait and see whether a blackout will actually occur. Considering consumer inconvenience and revenue losses from broadcast suspension, it is not an easy decision. A home shopping industry official said, "In the case of Lotte Home Shopping, sales were hit by the suspension of early morning broadcasts, so it will be difficult to easily give up consumers in the Gangnam area, where sales are quite strong," adding, "We need to watch further, but it is correct to see that they have taken a very strong stance with considerable resolve at this time."