[Exclusive] Content Usage Fee Guidelines Take Shape... Targeting Implementation in the New Year

Repeated Conflicts Between Industries Over 'Content Usage Fees'
Guideline Article 12 Specifies 'Pre-Contract, Post-Supply'
Compliance with Guidelines to Be Considered in Dispute Resolution

Guidelines for content usage fees broadcast on paid services such as cable TV and Internet TV (IPTV) are being gathered with the goal of implementation on the first day of the new year.

Starting as early as the beginning of next year, it is expected that broadcasting channel operators (PPs) like CJ ENM will be able to receive fair prices when selling content.

According to the "(Tentative) Paid Broadcasting Content Usage Fee Guidelines (Draft)" obtained by Asia Economy on the 12th, the Ministry of Science and ICT specified in the supplementary provisions that "the basic guidelines will be enforced from January 1, 2024."

[Image source=Pixabay]

At the national audit in October, Park Yoon-kyu, the 2nd Vice Minister of the Ministry of Science and ICT, stated, "We will strive to create and submit the paid broadcasting content usage fee guidelines by the end of the year."

While typical contracts follow a 'contract first, supply later' model, the paid broadcasting market has established a 'supply first, contract later' practice due to conflicts during annual content usage fee negotiations. Content is broadcast first while prices are negotiated afterward. This has led to complaints, especially from major PPs, that they are not receiving fair compensation for their content. Because the product is supplied first, their bargaining power is weakened, they cannot stop broadcasting if negotiations fail, and it is difficult to plan aggressive investments in advance.

In 2021, when conflicts intensified, Kang Ho-sung, former CEO of CJ ENM, criticized IPTV as "stingy" over content usage fees, while Ku Hyeon-mo, former CEO of KT, the top IPTV operator, retorted that the fees were "excessive compared to the previous year." In 2020, the conflict over content usage fee increases between PP CJ ENM and cable TV operator D'Live escalated to the point where a 'blackout' (broadcast suspension) of CJ ENM-affiliated channels like tvN was imminent.

The Ministry of Science and ICT began drafting guidelines in December 2021, explicitly stating the 'contract first, supply later' principle. However, due to stark differences in opinions among operators, the guidelines were not finalized and remained in limbo for a long time.

The Ministry codified the 'contract first, supply later' principle in Article 12 of the guidelines, reaffirming that, except in unavoidable cases, contracts should be signed before transmission. However, while the overall guidelines are set to be enforced from January 1 next year, the implementation timing of the 'contract first, supply later' principle will be determined separately.

The guidelines include factors to consider when calculating content usage fees, such as the number of subscribers of the paid broadcasting service and the channel's viewership rating or audience share. They also take into account the paid broadcaster's basic channel subscription revenue, home shopping transmission fee revenue, and costs related to transmission network installation and maintenance. Additionally, content providers' advertising revenue, broadcast program sales revenue, production costs, and program purchase costs are included.

Paid broadcasters must disclose the basic increase rates by grade when publishing channel evaluation criteria and must consult content providers before setting these rates.

The guidelines also specify the total payment amount that will serve as the source of content usage fees. The total payment amount refers to the total content usage fees from July of the current year to June of the following year. This includes terrestrial retransmission fees, basic channel program usage fees, paid channel program usage fees, and paid VOD program usage fees. This reflects the paid broadcasting industry's opinion that guidelines excluding terrestrial broadcasting are meaningless.

Paid broadcasters must set the total payment amount by April each year and disclose it in consultation with the Ministry of Science and ICT. They must also disclose the basis for setting the total payment amount, the previous year's total content usage fee payments, broadcasting industry revenue, content usage fee payment ratio, basic channel program usage fees, basic channel subscription revenue, and the payment ratio for basic channel program usage fees. Furthermore, criteria for judging failure to negotiate without justifiable reasons are included.

Since the guidelines are not laws, they have no legal binding force. However, the Ministry of Science and ICT created provisions to reflect compliance with the guidelines during paid broadcaster license renewal reviews. Also, if paid broadcasters or content providers do not comply with the guidelines, the Korea Communications Commission may prioritize them for investigation of prohibited acts. When conflicts arise in content usage fee negotiations and dispute mediation begins, compliance with the guidelines can be used as reference material.

On the 11th, the Ministry of Science and ICT released the guidelines and is collecting opinions from related industries. Given the stark differences between paid broadcasters and PPs, some content may be revised based on the feedback. However, since the goal is to implement the guidelines on January 1, 2024, operators expect the guidelines to be enforced without major changes.