[Column] How Long Will Home Shopping Broadcast Fees Be Neglected?

Home Shopping Industry vs. Pay TV Operators Commission War
Home Shopping Industry Faces Crisis... Threat to Broadcasting Industry Too

“It is not in line with the principles of a market economy for the government to intervene and set commission rates between companies; mediation is the best option when an agreement cannot be reached.”

This was a phrase government officials repeatedly told reporters whenever negotiations over carriage fees between TV home shopping companies and pay-TV operators (cable TV, IPTV) hit a deadlock. At first, it was easy to agree. The carriage fee rates are determined annually through negotiations between the two parties, and the explanation that the government has no justification to intervene made sense.

However, while the government remained hands-off, carriage fees increased to a level that the TV home shopping industry could not bear. According to the 2022 "Broadcast Operators' Financial Status Report," the proportion of carriage fees in total sales of TV home shopping was 47% in 2018 but jumped to 65% in just four years. This means that for every 100 won earned through home shopping, 65 won is paid to pay-TV operators. Even during the boom in the TV home shopping industry, companies paid reluctantly, but recently, with the rapid decline in TV viewership, home shopping companies are being pushed toward a crisis of survival.

In fact, the broadcasting business revenue of home shopping companies has remained around 3.7 trillion won over the past four years, but operating profits have continued to decline. Lotte Home Shopping’s operating profit dropped by nearly 90% last year, and Hyundai Home Shopping’s decreased by 45%. Industry leaders GS Home Shopping and CJ OnStyle also saw decreases of about 17% and 3.8%, respectively. At least these two companies managed to hold their ground by actively targeting the e-commerce market as their TV home shopping sales declined. These home shopping companies last year pulled out the broadcasting suspension (blackout) card, citing performance burdens and a decrease in TV viewership, to request a reduction in carriage fees.

If conflicts over carriage fees between home shopping companies and pay-TV operators intensify, market crises such as business shutdowns may occur. The bigger issue is that it could trigger a structural collapse of the broadcasting industry. Pay-TV operators use the commission revenue collected from home shopping companies to pay terrestrial and comprehensive programming broadcasters and pay-TV channel operators (PPs) for content usage. The proportion of carriage fees to total revenue of pay-TV operators increased from 35% in 2018 to 42% in 2022. This means that if home shopping companies cease operations, it could deal a blow to the entire broadcasting industry.

The government’s justification for market intervention lies in market failure and the resulting damage to public interest. Since the annual commission conflicts are becoming increasingly extreme, government intervention is inevitable. The government needs to put the commission system on the operating table and undertake a comprehensive overhaul.