[Initial Insight] K-Content, Will It Settle for OEM?

Recently, there was an oddly welcome piece of news. The combined monthly active users (MAU) of Tving and Wavve, domestic native online video services (OTT) in Korea that are about to merge, have surpassed Netflix. The success of native OTTs is considered particularly good news due to concerns over the control of K-content production.

Since the global OTT market leader Netflix entered the K-content market, many things in the industry have changed. The biggest change is the increase in production costs. For example, the production cost of the Netflix original (self-produced) content "Squid Game" Season 2 is in the 100 billion KRW range. To compete with such blockbusters, other dramas also need to increase their production scale, but the investment amount flowing into the K-content market is limited. Naturally, the production scale per drama has increased while the number of productions has decreased. This has led to a rich-get-richer, poor-get-poorer phenomenon, causing smaller dramas and related production companies to lose their footing.

Another issue is content IP (intellectual property). The basic condition for Netflix's production investment is that Netflix owns the IP. At first, receiving large-scale funding to produce content may feel like a blessing in a drought. Watching global audiences enthusiastically respond, one might consider the global expansion of K-content a success. However, if this production method is maintained in the long term, K-content producers risk becoming OEM contractors for Netflix. Without IP and control, no matter how good the content is, it is useless from an industry and investment perspective. Even if a K-drama watched worldwide becomes a huge hit, the K-content industry will inevitably remain hungry. The money is earned by the global OTT companies and investors who own the IP.

Following K-pop, K-webtoons, and K-dramas symbolizing K-content are a "creativity mine" coveted worldwide. However, to widely deliver this to global consumers, we are in an unfair situation where we have to give up our IP. The alternative proposed to resolve this is the emergence of powerful native OTTs, that is, the alliance and merger of K-content platforms. In this context, the merger of CJ's "Tving" and SK's "Wavve" was different from ordinary mergers and acquisitions driven solely by industrial logic. It also had strong justification in terms of the development of the K-content industry and national competitiveness. However, the Tving-Wavve merger negotiations, which began in December last year, have not concluded even after more than seven months. Although agreements have been reached on important issues such as merger ratios and debt sharing, it is reported that content supply conditions for the merged corporation from SLL Joongang, a major shareholder of Tving, are acting as obstacles.

Considering the entire global content planning-investment-production-distribution-sales market flow, the role of native OTTs is more important than ever for the continuous growth and virtuous cycle of the K-content industry ecosystem. The merged Tving-Wavve corporation can be an incubator for K-content producers with diverse and creative ideas and a playground for the entire nation. Looking at the shareholder composition of Tving and Wavve, this expectation grows even stronger. Tving is held by major shareholders including CJ ENM (48.9%), KT Studio Genie (13.5%), Gen Partners & Company (13.5%), SLL Joongang (12.8%), and Naver (10.7%). Wavve's major shareholders include SK Square (36.7%), Munhwa Broadcasting Corporation (19.8%), SBS (19.8%), and E-KBS (18%). Of course, as much as there is hope that Tving and Wavve will become a melting pot for K-content, the interests of various business operators will also be diverse. While the difficulties and business interests of individual operators cannot be ignored, strategic judgment and a magnanimous union are needed for a greater leap forward in the K-content market.