[Why&Next] Unprecedented Blackout... CJ OnStyle Crisis Spreading to Home Shopping Industry?

CJ OnStyle Transmission Fee Negotiation Breakdown and Broadcast Suspension
Lotte and Hyundai Home Shopping Also Request Fee Verification Council
Mobile Share Increasing... Transmission Fees Rising
Government Activates TF... Industry Remains 'Skeptical'

As CJ OnStyle initiated a 'blackout' (broadcast suspension) against some cable TV comprehensive wired broadcasting operators (SOs), conflicts over transmission fees between the TV home shopping industry and paid broadcasting operators (IPTV, cable TV, satellite) have sharply escalated. Other home shopping companies are also struggling in negotiations with SOs over transmission fees and have requested government mediation, signaling the potential spread of the blackout crisis throughout the TV home shopping industry.

The home shopping industry argues that since consumer purchasing trends have shifted towards mobile broadcasts such as live streaming and shorts, a reduction in transmission fees is essential.

Image of 5 new MCs for CJ OnStyle mobile live show program. Provided by CJ OnStyle.

CJ OnStyle's unprecedented 'blackout'... Compensation Verification Committee 'on standby'

According to the home shopping industry on the 5th, CJ OnStyle suspended broadcasting transmission through D'Live, Areum Broadcasting, and CCS Chungbuk Broadcasting starting at midnight that day. This is the first time a home shopping company has executed a blackout. After the transmission fee negotiations that began earlier this year broke down, CJ OnStyle decided to terminate contracts and stop broadcasting through the respective SOs.

CJ OnStyle explained, "We requested a reasonable transmission fee according to the guidelines, but the amount proposed did not reflect the decline in cable TV subscribers and sales volume, so no agreement was reached. The SOs whose broadcasts were suspended were judged unlikely to improve sales and were passive in negotiations, making the transmission suspension inevitable."

Transmission fees are channel usage fees that TV home shopping companies pay to paid broadcasting operators. Home shopping companies determine transmission fee rates through individual negotiations with paid broadcasting operators every year. According to the 'Home Shopping Broadcast Channel Usage Contract Guidelines' announced by the Ministry of Science and ICT early last year, fee negotiations must be completed within eight months, including a 'basic negotiation (5 months) + additional negotiation (3 months)'. However, due to sharply opposing positions among operators regarding fee rates, many cases failed to conclude negotiations. The number of companies waiting for mediation by the Compensation Verification Committee due to incomplete negotiations is also increasing.

CJ OnStyle is also scheduled to receive mediation from the Compensation Verification Committee organized by the Ministry of Science and ICT. They have completed submitting materials for the selection of committee members and are not conducting separate additional negotiations with the three SOs.

The core issue in CJ OnStyle's blackout crisis lies in the calculation of user numbers. CJ OnStyle insists that, according to the guidelines, non-residential corporate users should be excluded when calculating the fee rate. They argue there is no reason to pay for places that do not watch the broadcast. Therefore, CJ OnStyle claims that users of the 'high-definition unidirectional product (8VSB)', which has many corporate users, should be excluded when determining fees.

However, the SOs argue that 8VSB service subscribers should not be excluded. They explain that the main subscribers are middle-aged and elderly people and vulnerable groups highly dependent on broadcast viewing. They also claim that the total number of subscribers decreased by less than 5% compared to last year, but CJ OnStyle wants to reduce fees by 60%. Because of this, CJ OnStyle requested data on who actually uses 8VSB, and cable TV requested data on product sales and broadcast contribution, but neither side presented the data during negotiations.

CJ OnStyle stated, "In a situation where TV broadcast sales are declining, we can no longer endure inefficient transmission methods," adding, "Cable TV also recently stopped terrestrial free VOD services, showing that they cannot pay for services whose utility has sharply declined."

Other home shopping companies awaiting the Compensation Verification Committee include Hyundai Home Shopping and Lotte Home Shopping. Lotte Home Shopping is waiting for mediation with D'Live, and Hyundai Home Shopping is waiting with IPTV operator LG Uplus, as no agreement has been reached. Broadcasting transmission is proceeding normally. Once the Compensation Verification Committee begins, results must be notified to the two companies within 90 days. The 5 to 7 committee members appointed by the Ministry of Science and ICT will review whether there were any problems in the fee calculation process and whether the data was appropriately applied according to the formula set in the guidelines, then provide their opinions.

Both home shopping and cable TV are struggling... "Government unlikely to intervene"

The home shopping industry argues that although the number of consumers purchasing through TV broadcasts is decreasing, transmission fees are continuously rising, underscoring the need to reduce fees. According to the TV Home Shopping Association's '2023 TV Home Shopping Industry Status' data, the total sales of seven home shopping corporations (GS Shop, CJ OnStyle, Hyundai Home Shopping, Lotte Home Shopping, NS Home Shopping, Home&Shopping, Gongyoung Shopping) amounted to 5.5577 trillion KRW, a 5.4% decrease from the previous year. TV broadcast sales declined even more, dropping 6% from 2.8998 trillion KRW in 2022 to 2.792 trillion KRW in 2023. The proportion of TV broadcast sales in total sales was 49%, smaller than mobile and internet sales.

On the other hand, transmission fees have been increasing annually. Last year's transmission fee scale was 1.9375 trillion KRW, a 1.6% increase from the previous year, which is a slight rise compared to past increases of 5-10%. The transmission fees paid to cable TV and satellite broadcasters among paid broadcasting operators slightly decreased, slowing the growth rate. However, the ratio of transmission fees to broadcast sales exceeded 70% for the first time. A home shopping industry insider explained, "Home shopping companies are trying to reduce costs by moving to general programming channel numbers rather than the numbers near the three terrestrial broadcasters."

The cable TV broadcasters are also facing difficulties. Last year, home shopping transmission fee revenue for cable TV broadcasters was 731.8 billion KRW, accounting for 42% of total revenue. This was followed by broadcast reception fee revenue (583 billion KRW) and single device revenue (295.4 billion KRW). Since fees received from home shopping companies account for nearly half of total broadcast revenue, it is difficult to significantly reduce transmission fees for business operations.

Despite repeated conflicts between the home shopping industry and paid broadcasting operators every year, the government has stepped in but no clear measures have yet emerged. In June, the Ministry of Science and ICT formed a Home Shopping Industry Competitiveness Enhancement Task Force (TF). In October, Minister Yoo Sang-imm stated at a parliamentary audit, "(The TF) is seriously considering transmission fee issues to derive reasonable solutions."

The home shopping industry is cynical about government measures. Although the government has activated the TF, they believe the response has been lukewarm, making it difficult to expect solutions. A home shopping industry official explained, "Since broadcasting is a public good used by private operators for business, it is not easy for the government to strongly intervene in transactions between private operators," adding, "The government likely has no option other than mediation."