K-content Remains Outside the Mainstream... APAC Position Also Unstable
Netflix Investment to Continue: "Growing Well as Expected"
Rising Production Costs Ignored... Crisis Looms for Domestic Industry
"Drama Market Could Collapse Like the Film Market After Holdback Shortened"
K-content has yet to become mainstream on Netflix. According to the earnings report released on April 17 (local time), Netflix's revenue for the first quarter of this year was $10.543 billion (approximately 14.9542 trillion KRW). About 75% of this revenue was generated in North America ($4.62 billion) and Europe, Middle East, and Africa (EMEA, $3.4 billion). In the Asia-Pacific (APAC) region, where K-content is particularly strong, revenue reached only $1.26 billion (1.7883 trillion KRW). Although the growth rate (23%) was the highest, it was only about 27% of North America and 36% of EMEA. When compared to the combined scale of North America and EMEA, it amounted to just 16%.
K-content frequently tops the 'Netflix Top 10' non-English category, which Netflix announces weekly. However, its relatively low standing is clearly revealed in the Engagement Report, which Netflix publishes twice a year. This report includes viewing hours and view counts for original and licensed titles with over 50,000 hours of playtime. In the first half of last year, only three titles made it into the top 50: the drama "Queen of Tears" (14th, 29.2 million views), "Parasyte: The Grey" (20th, 25.4 million views), and "My Demon" (43rd, 17.7 million views). In the second half, there were four: "Squid Game" Season 2 (1st, 86.5 million views), "Squid Game" Season 1 (26th, 22.4 million views), "Mom's Friend's Son" (34th, 20.3 million views), and the variety show "Black and White Chef: Culinary Class War" Season 1 (46th, 17.2 million views).
Except for "Squid Game," the remaining titles gained popularity mainly in the APAC region. They struggled to expand into North America and EMEA. Even in APAC, K-content's dominant position is now under threat. As Netflix expands its local content offerings in countries like Japan and Thailand, the gap is gradually narrowing.
Kang Donghan, Vice President of Netflix Korea Content, acknowledged this point during the Netflix Insight Session held at a conference room in Jongno-gu, Seoul, on April 21, but firmly stated that there would be no major changes to future investments in K-content. He said, "We are growing well as expected," and added, "Korea is the only country where we are steadily expanding and investing at scale. That shows how important K-content is to us." He continued, "Due to the nature of a subscription service, it is difficult to say that a single piece of content or a specific category drives the business, but within that, K-content has always played an important role and will continue to do so."
It is difficult to see these remarks as having completely dispelled concerns. The domestic content industry has recently been struggling with rising production costs. Although still lower than those of North American content, the gap is closing rapidly. In fact, comparing production costs is impossible. North American content is distributed and consumed worldwide, whereas K-content still appeals mainly to a limited market centered on Asia.
Media industry critic Cho Youngshin argued in his book "After Netflix" that "when limited to the broadcast video market, the global market is roughly $500-600 billion, with the Asian market accounting for about one-third," and added, "Overall, it is reasonable to say that Korean content has nearly reached or even surpassed the threshold for acceptance in the global market."
If Netflix reduces its investment, the domestic content industry could face a serious crisis. Ironically, the Achilles' heel is the rapid rise in production costs triggered by competition from Netflix-driven content. The scale has grown to a point that the domestic distribution market can no longer handle. Currently, Netflix is the only company able to maintain price control. Terrestrial broadcasters, which once served as the production pipeline, are now focused on cost-cutting, and domestic OTT platforms that once competed with Netflix are undergoing structural reforms.
Voices of discontent are growing louder over Netflix's near-monopoly. The CEO of a production company that previously collaborated with Netflix criticized, "It is not an exaggeration to say that Netflix holds the decision-making power for all content in Korea. No broadcaster can finalize the programming or investment of a drama without Netflix's approval or confirmation." Another CEO stated, "Once production costs rise, they almost never come down. If things continue this way, even if K-content's competitiveness improves, its overall resilience will weaken to the point where it cannot withstand even small changes." A third CEO commented, "Netflix has already destroyed the domestic film market by aggressively shortening the holdback period (the system that delays distribution to IPTV, OTT, etc. after a movie's theatrical release), and the drama market is essentially following the same path."
Vice President Kang did not present any solutions for coexisting with these industry players. Regarding the rise in production costs, he said, "Seven or eight years ago, K-content was something people watched for free overseas, but now it has become premium content that people pay to watch. Investment is absolutely necessary to meet expectations." He explained that, given the competitiveness of Korean content overseas, high production costs are only natural. Netflix previously announced that it would invest $2.5 billion (about 3.5552 trillion KRW) over four years in Korean dramas, films, and variety shows starting in 2023?a scale that domestic broadcasters or OTT platforms cannot even consider.
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