Do you know Netflix? Netflix is famous for its own dramas such as Orange Is the New Black, Stranger Things, and 13 Reasons Why. In this article, we will find out about the increase in investment in Netflix, and the resulting domestic backlash regarding Netflix.
Netflix started out as a DVD delivery company in 1997 but changed its business direction to online streaming services in 2007. It became popular for producing customized works based on analyses of a region's demographic characteristics. It started producing contents based on customer data in 2013. It now has a total of 42 million videos, and the number of subscribers has surpassed 100 million worldwide. Moreover, the number of subscribers in the US alone exceeds 51 million. It has expanded its services not only within the US, but also to Canada, Mexico, some European countries, Korea, and Japan. According to CNN, Netflix accounts for one-third of Internet traffic in the US. It seems that in North America, there are more people using Netflix than those who do not use Netflix.
Netflix is also the biggest reason for blu-ray and other physical recording media becoming smaller in the media industry. Fewer people are subscribing to cable TV every year in the United States. On May 25, 2018, Netflix surpassed Disney's market capitalization and temporarily became the world's largest entertainment company. This was viewed as a monumental event in which an emerging company defeated a traditional media giant.
Netflix is strengthening its efforts to target global markets. It is continuing to increase its contents that are specialized for local markets. Netflix started its official service in Korea along with Amazon Web Services on January 6, 2016. In November 2015, Netflix announced that it would invest 50 million dollars in Okja, a movie directed by Bong Joon-ho. After producing Bong Joon-ho's movie Okja, they recently introduced the detective mystery entertainment program Busted. It is planning to release its own contents such as Kingdom and YG Electronics in the second half of this year.
Netflix has partnered with Dillib and CJ Hello in Korea and is looking to expand its business by partnering with LG Uplus. If the Netflix app (application) is built into LG Uplus' set-top box, the number of users is expected to increase rapidly. However, the Korea Broadcasting Channel Promotion Association, which has terrestrial affiliates, CJ E&M, and other broadcasting companies as its members, strongly protested the plan on July 11. Some broadcasting companies are trying to establish profit distribution ratios in their favor in order to compete with Netflix. They criticize Korea’s contents market for providing favorable conditions to “huge foreign capital.” These companies argue that this is unfair because they have a 5 to 5, or 7 to 3 profit distribution structure while Netflix's is 9 to 1.
LG Uplus has rebutted this. While local terrestrial contents involve a one-way pricing method, Netflix has different ways of providing contents. "Unlike terrestrial channels that provide contents to cable and satellite pay-per-view, Netflix provides contents and recommendations, and provides original contents." "Netflix advanced to Japan through Softbank in 2015, but its market share is only 9 percent, and its influence is minimal," LG Uplus added.
Even though LG Uplus has rebutted criticisms, some people disapprove of Netflix’s expansion in Korea. For example, a representative for the domestic broadcasting industry said that Netflix is leading a 'Cord-Cutting' phenomenon that has resulted in subscriptions to paid broadcasting services in the US and Europe being canceled. The phenomenon is still increasing. Also, service providers are not very favorable towards Netflix. More and more consumers are turning off all of their television sets and using Netflix. Because of this, telecom companies are keeping Netflix in check. Telecommunication companies are adopting a policy to check Netflix by paying additional network fees to Comcast or introducing a net-rate system.
So, if Netflix expands its business in Korea, will there only be negative outcomes? There could be some positive effects as well. First of all, expanding Netflix’s business gives consumers more choices. Before Netflix, Korean consumers who wanted to watch English or Chinese dramas or Japanese animations often had to watch through illegal routes such as Torrents, since there were not many platforms offering them. Netflix, however, gives viewers access to not just such contents but also foreign documentaries and independent films, making it possible for Korean consumers to enjoy them in a legal way.
Also, existing IPTV services such as B TV, Olleh TV, and Uplus TV require extra charges for each movie and drama episode watched. So, binge-watching a whole season of a drama could cost a lot. Netflix, however, has changed the way contents are delivered by allowing consumers to watch as much as they want at no extra charge once the monthly fee has been paid. This has allowed consumers who were unhappy with the existing IPTV services to choose from more options. Secondly, Netflix can further boost Korean contents to overseas subscribers. As of August, Netflix is a company providing its streaming services to nearly 100 million users spread over 190 countries. Just as Korean consumers can freely watch foreign contents through Netflix, the Netflix original contents produced in Korea can be viewed by people around the world. In addition, Netflix’s investment in original contents can help to create high-quality Korean contents, which can affect the Korean media market in a positive way.
A good example is Japan, the first Asian country that Netflix entered in 2015. By investing large amounts of capital, Netflix began producing original Japanese animations that had been rejected by other companies due to the costs involved. Netflix has changed the way that Japan produces animations too. Original Japanese animations were produced after obtaining approval from an organizing committee comprising 5 to 15 participating companies. This system provided a simple means of reducing production burdens, but decision making was slow and creativity was restricted. However, Netflix shortened production times by signing direct contracts with studios. They also did not place a responsibility upon directors concerning an animation’s success, which allowed directors to create original works in a comfortable working environment. Such changes have brought about positive results in the Japanese animation industry, which had been in recession. In January, Netflix announced that it would expand investment in Korean Netflix originals and licensed contents obtained by Korean broadcasting companies. Thus, Netflix will eventually partner with domestic Korean producers to produce original Korean-style content that suits Korean sentiment. This will boost the Korean media market, which has been stagnant just like the Japanese animation industry was before the arrival of Netflix.
However, as the Korea Broadcasting Channel Promotion Association pointed out in their statement, there is a risk that the Korean content production business will become a subcontractor of Netflix as soon as Netflix monopolizes Korea’s content production business. This is because the Netflix platform has the right to decide content, and even if content producers introduce new formats, these could be rejected if they do not fit in with the way Netflix operates. In addition, if content producers rely solely on Netflix, investment in the content creation industry, with the exception of Netflix, will be reduced. In countries where Netflix already has an exclusive supply structure such as in the United States and in Europe, attempts are being made to try to solve this problem. Disney has announced that it will stop providing content to Netflix and strengthen its own online distribution channels, and the European Union has agreed to introduce a ‘Netflix quota system’ that stipulates that EU content has to account for at least 30% of all VOD (video on demand) content. Although Netflix’s influence in Korea is not as great as it is in the United States or Europe right now, Korea needs to develop a domestic media platform that can counter Netflix in order to prevent Netflix monopolizing content supply and production structures.
Within the Korean media industry, efforts have begun to fight the threat of Netflix. Many Korean media platforms are focusing their attention on Netflix and are using it as a benchmark for “creating content of their own.” SK Broadband, which produced its own original content ‘Travel the World on an EXO’s Ladder’ in the first half of the year, announced that it would invest more than 10 billion won in producing original contents and also expand its supply of original contents to their IPTV system, B TV. Naver’s ‘N Store’, which operates a VOD business, set up Studio N, which produces its own Naver Webtoons as movies or dramas. Kakao Page, a platform for webcomics, novels, and VOD contents, also revealed that it would continue to develop interesting stories and adapt them into original videos through ‘Drama Comics’ and ‘Movie Comics’, where they adapt original dramas and movies from their platform’s webcomics. Kakao Page is a system requiring separate payment for each content, but it introduced P&P (Pause and Page) to differentiate itself from other media platforms and give consumers more choices like Netflix does. P&P is a service that enables the purchase of a certain part of a movie, so customers can see only the introduction or the ending part. Customers can also purchase the full video if they want. The representative Korean OTT service company ‘Watcha Play’ is trying to differentiate itself from Netflix and other companies by offering cheap monthly fees. They also offer video recommendations by interconnecting with their video recommendation company Watcha. Besides those platforms, various companies are seeking to survive the threat posed by Netflix by developing new services. Their potential growth and success in counteracting Netflix would seem to depend on how competitively they can release their own contents and provide unique services to attract viewers.
Just like Apple in the smartphone market and Ikea in the furniture and interior market, it is an undeniable fact that Netflix has had a great impact on the Korean media industry. However, it remains to be seen whether this existence of a formidable competitor, Netflix, will strengthen other media platforms and expand consumers' choices, or rather hinder domestic businesses due to its monopoly. I hope that media contents will become more abundant through this strong competition.
Kyungyoon Seo, Bogyeong Yang firstname.lastname@example.org, email@example.com
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