[News Focus] Korea’s IPTV business confronts challenges despite revenue increase

South Korea’s overall broadcasting industry suffered a drop in revenue last year, but IPTV operators bucked the trend, achieving a respectable 11 percent increase in revenue during the same period. Yet the 2021 outlook for the IPTV business remains mixed due to raging disputes over content fees.

According to data released Tuesday by the Korea Communications Commission, the combined revenue of 342 broadcast operators stood at 18.1 trillion won ($16 billion) in 2020, up 340 billion won, or 1.9 percent, from 17.7 trillion won a year earlier.

The slight broader year-on-year increase was led by IPTV, whose revenue in 2020 came to 4.2 trillion won, up 11.1 percent, from the figure recorded in 2019. In addition, terrestrial TV stations contributed to the uptick in combined revenue. Korea’s terrestrial networks, which had posted operating losses for three straight years, snapped up its losing streak last year with a revenue of 3.5 trillion won, up 1.4 percent from a year earlier.

Other segments, however, struggled to shore up their revenue. By media type, program providers recorded 7 trillion won in revenue last year, little changed from a year earlier. System operators saw their combined revenue go down by 4.4 percent to 1.9 trillion won, and content providers also suffered a drop of 2.6 percent in revenue with their 2020 revenue standing at 614 billion won.

Although IPTV managed to post higher revenue last year, the broadcasting industry continues to face strong headwinds sparked by the rapid shift in viewers’ preference from traditional broadcast services to mobile and digital platforms, spearheaded by YouTube and Netflix.

The coronavirus pandemic also lent a decisive boost to the fast expansion of new broadcasting services. Since the Korean government imposed social distancing measures, more people have tended to work from home and stay indoors. This spurs the growth of video services at home, resulting in the surging usage time of streaming videos.

The shift is reflected in the continued decline in advertising revenue for broadcasting companies. Last year, the combined advertising revenue came in at 2.7 trillion won, down 283 billion won, or 9.5 percent, from 2019.

Satellite service saw its advertisement revenue tumbling by 33.6 percent during the period, while operators in other broadcasting segments also ended up with sharply reduced advertisement revenue.

Terrestrial TV stations, which had dominated the broadcasting industry, continued to struggle with plunging advertisement revenue amid the sweeping changes in the sector. Last year, the advertising income for terrestrial TV stations stood at 98.6 billion won, down 9 percent from 2019. The share of terrestrial TV in the advertising market inched up to 36.9 percent in 2020, but this offers no big solace given that the segment commanded a 63.6 percent share in 2011.

Outlook for IPTV mixed

IPTV’s relatively strong performance last year, however, does not mean it is headed for a smooth path. IPTV service operators are now locked in a battle with content providers, especially CJ ENM, over the payment of content fees.

Last month, CJ ENM proposed a 25 percent increase in content fees it collects from IPTV providers, claiming that the current pricing is too low compared with the fees paid by other platform providers.

Citing government data, CJ ENM argued that IPTV operators set aside only 16.7 percent of their revenue for real-time programming fees. “Other platform providers involving digital music, webtoon and movies share 50-70 percent of the content fees they get from users with content providers,” the company said.

The Korea IPTV Broadcasting Association, representing the country’s three major IPT providers KT, SK Broadband and LG U+, issued a statement in response to CJ ENM’s demand, and called it “a price hike that is at an abnormal level.”

The IPTV body claimed that CJ ENM threatened to stop providing its programs to IPTV operators unless its demand is met, while pointing out the alleged problems with CJ’s program price policy.

On June 12, CJ ENM stopped its programming service to LG U+ after they failed to agree on the pricing. LG U+ said the breakdown of the negotiations was due to CJ ENM’s call for a 175 percent increase in program fees compared to last year.

IPTV operators said that they are allowed to air CJ ENM programs only on real-time channels and video-on-demand service is available only on CJ ENM’s over-the-top service Tving, a policy they argue discriminates against IPTV operators and undermines the rights of viewers.

On Monday, Koo Hyun-mo, CEO of internet and telecom giant KT, told reporters that CJ ENM’s latest demand for a price hike is “extreme.” CJ ENM is reportedly asking KT to accept a 1,000 percent increase in content fees for streaming service.

KT’s current payment for CJ ENM’s programs has been reported at 2 billion won. If the price hike level remains current, CJ ENM would be aiming to collect 20 billion won in content fees from KT.

Considering the tone of KT chief Koo, the outlook for an amicable agreement on the new pricing is murky.

At a forum on digital media content held in Seoul on Tuesday, government officials and industry experts discussed ways to tackle the deepening conflicts in the broadcasting industry, especially disagreements over optimal pricing for programs to be aired on pay TV platforms and streaming platforms.

Experts called on the government to deregulate the market, allowing operators and content providers to set their service prices freely without the intervention of state regulators.

Shim Sang-min, a professor at Sungshin Women’s University in Seoul, argued at the forum that the government should lift its control on the prices involving pay TV operators, as foreign operators are also doing business in the domestic digital media market and imposing too much public responsibility on the operators can hinder their business potential.

A lawyer at the forum said the government should take a close look at the current regulatory framework on platform providers to encourage competition.

Government officials, meanwhile, stressed the importance of cooperation between IPTV operators and content providers.

“As the market structure goes through drastic changes, parties involved are now clashing with each other,” Science and ICT Minister Lim Hye-sook said. “But we should work together to find a solution in the spirit of co-prosperity and cooperation.”

By Yang Sung-jin (insight@heraldcorp.com)