Backlash against OTT giants' attempt to make foray into digital advertising

[Graphics by Song Ji-yoon]

Streaming service users express their discontent with plans by major OTT platforms such as Netflix to sell digital ads to diversify their monetization strategies, which could pose a big threat to the key players in the South Korean digital advertising market such as Naver and Kakao.

According to the digital advertising industry on Tuesday, Netflix plans to launch a new subscription service priced at $7 per month, half the current plan, that will show commercials during a show. Its new advertising-supported version of its streaming service is expected to reach around 40 million viewers, according to the streaming giant.

Companies welcome the new plan and are expected to buy Netflix ads happily despite their high price as they are able to reach a large number of people from all over the world.

Netflix has come with the new plan to combat the sharp decline in the number of subscribers. The monthly active users (MAU) in September was 11.58 million, down nearly 5 percent from 12.14 million the previous month. With the recent ad-supported tier, however, Netflix’s revenue is expected to grow $8.5 billion annually by 2027, according to TechCrunch.

Although it is yet unclear whether Netflix’s ad-supported tier will be offered in Korea, if it is, the domestic digital advertising market that is dominated by Kakao and Naver is expected to be hit hard.

“While large corporations typically prefer video ads such as those offered by Netflix, Naver search ads are sought by small and medium-sized businesses,” said a Naver official. “We will respond to Netflix’s foray into the digital advertising industry by offering various types of ads and specifying billing and ad exposure measures.”

Naver’s ads are currently mainly divided into search, display, and video ads but its revenue from video ads is relatively low compared to other types of ads.

Domestic telecommunications, television production companies, and ad tech companies may also work together to better respond to Netflix’s entry into the industry.

YouTube also seeks to find a new revenue source amid falling subscribers. It recently introduced a plan to charge about $10 to allow only paid subscribers to watch 4K-backed videos. It met strong criticism from its users.

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