[Feature] Korean streaming services overhaul strategies as growth slows

Streaming services bolster cross-sector partnerships for viewership; more ads may be the solution to improve profitability

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Faced with faltering subscriber counts and deteriorating profitability, South Korea's over-the-top (OTT) media, or video streaming services, are making seismic changes as they seek strategies to achieve sustainable business growth.

Despite the growing popularity of streaming services worldwide, local firms’ profits have worsened due to their heavy investment in content.

The three major domestic streaming services -- Tving, Watcha and Wavve -- have logged an accumulated deficit of 157 billion won ($120 million) last year.

Tving, the online streaming service provider run by entertainment giant CJ ENM, posted the largest deficit with an operating loss of 76.2 billion won.

Wavve, the top domestic streaming platform run by broadcasters KBS, SBS and MBC and mobile carrier SK Telecom saw its operating loss of 55.8 billion won. Watcha, a startup founded by a young entrepreneur, recorded 24.8 billion won of operating loss in the same year.

The major homegrown players have scrambled for various strategies to survive on their own -- or together -- to expand their presence in the market. They choose to create industrial synergies in content creation and sign a bundling partnership with other industries to entice their subscribers. They even consider rolling out ad-supported tiers like the global streaming giant Netflix.

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Joining forces to sharpen competitiveness

The planned merger between Tving and Seezn shook up the landscape of the local market and stirred up fiercer competition among local streaming services. Tving has newly become the No. 1 local streaming platform after merging with Seezn, run by KT Studio Genie, the media production unit of telecom operator KT Corp.

The recent deal resulted in the number of monthly active users for Tving to surpass that of Wavve. The monthly active user tally for Tving came to some 4.3 million compared to Wavve’s 4.2 million as of November, according to Mobile Index, the big data analysis unit of local data tracker IGAworks.

Homegrown streaming services are also actively pushing for cooperation with global content providers to gain a competitive edge. As part of CJ ENM’s multilateral global partnership with Paramount, Tving started allowing its subscribers to enjoy Paramount’s content as a free-to-view addition through its platform. Wavve is the Korean distributor of HBO Max’s original content, in addition to HBO’s content.

Partnerships between telecommunications firms and streaming services have been in full swing, as they enable streaming services to resolve one of the biggest challenges for the industry -- loss of subscribers.

Followed by the successful partnership cases of SKT’s Wavve and KT’s Tving and Seezn, LG Uplus aims to expand its streaming service business by acquiring Watcha, according to investment banking sources.

To secure 1 million users in its streaming services in the next five years, LG Uplus is poised to become Watcha’s largest shareholder by purchasing about 40-billion-won worth of shares to be issued, the sources said. The country’s third-largest mobile carrier, however, declined to give specific details on the takeover deal.

Established as a movie review aggregator in 2011, Watcha launched a content subscription service in 2016. It attempted to attract a pre-IPO investment of 100 billion won during the first half of this year, but failed to draw investor attention amid interest rate hikes and market volatility. It swung to a deficit with an operating loss of 15.4 billion won in 2020 and 24.8 billion won last year.

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Ad-supported tiers under consideration

In November, Netflix launched its ad-supported tier called “Basic with Ads,” a new and cheaper subscription plan that introduces adverts for the first time in 12 countries including Korea. It is the streaming service's effort to recoup its first subscriber losses in more than 10 years. The local streaming industry is keeping a keen eye local users’ reactions and other effects of the move.

Since its Korean debut in 2015, Netflix has been enjoying a first mover's advantage in the local market. It strengthened its foothold on the back of smash-hit Korean-language originals, including the historical zombie thriller "Kingdom" (2019) and the global sensation "Squid Game" (2021). But even the streaming giant has recently experienced a subscriber growth slowdown.

“I believe almost every domestic (streaming) service is considering whether to introduce an ad-based plan, but since the concept is new here, it’s too early to evaluate the marketability,” an industry insider who wanted to remain anonymous told The Korea Herald.

The insider added that the ad-supported plan may not meet demand due to local users’ viewing habits. “Korean viewers are more resistant to exposure to advertisements while watching videos compared to viewers in other countries. … Unlike the US, where TV commercials were introduced a long time ago, viewers who were unfamiliar with ads here have been engaged in a battle to introduce terrestrial commercials for nearly a decade,” the person said.

Experts said Netflix’s ad-supported tier showed the market has lost steam for further growth. At the same time, they forecast that it is inevitable for homegrown streaming service players to depend on advertisements. Streaming services, who are already in the red, need money to ramp up original content production to compete with the industry leader Netflix.

“Some experts raised concerns over the streaming service market’s rapid growth -- and their concerns have already turned out to be valid,” Institute of Digital Industry & Policy researcher Rho Chang-hee said. "Netflix has become a significant force in the local streaming market by adopting a cheaper and ad-supported plan. It will likely trigger other domestic streaming platforms to introduce a similar subscription plan.”

Another industry official told The Korea Herald that only streaming service players that overcome the current market stagnation and keep luring subscribers to their platforms will eventually survive. Streaming services need to seek their own “extreme survival strategies” to rise in the content market in the future.

By Jie Ye-eun(yeeun@heraldcorp.com)