Korean producers shouldn't lose hope in Netflix battle, S&P researcher says

The unprecedented success of Netflix original series “Squid Game” (2021) was cause for great celebration in Korea, but it was quickly followed by concern for the domestic market: Was Netflix hogging the fruits of the show's success?

Jessica Fuk, a research analyst from S&P Global Market Intelligence [WOO SANG-JO]

The unprecedented success of Netflix original series “Squid Game” (2021) was cause for great celebration in Korea, but it was quickly followed by concern for the domestic market: Was Netflix hogging the fruits of the show's success, instead of sharing it with the Korean producers behind the megahit series?

Bloomberg reported in October 2021 that Netflix estimated "Squid Game" would create an almost 1 trillion won ($746 million) in profit; however, industry insiders have said that the local production company, Siren Pictures, only got about 2 billion won.

The news of the 500-fold difference not only led Korean producers to believe that “Korean producers beat the bush and Netflix catches the birds,” but some people were so enraged that even when Netflix announced plans to invest 3 trillion won into the Korean market over the next four years, during a meeting between the company's co-CEO Ted Sarandos and President Yoon Suk Yeol in Washington on April. 24, it was met with sarcasm rather than a welcome.

“This will change,” Jessica Fuk, a research analyst from S&P Global Market Intelligence, said during an interview in September with the JoongAng Ilbo, an affiliate of the Korea JoongAng Daily.

Fuk explained that the success stories of Korean productions enabled them to raise their voice toward global on-demand video streaming companies, especially in regards to retaining intellectual property (IP) rights.

“Local production companies, depending on their strategy, are stepping in to regain some of the rights back,” she said, giving the example of AStory, the production company of the hit drama “Extraordinary Attorney Woo.” The company did provide "Woo" to Netflix but signed a contract that ensured that AStory kept the IP rights. The "Squid Game" producers had handed over the rights to Netflix.

Fuk is a research analyst at S&P who focuses on the global online video industry in the Asia Pacific region. She has recently covered the multichannel and broadband sectors, such as pricing updates in China’s subscription video-on-demand market and production houses in Taiwan.

In the cutthroat race of streaming services, Fuk emphasized that local platforms such as Wavve and Tving need to continue investing in making their own original content, but doing so with a clear vision of what content is doing well and what isn’t.

The following are edited excerpts of the interview with Fuk, where she talked about the future of streaming and Korea’s role in the global content race. This interview has been edited for length and clarity.

Netflix original series ″Squid Game″ [NETFLIX]

Q. What does “Squid Game” mean to the global streaming industry?

A.I guess the success of “Squid Game” really proves that if the content is good, it travels well everywhere. The lesson to be learned is that heavy investment is not the key, but a good storyline and good filming techniques will lead something to travel well. The future is bright for Korean productions as major streaming companies like Netflix, Disney and Amazon are investing more in [Korean] content.

There are worries about production companies being pushed as subcontractors. Do you think we should worry about this?

The industry will evolve by introducing various models such as a collaboration model. The discontentment of Korean productions is a loss to Netflix. So it needs to seek a way to create a win-win situation between the two parties.

How would you compare the market characteristics of the global streaming industry with those of Korea?

Korea is one of the fastest growing video streaming markets in Asia. According to S&P Global Market Intelligence’s model, household penetration has grown by over 30 percent since 2020. I think Korea is unique in this case because it's traditionally very strong in pay TV.

ENA drama ″Extraordinary Attorney Woo″ [ENA]

What do you think is the reason for Netflix’s rapid growth?

Before Netflix became so strong, the video streaming platforms that existed in Korea served more as a catchup service to the linear channel. Nobody knew that platforms like Netflix could be so appealing.

What do you think caused Korean on-demand video streaming services to grow so rapidly?

The companies became a bit nervous after seeing Netflix get so strong. The change happened in such a short period of time. Streaming platform Wavve was established under the merging of Oksusu, a video streaming platform from SK Telecom, and Pooq, a streaming service for the country’s top three terrestrial broadcasters: KBS, MBC and SBS, in 2019. KT’s Seezn merged into CJ ENM’s Tving last year. Consumers who prefer Korean content were also strongly affected the development of domestic streaming platforms.

What platform do you think will have the biggest advantage in the fierce on-demand video streaming platform competition such as Netflix, Disney and HBO?

That’s a very difficult question because I think each platform has its own advantages. In Korea, Netflix is standing strong, but in quite a few other markets, such as Japan, Netflix is not doing so well — rather, Amazon is doing much better there. Netflix CEOs also expressed their frustration, actually using the word “frustrated,” when talking about its growth in India. Looking at the business, after all, content is very important along with pricing strategy. Korean consumers are more willing to pay for premium content. On the other hand, India and countries in Southeastern Asia are very sensitive to the price.

How can Korean video streaming services survive?

This is not a particular question or a challenge for just these local players. The overall video streaming industry is struggling in profit-making. Chinese streaming platforms, iQiyi and Tencent Video, both raised their subscription price just a couple of years ago, after maintaining their low price for 10 years since their launch in 2010 to 2011.

Would it be a good idea to increase investment in original content?

Of course. High-quality original content is needed constantly, but it has to be selective. This means that being more tactical and identifying what is good will enable companies to cut costs and turn results into profit. While the past video streaming industries focused on the number of subscribers, now profitability is the main focus. Keeping in mind that content is the king, the key for the platforms to succeed is giving high-quality content that consumers want, rather than the volume of content.

BY BAE JUNG-WON [kjdculture@joongang.co.kr]