OTT Ultimately Faces Court, Ministry of Culture Examines Legal Issues in 'Music Copyright Fee Conflict'

[Asia Economy Reporter Seulgina Jo] Domestic online video service (OTT) providers such as Wavve, TVING, and Watcha, which have recently launched, will ultimately face the government in court on the 13th. This is because the 'OTT Music Copyright Royalty Rates' disclosed by the Ministry of Culture, Sports and Tourism last year are excessively high, and there have been continuous controversies over illegality ranging from discrimination and double charging for the same service to violations of copyright law and regulatory laws. However, the music rights holders, who are stakeholders, insist that "there is no problem," and the Ministry of Culture, Sports and Tourism, which sided with them, has shown a passive attitude toward preparing coexistence measures, raising concerns that the lawsuit may be prolonged.

According to the related industry, the OTT Music Copyright Countermeasure Council (OTT Music Council), which includes Wavve, Watcha, and TVING, will hold the first hearing of the administrative lawsuit filed against the Ministry of Culture, Sports and Tourism at 2:30 p.m. at the Seoul Administrative Court on the same day. The legal representatives for the OTT Music Council and the Ministry of Culture, Sports and Tourism are Law Firm Yulchon and Law Firm Sejong, respectively.

At this hearing, the OTT Music Council plans to point out the problems of the revised music copyright collection regulations disclosed by the Ministry of Culture, Sports and Tourism at the end of last year and argue for their invalidation. The revision mainly involves raising the royalty rate from 1.5% this year to 1.9995% by 2026. It has been criticized for having unclear standards, such as the rate increasing several times depending on the platform even when watching the same terrestrial drama, and for being decided based on the opinions of a committee that was structured to be significantly disadvantageous to OTT companies.

◆Why Did OTT Take the Strong Step of Filing an 'Administrative Lawsuit' Against the Government?

It is by no means an easy decision for the OTT industry, composed of new companies, to file an administrative lawsuit against the government. It is known that the OTT Music Council deliberated repeatedly until just before filing the lawsuit earlier this year. Concerns poured in from inside and outside the industry that they would suffer direct or indirect disadvantages in various content industry policies led by the Ministry of Culture, Sports and Tourism in the future. However, the fact that they ultimately proceeded with the lawsuit is interpreted as a strong judgment that the Ministry’s royalty rate decision was unreasonable and failed to maintain even the minimum mechanical neutrality among stakeholders. There was also a sense of crisis that native OTTs would be wiped out if things continued as they were.

The OTT industry, which has repeatedly emphasized the importance of negotiation and communication, held a press conference immediately after filing the lawsuit in February, clearly stating that this administrative lawsuit is "not about winning." Hwang Kyung-il, chairman of the OTT Music Council, lamented, "There is no way to appeal the wrongs," and said, "It is to express feelings of unfairness and regret." He explained that if the Ministry of Culture, Sports and Tourism carefully considers the opinions of all stakeholders and reexamines the issue, the lawsuit can be withdrawn at any time. The revision has also been criticized for abusing discretion and violating the higher law, the Copyright Act, as it was approved without sufficient public consultation. For the OTT industry, filing this lawsuit itself was a cry for an opportunity to have their opinions heard and reflected.

However, there has been little movement to resolve the conflict since then. The Ministry of Culture, Sports and Tourism only launched a coexistence council in May after criticism within the government that the conflict between the OTT industry and music rights holders was becoming controversial and that the ministry was acting like a "lone wolf." But meaningful communication has not followed. The positions of both stakeholders remain at odds, and even bilateral discussions on proposed alternatives have not been deep. Scheduled meetings were postponed several times due to the spread of COVID-19.

There is a mountain of issues to discuss, from the specific definitions of sales and subscriber numbers to the problem of double charging, but even the Ministry of Culture, Sports and Tourism, as the mediator, has shown a passive attitude and has yet to prepare a draft. A Ministry official from the Copyright Industry Division said, "There is no procedural defect as we collected opinions from various directions before approving the collection regulations." Expectations for the third working-level meeting scheduled for the 31st of this month are also low. The coexistence council is effectively considered meaningless.

If this continues, concerns are growing that the litigation could be prolonged. If the conflict escalates, it will inevitably become a draining battle for all stakeholders. At a time when the OTT industry should accelerate its growth trajectory to compete with overseas OTTs like Netflix, facing litigation uncertainty is a very regrettable situation. From a government policy perspective, this is also criticized as contradicting the minimum regulation principle across the government and the multi-ministerial 'Digital Media Ecosystem Development Plan' announced last year by the Moon Jae-in administration, which aimed to create at least five global OTT companies in Korea.

◆Legal Issues of the Revision... Discrimination of the Same Service, Double Charging, etc.

The controversy surrounding OTT music copyright royalty rates is not limited to one or two issues. The legal community points out concerns such as discrimination against the same service and double charging.

For example, the same rate should apply to the same service, but the royalty rates differ when watching terrestrial dramas on cable TV (0.5%), IPTV (1.2%), and OTT (1.5%). Moreover, cable TV and IPTV rates drop to about 0.27% and 0.564%, respectively, when adjustment coefficients are applied, but OTT has no such provision. This is why there is criticism that OTT, which is in its early growth stage, is being held hostage.

The double charging controversy is also inevitable. This is because additional copyright fees are collected even for content whose rights have been collectively managed through production companies. The Ministry of Culture, Sports and Tourism’s interpretation that "OTT and broadcast retransmission are different" can also be seen as unfair discrimination between media.

Previously, the Ministry cited overseas cases as the background for the royalty rate decision, but this has also been criticized as unclear. Even within the Ministry’s Music Industry Development Committee, which conducted related discussions, it was lamented that there is no global standard to refer to because the copyright trust structure, rights acquisition procedures, and settlement methods vary. Experts also criticize that copyright should be calculated based on usage type rather than technology.

If the Ministry of Culture, Sports and Tourism pushes ahead with this revision, the OTT industry will inevitably suffer huge damage. Considering OTT sales and cost structures, the current rates would force price increases of several thousand won. This would not only disadvantage consumers but also reduce the competitiveness of native OTTs, negatively impacting the entire content industry and potentially handing platforms over to global operators like Netflix. The OTT Music Council views the lack of consideration for such situations as a violation of the proportionality principle.

There are also procedural legality issues. The revised collection regulations take effect only after the Minister of Culture, Sports and Tourism approves the revision submitted by the Korea Music Copyright Association. Before that, opinions from operators such as the OTT industry must be collected on the final draft of the revision. However, the Ministry replaced this with a written report without collecting opinions and approved it by discretion. This has led to criticism that the Korea Music Copyright Association abused its rights through individual negotiations and that the Ministry, which should supervise this, has neglected its duties.

An OTT industry official said, "The Korea Music Copyright Association is an organization that monopolizes over 90% of copyrights in Korea as a trust organization and requires public control. But such aspects were not reflected." He raised his voice, saying, "The outcome of the lawsuit is not the core issue. We must protect the rights of copyright holders and ensure that users can smoothly access content."

This content was produced with the assistance of AI translation services.