Global OTT Floods In... Native OTTs Frustrated Over 'Promotion Policies' That Haven't Even Started

[Asia Economy Reporter Seulgina Cho] Following Netflix, global online video service (OTT) giants such as Disney+ and Apple TV+ have successively launched services in Korea, marking the beginning of an OTT big bang. However, the Moon Jae-in administration's domestic OTT promotion policy, which aimed to create 'five global OTT companies,' has yet to make significant progress.

Despite the rapidly growing market, the government's comprehensive OTT promotion policy?which includes expanding tax credits for OTT content production costs and granting a self-rating system?has not been properly implemented even after nearly a year and a half since its announcement, rendering it largely ineffective. Additionally, controversies continue over Netflix's free-riding on network fees and the alleged discrimination against domestic OTTs, especially after Netflix recorded unprecedented profits with the Korean original content "Ojingeo Game" (Squid Game).

According to industry sources on the 14th, the Korea OTT Council, composed of domestic OTT operators such as Wavve, TVING, and Watcha, issued a statement titled "Will the OTT Promotion Act be passed after giving away the entire market?" on the 11th, the day before Disney+ launched its service in Korea, urging the government to accelerate the domestic OTT promotion policy announced last year.

The OTT Council emphasized, "While service competition is the responsibility of operators, fundamental support policies are urgently needed for Korean OTTs to grow properly and contribute to the domestic content industry. We urge the government to act swiftly to prevent the domestic media industry and market from being entirely handed over to global OTTs and to avoid a 'too little, too late' situation."

Last June, the government announced plans to expand the current tax credit for production costs to include OTT and to grant a self-rating system for OTT content that bypasses the Film and Video Rating Board. However, nearly a year and a half later, the legal basis for these promotion measures has yet to be established.

The industry identifies urgent institutional improvements such as the amendment of the Telecommunications Business Act, transitioning the OTT content pre-review system to a self-rating system, and resolving discrimination against domestic operators.

The amendment to the Telecommunications Business Act would grant OTTs the status of "special type value-added telecommunications business operators," providing a legal basis for tax support on content investment and other OTT promotion policies. The expansion of tax credits for production costs to OTTs through the amendment of the Restriction of Special Taxation Act can only be fully pursued after the bill is passed.

The introduction of a self-rating system is also urgent. The council stated, "Transitioning to a self-rating system can prevent delays in content provision caused by the relatively long video rating review period," calling for regulatory relaxation.

Under current law, broadcast programs produced by broadcasters are exempt from prior rating classification and undergo post-review. However, OTT content is classified as video material under the Act on Promotion of Films and Video, requiring prior rating approval from the Film and Video Rating Board. This process takes at least 3 to 4 weeks, making it difficult to provide timely additional content that could attract viewers' interest in case of specific issues.

There are also criticisms that the turf battles among ministries over OTT jurisdiction have pushed institutional preparations to the back burner. The Ministry of Culture, Sports and Tourism's amendment to the Film and Video Act, announced for legislative notice in the first half of this year, defines OTT as "online video content providers" to place it under its jurisdiction. Meanwhile, the Korea Communications Commission is promoting the "Audiovisual Media Service Act," which would regulate OTTs alongside broadcasting and IPTV under its authority. The Ministry of Science and ICT views OTTs as a special type of value-added telecommunications business operator under the Telecommunications Business Act amendment.

Meanwhile, amid a prolonged policy vacuum, controversies over discrimination against overseas OTTs like Netflix, which generate huge revenues in Korea but pay no network usage fees, are intensifying. This issue was also raised during last month's National Assembly audit. Netflix, which recently earned massive profits from "Ojingeo Game," lost the first trial in a lawsuit claiming it has no obligation to pay network fees but has appealed the decision.

Dean Garfield, Netflix's Vice President of Policy, who recently visited Korea, reaffirmed the company's stance that it cannot pay network fees and, in a brazen claim, argued that the government should prevent Korean telecom companies from demanding fees from Netflix. Although he expressed willingness to negotiate directly with SK Broadband, which is engaged in a legal dispute over network fees, he reportedly left the country the next day without any contact.

Unlike Netflix, domestic OTT operators, which have lower revenues and operate at a loss compared to foreign companies, pay network fees regularly every year. As of last year, operating losses were 16.9 billion KRW for Wavve, 6.1 billion KRW for TVING, and 12.6 billion KRW for Watcha. Companies like Naver and Kakao also pay annual network fees ranging from 70 billion to 100 billion KRW to telecom companies.

At last month's National Assembly audit, Naver founder Lee Hae-jin, questioned about network usage fees, said, "There is concern about reverse discrimination," and indirectly criticized Netflix by stating, "If Naver pays network fees, it is only fair that foreign companies that use the network much more pay under the same standards." Moreover, it has been confirmed that Netflix pays network fees in countries such as the United States and France.

An industry insider criticized, "Foreign operators generate significant revenue through domestic operations but do not bear the costs of network fees and taxes associated with business management," adding, "The difference in capital strength and costs places domestic operators in a discriminatory competitive environment, which is reverse discrimination."

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