Netflix has joined the long list of over-the-top services that are looking to use South Korean dramas as a lure to draw new viewers in Asia, while at the same time making its own service more competitive to local services in South Korea.
The company today announced it had contracted for a 12-episode original series based on a South Korean online comedy series. The series will debut in 2018.
"The Korean content category is becoming vital… it has high production value and the content travels," Vivek Couto, executive director of consultants Media Partners Asia, told CNBC.
Netflix, which launched across much of Asia in January last year, is set to spend more than $6 billion on content, much of it originals, in 2017, the company said during an earnings call last year.
Netflix isn’t alone in its use of South Korean content as a draw, one of its biggest believers is PCCW, which has based a significant portion of its marketing strategy for its ad-supported and premium subscription-supported OTT service, Viu, on the content. Viu has a multitude of South Korean content available in the APAC regions it’s rolled out to available within eight hours of their being broadcast in Korea. It counts four of the top South Korean broadcasters as partners (SBS, KBS, MBC and CJ E&M) and boasts dramas, variety shows, and more.
Korea’s competitive SVOD market
While having Korean content is crucial to SVOD and AVOD services in much of Asia – the content from the region’s fourth-largest economy is considered top notch and has broad appeal – having it in the Korean market could be make-or-break for Netflix, and the local and regional competitors it’s battling.
The size of the market – and the willingness of users to take online video – makes it a valuable one.
Although SVOD revenue in the country currently is estimated at just $130 million, that’s expected to increase to more than $271 million by 2021, according to several recent studies.
The number of users also is expected to skyrocket from the current 6.8 million SVOD households to more than 10.2 million by 2020. Statista, meanwhile, estimates those users currently generate an average revenue per user (ARPU) of $49.46, but expect that to increase to $53.70 by 2021.
South Korea reflects the rest of the world in terms of who’s watching the most online video – Millennials, of course – and that makes it even more valuable as broadcasters will look to reach that high-value marketing segment, increasingly, with their own services.
In 2016, roughly 1.65 million viewers were between 25-44 years of age, about 63% of all users. Over time, forecasts hold that the user profile will gradually age, but 25-44 year olds will still number 2.9 million in 2021, 58% of all users.
Those metrics show why the battle for viewers in Korea will be a tough one.
Netflix has struggled to reach its desired market share in South Korea, where it currently has an estimated 878,000 subscribers (although some analysts forecast it could reach 3.85 million by 2020) and faces major competition from other SVOD services. With just a scattered handful of local-language content titles, a move to enhance that number through an original offering could be a good one.
Korean content plays well in China, too
Netflix, somewhat reluctantly, has waited to launch in China; the business climate for foreign streamers is difficult at best and the likelihood that regulations will change in the near future is small.
In a letter to shareholders, Netflix wrote: "The regulatory environment for foreign digital content services in China has become challenging. We now plan to license content to existing online service providers in China rather than operate our own service in China in the near term."
But Korean content still plays big there, and the massive market – just a step or two away – likely remains bright on Netflix’s radar. Having originals that it could license to a partner to stream in China would give Netflix at least a toehold there, with the ability to jump into the market with a full head of steam.
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