Korean telco SK Telecom has signed a memorandum of understanding with the country's three leading broadcasters to integrate their online video platforms, Oksusu and POOQ. Broadcasters Korean Broadcasting System (KBS), Seoul Broadcasting System (SBS) and Munhwa Broadcasting Corporation (MBC) operate POOQ through a joint venture called Content Alliance Platform.
The new service will aim to create more local original content to fend off growing competition. According to reports, SK Telecom CEO Park Jung-Ho was seeking an initial investment of $180 million to produce original content; in comparison, Oksusu spent just $10 million on content last year. The company also aims to expand the new online video platform to Southeast Asia later in the year.
KBS, SBS and MBC enjoy extensive original content libraries and existing partnerships with regional players such as Hong Kong’s Viu, Malaysia’s iFlix and China’s iQiyi. According to IHS Markit Channels & Programming Intelligence, the three broadcasters spent 2 trillion Won ($1.8 billion) in 2018 to create and acquire TV programming, an increase of 10.8% on the year before, driven by encouraging regional demand for Korean content.
Meanwhile, SK Telecom has the advantage of financial strength and a huge subscriber base tied to its internet network. According to statistics from South Korea’s Ministry of Science of ICT, SK Telecom controlled 41.9% of the country’s wireless service subscribers, as of July 2018. It reported revenues of 17.520 trillion Won ($16 billion) in 2017; in comparison, we estimate the largest broadcaster KBS’s revenues in 2017 were 963 billion Won ($861 million).
With the combined resources, we believe the four local players will command bargaining power high enough to fight against fierce foreign competition. Netflix has been aggressively investing in original Korean content since its entry in 2016. However, many of the titles that Netflix brands as 'original' are produced and owned by local broadcasters including SBS, KBS, CJ E&M, and JTBC. IHS Markit estimates the number of its original titles grew from two in 2016 to eleven in 2018. Eight of these are titles Netflix had acquired exclusive rights to stream outside South Korea.
The new streaming service will benefit from SK Telecom's position in the mobile industry. Even though Oksusu reported 9.5 million subscribers in Q3 2018, IHS Markit believes this number is inclusive of SK Telecom mobile subscribers who are eligible for free access to the online video platform. The partnership between Oksusu and POOQ will bring the new streaming service access to POOQ’s 700,000 paying subscribers (Q4 2018), as well as a potential userbase in SK Telecom's mobile subscribers.
As the South Korean online video market is driven by high smartphone penetration, the new online video service can leverage the position of SK Telecom in mobile experience and technology. The smartphone installed base in South Korea reached 56.5 million in 2018. In 2018, 94% of mobile subscriptions were via a smartphone, compared to 68% in Japan and 87% in China. Online video services such as TVing offer mobile-only content plans at a lower price than mobile and PC plans, addressing the demand to stream video content on mobile devices.
The crowded South Korean online video market is poised for consolidation. The entry of Netflix and Amazon Prime Video in 2016 has intensified competition in the online video market. In the same year, YouTube also rolled out its paid service, YouTube Red to further capture the country’s subscription revenues on top of advertising. Other local players in the market include Watcha Play, Kakao TV, CJE&M’s TVing, LG’s LGU+ and Korean Telecom’s Olleh TV. Although the current overcrowding means that consolidation in this sector is inevitable, the entrance of new local and international services is expected to drive growth in the online video market in the next few years.