Growth of Global Over-The-Top and Korean Media Market: Competition and Regulatory Policy Issues
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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Lee, Sangwon; Lee, Seonmi; Brown, Justin Conference Paper Growth of Global Over-the-Top and Korean Media Market: Competition and Regulatory Policy Issues 14th Asia-Pacific Regional Conference of the International Telecommunications Society (ITS): "Mapping ICT into Transformation for the Next Information Society", Kyoto, Japan, 24th-27th June, 2017 Provided in Cooperation with: International Telecommunications Society (ITS) Suggested Citation: Lee, Sangwon; Lee, Seonmi; Brown, Justin (2017) : Growth of Global Over-the-Top and Korean Media Market: Competition and Regulatory Policy Issues, 14th Asia- Pacific Regional Conference of the International Telecommunications Society (ITS): "Mapping ICT into Transformation for the Next Information Society", Kyoto, Japan, 24th-27th June, 2017, International Telecommunications Society (ITS), Calgary This Version is available at: http://hdl.handle.net/10419/168510 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Growth of Global Over-the-Top and Korean Media Market: Competition and Regulatory Policy Issues Sangwon Lee Associate Professor Department of Journalism and Communication Kyung Hee University 26 Kyungheedae-ro, Dongdaemun-gu Seoul, Republic of Korea Tel. 82-2-961-0269 Mobile. +82-010-4232-2668 E-mail:[email protected] Seonmi Lee Senior Researcher Economics & Management Research Institute KT Corporation 178 Sejong-daero, Jongno-gu Seoul, Republic of Korea E-mail:[email protected] Mobile. +82-010-3803-8345 Justin Brown Assistant Professor School of Mass Communication University of South Florida E-mail: [email protected] Phone: +1-813/720-7101 Growth of Global Over-the-Top and Korean Media Market - 2 Growth of Global Over-the-Top and Korean Media Market: Competition and Regulatory Policy Issues ABSTRACT Global markets for OTT (Over-the-Top) services are growing. Focusing on OTT services in Korean media markets, this study explores technological, industrial, and policy factors in OTT markets. Specifically, platform competition and regulatory classification for market entry regulation, global OTT players’ negative impacts on national economy, reverse discrimination against domestic players and user protection issues are discussed. Based upon the discussion on competition and policy issues for OTT players, this study suggests future policy directions for Korean media markets. Keywords: Global Over-the-Top; Regulatory Policy; Korea; Platform Competition Growth of Global Over-the-Top and Korean Media Market - 3 Continuous innovations in the media and telecommunication industry marked by technological convergence enable consumers to access video content through various broadband networks. With the diffusion of new technologies, online video reaches consumers via multiple devices, including computers, smartphones, tablets, gaming consoles, television sets, and other equipment connected to the Internet (Federal Communication Commission, 2012). As evidence of this trend, Internet-based video services like over-the-top (OTT), the most recent and potentially disruptive development in the media industry, have shown a rapid growth in many countries. In spite of growth of OTT service, it seems that there is no single, generally agreed definition of OTT services. In general, OTT service is understood as “content, a service or an application that is provided to the end user over the open Internet” (Body of European Regulators for Electronic Commerce, 2015). In a broad sense, OTT services include the provision of content and applications such as voice services provided over the Internet, web-based content, search engines, hosting services, email services, instant messaging, and video and multimedia content (BEREC, 2015). OTT service providers such as Skype and Netflix compete with traditional telecommunications and broadcasting services. Therefore, an OTT player is considered as any Content and Applications Provider (CAP) providing online services that can be regarded as potentially substituting for traditional telecommunications and broadcasting services such as voice telephony and television (European Union, 2015). In broadcasting markets, IPTV and OTT service providers offer similar Internet- based video services. However, in most cases unlike IPTV providers, OTT video providers do not provide the first and last mile broadband connections to physically Growth of Global Over-the-Top and Korean Media Market - 4 transmit video to consumers (Frieden, 2014). IPTV is generally offered by telecommunication operators like AT&T U-Verse in the US over managed network with guaranteed quality of service, while OTT services are provided by content owners such as BBC in the UK, or dedicated start-up players such as Netflix in the US without the Internet service provider (ISP) or network operator being involved either in the control of the content or its access by viewers (OECD, 2013a). Currently traditional regulatory frameworks are not imposed on global OTT service providers such as Netflix and Hulu in many countries. For instance, network operators must get licenses from the government for telecommunication and broadcasting services. However, for OTT players licensing is often exempted. In the United States, the Federal Communications Commission (FCC) released a Notice of Proposed Rulemaking (NPRM) proposing to give OTT video programming providers certain legacy negotiating and carriage rights with respect to both cable programming and broadcast television programming (FCC, 2014). Like other countries, Korean OTT markets are growing and diverse regulatory policy issues were addressed for OTT service providers including global OTT providers. To better understand the OTT services in Korean media markets, this study employs an analytical framework, which reviews the roles of a diverse set of factors such as technological factor, industrial factor, and policy factor in Korean OTT markets. Specifically this study focuses on competition and regulatory policy issues for global OTT players. Based upon the discussion on competition and regulatory policy issues for OTT players, this study suggests future policy directions for Korean media markets. Growth of Global Over-the-Top and Korean Media Market - 5 Growth of Global Over-the-Top in Media Industry Growth of global over-the-top Global markets for OTT services are growing. As of September 2015, Netflix, one of the global OTT service providers, had 43 million domestic and 26 million international streaming subscribers (Statista, 2016) (See Figure 1). Forecast estimates that the number of households subscribing to Netflix worldwide in 2020 will reach nearly 114.9 million (Statista, 2016). In the United States, in 2014, 65.6 percent of TV watchers used Netflix (Statista, 2016). In terms of the subscription revenue, forecast estimates that OTT TV and video subscription revenue will increase from 0.96 billion to 21.65 billion U.S. dollars between 2010 and 2020 (Digital TV Research, 2015). While the diffusion of OTT service is expanding globally, there will be a major shift in the geographical split of OTT revenues. Currently the US accounts for over 75% of revenues, but that will drop to less than 60% in 2017 as Europe and Asia grow more quickly (Informa Telecoms & Media, 2012). It is also estimated that OTT will take 7 percent of total TV and video revenues by 2016 (Informa Telecoms & Media, 2012). Figure 1. Growth of Netflix streaming subscribers (Source: Statista) Growth of Global Over-the-Top and Korean Media Market - 6 Figure 2. Growth of Netflix revenue and revenue structure (2011-2020) (Source: Trefis) Figure 2 provides the growth of Netflix revenue and revenue structure. Figure 2 demonstrates that Netflix’s revenue from global streaming services shows steady growth. The portion of global streaming services in the total Netflix revenue increased from 2.6 percent in 2010 to 29.94 percent in 2015. Forecasts predict that portion of global streaming services in the total Netflix revenue will reach 45.98 percent by 2020. Thus, Netflix launched its service globally. Netflix’s global streaming services are currently available in more than 190 countries around the world including Korea. In 2016 Netflix will invest as much as $5 billion on programming, making it the second biggest spender on content buyer after ESPN (Yarow, 2015). The Korean OTT market overview Various OTT services are currently available in