The synergy between streaming giant Netflix and Korean content creators has been a win-win for both sides in recent years. With Netflix’s global platform providing streaming service to 190 countries, Korean TV series and films have become more easily accessible to audiences far beyond its main Asian market. In turn, Korean content and hit Netflix Korean Original series such as “Kingdom”, “Sweet Home” and “Crash Landing on You” have attracted millions of viewers and a net profit for Netflix. In South Korea alone, the number of paid users has grown from around 80,000 users in 2016 to 3.8 million at the end of 2020. Netflix is now the most widely used streaming platform in Korea. South, with reported sales of $ 356 million (Korean won 416 billion) and operating profit of $ 7.54 million.
Seeing the success and potential of the Korean market, Netflix established a limited liability company, Netflix Entertainment Korea, last year to focus on content creation, acquisition and investment in the market. Earlier this year, Netflix also announced plans to invest $ 500 million for studio production, including original films in South Korea.
However, with the increase in popularity, complications also arose: more specifically, the question of who should pay for the increase in traffic due to the success of Netflix.
Data from the South Korean Ministry of Science and ICT shows that Netflix streaming occupied about 4.8% of South Korea’s total internet traffic in the fourth quarter of 2020. According to SK Broadband Co. (SKB), the recent increase of Netflix users in South Korea has placed a structural and financial burden on the internet company, and SKB argues that Netflix should compensate for it accordingly. The result got Netflix into a legal battle with one of South Korea’s internet service providers over network usage charges.
Netflix, on the other hand, emphasizes the principle of net neutrality, which asserts that ISPs should not discriminate against specific content providers (CPs) or demand payments for the use of their network. Consumers pay ISPs for Internet service; therefore, CPs, such as Netflix, are not responsible for additional network usage charges.
Netflix currently has agreements with other ISPs in South Korea – KT Telecom, LGU + and D Live – where ISPs either have an exclusive content partnership with Netflix or Netflix is alleviating the internet traffic crisis by providing internet servers. cache called Netflix Open Connect rather than directly providing monetary compensation for them. Netflix has offered to ease the traffic by creating its own cache servers, much like its deals with other Korean ISPs, but SKB rejected the offer and insisted on monetary compensation.
The two sides, however, did not come to an agreement, and the issue escalated before the Korea Communications Commission, followed by a trial in April 2020. At the end of June 2021, the Seoul Central District Court dismissed Netflix’s request. and ruled that SKB had the power to seek compensation for this case and it should be negotiated between two private companies. While the move can be seen as a victory for SKB, it actually does not provide any basis for what compensation would look like and leaves it to two companies to negotiate their own terms.
In response, Netflix appealed the court ruling, saying the verdict denies the roles that a content provider and an ISP each have, and that it shifts responsibility from the ISP to the CP, thereby undermining the Internet ecosystem.
The dispute between ISPs and CPs is not unique to South Korea. It takes place in other countries, including the United States. However, South Korea is an interesting case as it is the country’s first lawsuit between a South Korean ISP and a foreign CP, where domestic and international platforms compete in an over-the-top market. (OTT) growing and crowded. Netflix vs. SKB will set an important precedent for other streaming services nationally and potentially globally. South Korean national CPs such as Naver and Kakao have paid ISPs millions of dollars even though their market share is much lower than that of Google and Netflix.
With global CPs, there was no clear legal guideline in place and companies settled their disputes through bilateral negotiations, either by providing additional cache servers to ease the bandwidth load of the provider. ‘Internet access, either by signing an exclusive contract with them rather than providing monetary compensation. .
In response to the ongoing debate, South Korea’s Ministry of Science and ICT is expected to announce its guidelines on network use and net neutrality in September. Last December, the ministry passed the revised Telecommunications Companies Act, informally dubbed the Netflix Act, with the aim of urging operators of foreign platforms like Netflix and YouTube to share costs to secure services. Stable internet. However, concerns have been expressed about the vague and ambiguous language of the ordinance and how it will be enforced. Although the ministry officially states that the government does not intend to interfere with the ongoing Netflix affair and that network usage fees should be voluntarily determined by the industry, guidelines would indicate the position of the government. Korean government on the matter.
Other global streaming platforms including Disney +, Apple TV + and HBO Max are planning to launch their service in South Korea this year and will be following Netflix’s case closely as it could impact their own services. Highly anticipated, Disney + has already delayed its launch date and plans to use third-party content delivery networks (CDNs) to completely avoid litigation with Korean ISPs.
SKB is likely to file a counter-action against Netflix’s action and this round of lawsuits is likely to go on for a long time. How this business unfolds will be an important factor for the streaming platform industry and Netflix’s business relationships in South Korea. Even if Netflix and SKB strike a deal, the exact terms and conditions would also have a butterfly effect on the future of the industry for domestic and global CPs and even consumers in terms of the cost and quality of streaming services.