Monday, March 30, 2020
Why Do Naver, Kakao Lag Behind Google in Video Market?
Due to Reverse Discrimination
Why Do Naver, Kakao Lag Behind Google in Video Market?
  • By Michael Herh
  • October 24, 2017, 05:00
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Domestic content providers such as Naver and Kakao are in a vulnerable position in the local video market in terms of cost competitiveness compared to Google and Facebook.
Domestic content providers such as Naver and Kakao are in a vulnerable position in the local video market in terms of cost competitiveness compared to Google and Facebook.


Naver and Kakao Talk, which have a superior status in the domestic Internet market, far lag behind foreign companies in terms of both new media platform sectors, such as video and messenger services, and business, including advertising earnings. Their status, which have stood firm regardless of foreign portals’ aggressive marketing activities so far, has been shaken in the past two to three years. Market watchers say this is because domestic content providers are in a vulnerable position in terms of cost competitiveness compared to Google and Facebook.

According to industry sources on October 23, Naver’s video platform Naver TV had a mere 2.6 percent share in the video market. Kakao TV, which has been turned from Daum TV pot as a new platform through the merger in the past, is also struggling in the video market.

The reason is simple. Unlike other video platforms that have constant disconnects and problems with video playback, Google’s YouTube has no such problems. Naver TV and Kakao TV don’t fall behind YouTube in terms of video transfer speed. However, they pay costs for high network traffic to network providers such as ISP and three mobile carriers. Unlike Naver, YouTube doesn’t pay any costs for network usage.

Viewers also prefer YouTube due to the image quality. Naver TV has the maximum image quality of 720 pixels which is the level of high definition (HD). It generally provides the image quality of 480 pixels. It is not a problem when watching videos with a large monitor but it has poor image quality when watching them by connecting with TV in the era of “Smart Home.” However, YouTube has the maximum image quality of 1,080 pixels which is the level of full HD.

It is not that Naver doesn’t have a technology to improve the quality of video contents to the level of YouYube at 1,080 pixels. An official from the Internet portal industry said, “Naver pays 20 billion won (US$17.71 million) a year for high network traffic usage fees, including video. When the company improve the image quality to 1,080 pixels, the costs will be increased by four to five times, not two times. Naver cannot spend 100 billion won (US$88.57 million) on network usage per year so the company cannot just jump to improve the image quality.”

Naver TV and Kakao TV are in an unfavorable position compared to YouTube as they abide by the “copyright law.” They filter out TV programs in advance when the videos are against the copyright law. Naver TV provides some popular video contents after signing license contracts with broadcasters or content producers. It disallows users to even search for obscene videos and hidden cam prank videos, which are defined as “digital sexual violence,” when they fail to confirm that they are an adult.

In contrast, YouTube allows users to freely watch such contents at no charge and without going through the adult authentication system. An official from a content provider said, “When the show is over, the task force team starts searching for programs that infringe the copyright law. There are a lot of whole videos uploaded and we need to ask video providers to block videos by attaching an official document each that they infringe the company’s copyright law in order to unload them. However, more than 100 new videos are illegally posted while the access of one video is blocked.”

Therefore, YouTube is much more attractive to viewers since they can watch any full HD contents for free without disconnects. With the high speed of video transfer, competitiveness of image quality and policy of content management crossing expedient and illegality, YouTube has secured a 73 percent share in the video media market at a stretch. When domestic companies has more than a 70 percent share in a market, they are categorized as oligopolists and are imposed various regulations according to the Monopoly Regulation and Fair Trade Act. However, YouTube is not subject to any restrictions as it is based in the United States.

Such phenomenon has become intensified in not only the video sector but also whole areas in the domestic Internet market. Domestic social media services like Naver Band and Kakao Story still hold a dominant position in terms of monthly actual user but foreign platforms such as Facebook and Instagram are growing in stupendous force. According to a report released by mobile app analysis firm App Ape Analytics, the number of monthly users of Band and Kakao Story stood at 15 million and 13 million, respectively, while that of Facebook and Instagram reached 13 million and 10 million. When combining the local market share of the two companies, it already surpassed domestic social media services. This was also due to the fact that domestic social media services have a weak price competitiveness as they need to pay for related costs, though Facebook doesn’t pay for network usage fees. Domestic content providers doesn’t have enough spare capacity to catch up foreign companies while Facebook saves 100 billions of won per year and improve the competitiveness by investing to develop virtual reality contents and integrate with artificial intelligence.

The advertising market, which is the sole money-spinner of Internet service providers, is already being eaten by global content providers. According to the Korea Federation of Advertising Association (KFAA), Google and Facebook earned 300 billion won (US$265.7 million) in the advertising sector in the first half of this year alone.

An official from the Internet industry said, “It doesn’t mean that we will not pay for network usage fees like Google and Facebook. We still think that we should manage business after paying a fair price as a Korean company. However, we don’t have a fair competition as foreign companies continue to run business while not paying any money in a lawless area and being without regulations on the dominant position. Someone should address such reverse discrimination with foreign companies. The government or the industry needs to come up with the joint countermeasures as a whole. Otherwise, domestic content providers will all die out.”