IPTV Overtakes Cable TV to Lead Paid TV Market in Korea

Internet TV (IPTV) has now taken the throne of the subscription-TV market in 10 years after its launch in 2008. It has focused on a catch-up to the first runner as a latecomer but now it faces competition from global over-the-top (OTT) companies such as Netflix and YouTube. IPTV service providers are also feeling a need to create an ecosystem to keep the paid TV market growing.

LG U+ has recently made an exclusive partnership with Netflix for contents distribution. The company, together with its two stronger rivals, is also considering taking over a cable TV operator, accelerating changes in the domestic paid TV market.

The IPTV industry, including the Korea IPTV Broadcasting Association, KT, SK Broadband, and LG U+, held the IPTV 10th Anniversary Ceremony at the Central Temple of Cheongdogyo in Jongno-gu, Seoul on Nov. 22.

The number of IPTV subscribers has rapidly grown since it exceeded one million in a year after the launch in 2008, growing more than 10 times to reach 14.72 million as of the first half of this year. IPTV operators accounted for 46.05% of the total paid TV market, beating the cable TV industry (43.76%) for the first time.

The three IPTV providers turned around last year from chronic deficits. In the third quarter of this year, IPTV sales of the three telecom companies increased by 23% from a year ago to 935 billion won (US$841 million). As wireless carriers are pressured to cut down telecommunication fees, which would lead to a decrease in profits, their IPTV business has become a new “cash cow.”

However, it is also pointed out that the IPTV industry will face many challenging tasks to solve in the future as it expanded rapidly over the last decade.

First, there is a need to secure differentiated contents to compete with global OTT companies. The IPTV industry has already been investing to create original contents. Going one step further, LG U+ will provide exclusive Netflix services on IPTV. This is a strategy to expand its market share through Netflix, which provides a variety of contents. SK Broadband also plans to work with Google to add YouTube contents starting in early next year.

There are concerned views on such alliances. Netflix takes 90% of the revenue, while domestic content providers take only 50% to 60%. Growing reliance on the global content industry raises the possibility of the domestic media industry being dominated by foreign companies. According to the Roy Morgan research survey by Boston Consulting Group (BCG), Netflix's market share in Europe including the U.K. is 83%.

An industry official said, "Until now, the domestic IPTV companies have been able to expand their market shares in Korea, but to expand into the overseas market, content competitiveness is essential. Heavy reliance on Netflix and YouTube will only hold them back in the end.”

There is also a criticism that the IPTV companies have not been investing enough to activate the subscription-TV industry ecosystem.

However, the IPTV and cable TV industries are indeed facing a market reorganization. LG U+ is trying to merge with CJ Hello, while KT’s broadcasting subsidiary KT Skylife is reviewing a merger with Dlive. SK Broadband is also expected to merge T Broadband and Hyundai HCN. If LG U+ takes over CJ Hello, it will be the second runner after KT (30.84%) with a market share of 24.43%, beating SK Broadband. KT will take the unrivaled first place if it merges with Dlive.