Refusing to Pay Network Fees
Netflix is under fire for disrupting the ecosystem of Korea’s over-the-top (OTT) industry. The OTT ecosystem consists of viewers, OTT services, platforms and program operators. Industry watchers note that Netflix is undermining the ecosystem by refusing to pay fees for using telecom networks.
Among OTT service providers operating in Korea, global operators such as Netflix and YouTube are virtually paying no network use fees. OTT service providers are expected to pay fees for supplying content through networks built by cable TV, Internet (IP) TV, and satellite broadcasting companies. Korean OTT services such as Wavve, Seezn and TVing are paying network fees in exchange for using platforms.
Network fees are used to upgrade platforms and paid to program providers, including terrestrial TV companies and general programming channels, for using their content. An OTT market ecosystem cannot work if OTT service providers refuse to pay the fees for using platforms.
Netflix has declared that it will skip the process between OTT services and platforms in this ecosystem. Netflix signed a contract with LG Uplus, but the deal caused controversy as the profit-sharing ratio was one-sidedly in favor of Netflix. Netflix is pursuing a structure where it can skip platforms and connect with program providers.
The establishment of an OTT service-program operator relationship also has advantages in the short term. This is because Korean content can be distributed to the global market through Netflix. The Kingdom series, Netflix's original content, is the case in point. However, from a long-term point of view, the link that bypasses Korean platforms may trigger too much dependence on Netflix in the end.
The viewer-OTT service relationship is also a point to ponder. Unlike YouTube, Netflix receives service fees from viewers. Netflix's service fee is monthly, and viewer membership grades (Basic, Standard, and Premium) determine video quality, and the number of concurrent users. This is why experts criticize that Netflix makes profits by taking service fees without paying network use fees.