Domestic online video services (OTT) and multiplexes are facing sluggish performance. This situation contrasts with the fact that domestic films and dramas have gained attention abroad and established themselves as a driving force for economic growth.
In the industry, expectations are rising for the overseas expansion of local OTTs based on the synergy from the merger between TVing and Wave.
According to the Financial Supervisory Service electronic disclosure system on the 2nd, Watcha's Japanese subsidiary "Watcha Japan" recorded approximately 279 million won in revenue and a net loss of 32.88 million won last year. It also incurred losses in 2023. CGI Holdings, a Hong Kong subsidiary managing CJ CGV's operations in China, Vietnam, and Indonesia, was found to have incurred a net loss of about 54.5 billion won from 2023, last year, and the first half of this year.
Lotte Cultureworks, which operates Lotte Cinema, is in the process of liquidating its local subsidiary established in Shandong Province, China. This comes after the sale of its Hubei Province subsidiary in 2022, and now it is undergoing the liquidation process for the Shandong Province subsidiary. This effectively means the company is withdrawing from overseas operations, except for Vietnam.
While multiplexes are losing their competitiveness, domestic content is receiving high acclaim abroad. Notable works include Bong Joon-ho's film "Parasite," which won four awards at the 92nd Academy Awards, and Netflix's original Korean content, which has grown to 550 pieces as of 2018, garnering significant attention globally.
Last year, Netflix announced that "more than 80% of all subscribers watched at least one piece of Korean content."
Following multiplexes, OTTs are also struggling to take flight. American company Netflix achieved revenue of 899.6 billion won and an operating profit of 17.4 billion won in Korea last year, while the CJ ENM-affiliated TVing reported an operating loss of about 71 billion won, and Wave, created by SK Square and three terrestrial broadcasters, recorded an operating loss of about 27.7 billion won.
TVing and Wave have both incurred losses from 2020 to last year, and Watcha is facing a corporate survival crisis to the point of undergoing rehabilitation proceedings. In terms of market share in the domestic OTT sector, TVing and Wave account for approximately 16% and 11%, respectively, falling behind Netflix (31%).
As various platforms began their services during the early phase of OTT, the dispersion of subscribers and data is cited as a structural cause. Individual OTTs developed their own services, resulting in insufficient user data to enhance recommendation algorithms, and their investment in original content was also delayed.
A source who previously worked at a domestic OTT company noted, "While Watcha introduced 'Joyous' in 2022 and domestic OTT corporations started producing original dramas from 2020, Netflix achieved significant success with dramas a decade prior. The late timing in producing original content and lacking user interest, except for a few works, meant a difference right from the starting line."
The industry views the merger of TVing and Wave as a turning point. Last June, the Fair Trade Commission approved the merger of the two OTTs under the condition that they would not raise fees until the end of 2026.
Currently, KT, the second-largest shareholder with a 13.5% equity stake in TVing via Studio Genie, holds the key to the merger's direction. KT is said to be showing a cautious attitude due to concerns about the reduced presence of Studio Genie content and declining IPTV subscribers following the merger of TVing and Wave.
The monthly active user count for TVing and Wave is approximately 11.91 million, comparable to Netflix's 14.8 million. Given that dramas produced by CJ ENM are garnering interest both domestically and internationally, there are projections that the success of original content post-merger will be crucial for growth.
An industry source remarked, "Multiplexes are on a downward trend, and OTTs still have growth potential when combined with content."
He also explained, "With the Lee Jae-myung government expressing a commitment to support the cultivation of local OTT platforms and their overseas expansion, there is potential for strengthening their competitive capacity to rival overseas OTTs once the merger process is completed and production and investment scales are expanded."