Comprehensive cable television service providers (SO and cable TV) plan to lower the content usage fees they pay to broadcasting channel usage providers (PP and production companies). PPs immediately protested and formally requested mediation from the Ministry of Science and ICT. As the phenomenon of 'cord-cutting,' where paid TV subscribers move to online video services (OTT) as an 'alternative,' accelerates, tensions between SO and PP are also intensifying.
According to the paid broadcasting industry on the 16th, the government is increasingly likely to step in as a mediator in the content usage fee calculation dispute that has recently arisen between SO and PP. This is because President Lee Jae-myung has promised to establish a fair competitive foundation in the paid broadcasting market as part of his election pledge.
In his pledge, President Lee stated that while negotiations on content usage fees should be based on the autonomy of the companies involved, if conflicts arise, the government will enhance its 'fair mediation function.' Given his promise to establish a fair and transparent pricing system for compensation (usage fees) between paid broadcasting platform operators and content providers, industry insiders share the view that the government could actively intervene in the currently intensifying conflict.
A media researcher who requested anonymity noted, 'The conflict over the calculation of content usage fees is a long-standing issue that has persisted for over five years, and it involves delicate aspects, making it difficult for the government to intervene easily.' However, they added, 'Given that President Lee has unusually mentioned 'fair mediation functions' in his pledge, there is a high possibility that he will actively engage in the issue compared to past administrations.'
◇ 'Time to transition the 30-year practice of 'content fee payment' contracts'
The conflict over the calculation of content usage fees between SO and PP has begun to prominently surface this month. This is because the Korea Cable Television Association (KCTA) announced that it would apply a 'standard for fair distribution of content usage fees' to each corporation.
Multiple system operators (MSO) like SK Broadband, LG HelloVision, DLive, CMB, and KT HCN, along with individual SO companies such as Ara Broadcasting Network and Seogyeong Broadcasting, plan to enter into new contracts with PP based on the new calculation standards beginning this month.
The Korea Communications Commission has provided administrative guidelines to allow the KCTA to create and offer guidelines on the distribution of program usage fees. Although the standards recently established by KCTA after discussions with the related industry since 2023 do not hold legal strength in contracts between SO and PP, industry insiders assert that it is difficult to completely ignore them as there are currently no government-established content usage fee standards.
KCTA established the standards with a structure linking SO revenue and content usage fees. This is because the amount combining the basic channel usage fee and retransmission fee is divided by the basic channel reception fee and home shopping broadcasting fee, setting the 'content usage fee payment rate.' If the SO payment rate exceeds the overall platform average by more than 5 percentage points (P), the rate will gradually decrease to the average level within three years. As of 2023, the payment rate is recorded at 39.15% for MSOs and 30.46% for individual SOs. In contrast, the overall platform average payment rate, which includes internet (IP) TV and satellite broadcasting, is accounted for at 27.48% during this period.
◇ PP opposes the introduction of 'content usage fees' linked to cable TV revenue
KCTA has ensured that these payment rate standards apply to contracts between all SO and PP operators. However, the assessment of PP performance, which is the basis for calculating the total content usage fee, is applied differently depending on the channel type. For public broadcasting, comprehensive programming, and news channels, it is based on the Korea Communications Commission's 'broadcast evaluation market share,' while for small to medium-sized content corporations, it is based on 'PP channel evaluation market share.'
The Korea Broadcasting Channel Promotion Association and the Korea Association of Broadcasting Channel Users issued a statement expressing regret, saying it was 'unilateral enforcement without stakeholder consultation.' In particular, they noted that if the standards are applied as they are, the content usage fees paid by five MSO companies could be reduced by approximately 120 billion won over three years, which would 'shift the burden.' They criticized the notion that 'SO operators presented a pricing standard aimed solely at reducing content costs rather than making fundamental efforts to solve issues like declining subscription revenue and diversifying revenue streams.'
Voices of dissent have also emerged within KCTA, which prepared these standards. The KCTA's PP Council stated, 'PP operators are facing dual pressures from the stagnation of the broadcast advertising market and increased content production and procurement costs,' and added, 'It is difficult to agree with a method that unilaterally imposes sacrifice.' They suggested the necessity of quickly establishing a government-participating consultative body to discuss the revitalization of the paid broadcasting market and submitted an opinion statement requesting mediation from the Ministry of Science and ICT last month.
◇ A crisis for cable TV overshadowed by OTT... 'Structural solutions should be offered'
The fundamental cause of the conflict over content usage fee calculations between SO and PP is cited as the contraction of the paid broadcasting market. According to the Ministry of Science and ICT, the number of cable TV subscribers (combined SO and MSO subscribers) decreased by 12.9% from 14.09 million in the second half of 2017 to 12.27 million in the second half of last year.
The performance of MSOs is also declining. LG HelloVision reported a revenue of 1.1964 trillion won and an operating profit of 13.5 billion won last year. Although revenue increased by 0.52% compared to the previous year, operating profit decreased by 71.5%. KT HCN's revenue last year was recorded at 229.5 billion won, down 3.86% from the previous year, with operating profit falling by 54.28% to 10.1 billion won.
In the SO industry, while the emergence of OTT has negatively impacted the cable TV market, it is claimed to be an opportunity for PP since they can supply content created by PP to OTT as well. An official from the cable TV industry stated, 'We are supplying the same content not only to SO but also to IPTV and OTT, so the single value has diminished, making a new pricing standard necessary,' and added, 'SO has reached a level where it pays most of its reception fees as content usage fees.'
Sales revenue from public and PP programs increased from 981.2 billion won in 2019 to 1.2623 trillion won in 2023, marking a 28.7% increase. In contrast, the proportion of content usage fees paid by cable TV operators in relation to basic channel reception fee revenue increased to 96.8% in 2023.
Professor Park Seong-soon of Paichai University said, 'If the government intervenes and mediation occurs in an industry where interests are at odds, neither side will be satisfied, and the problems will not be resolved.' He added, 'The paid broadcasting industry is characterized by rigidity and is in decline, while also facing various regulations that have created a distorted market structure.'
He further stated, 'It is desirable for government intervention to focus on improving the entire industrial structure rather than just patching up conflicts.'