KBS's Strategies in a Changing Media Scene

1. Summary

• Amid the rapidly changing media environment, KBS, South Korea's public broadcasting service, faces significant challenges that are reshaping its operational landscape. The proliferation of OTT platforms, such as Netflix, has drastically impacted traditional broadcasting by drawing away viewers and advertising revenue. Consequently, KBS's advertising revenue has plummeted from 500 billion KRW in 2014 to about 100 billion KRW in 2023. Furthermore, digital transformation has seen consumer preferences shift towards mobile and Internet-based content, emphasizing the need for KBS to adopt a digital-first approach in its content strategy. The report identifies key areas where KBS must innovate, including its traditional business models and regulatory framework, to adapt to this evolving market. In particular, collaborations with global OTT platforms and producing high-quality original content are suggested as vital strategies for KBS to maintain competitiveness while preserving its public service mandate.

2. Changes in the Media Market Environment

• 2-1. Emergence and Growth of OTT Platforms

• The emergence of OTT platforms began in earnest with the introduction of comprehensive programming channels in December 2011, further accelerated by the entry of Netflix into the South Korean market in 2016. This rapid growth has led to a significant decline in viewership ratings and advertising revenues for traditional broadcasters. For example, KBS's advertising revenue dropped from approximately 500 billion KRW in 2014 to around 100 billion KRW in the previous year, illustrating the substantial impact of OTT platforms on KBS's revenue structure. Experts have indicated that the increased use of OTT and digital platforms is likely to fuse content with e-commerce and accelerate the integration of services utilizing the metaverse.

• 2-2. Impact of Digital Transformation on Traditional Media

• Traditional media in South Korea is facing a severe crisis due to digital transformation. Previously, terrestrial broadcasting held a monopoly on the market; however, the growth of OTT and digital media has disrupted this structure. Since 2015, smartphones have overtaken TVs as the primary medium, leading to a shift in viewing habits from channel-based to program-based consumption. Under these circumstances, traditional media must explore pathways to survival in this rapidly evolving environment.

• 2-3. Challenges Faced by Traditional Media in South Korea

• KBS is confronted with multiple challenges as a public broadcaster amidst changes in media consumption patterns. The rapid decline in advertising revenues is a notable concern; while KBS recorded approximately 500 billion KRW in advertising revenue in 2014, the revenue stood at merely around 100 billion KRW in 2023. Additionally, a change in the viewer demographic is noted, with traditional TV viewership decreasing due to the rise of smartphones and OTT services. Since 2015, smartphones have become the primary medium for many consumers, directly affecting KBS’s viewer base. Furthermore, KBS faces challenges in maintaining its public service mandate, which is increasingly jeopardized by regulatory changes.

3. Current Situation and Challenges of KBS

• 3-1. Decline in Advertising Revenue

• KBS has experienced a significant decline in advertising revenue, dropping from approximately 500 billion KRW in 2014 to just around 100 billion KRW in 2023. This drastic change is largely attributed to the emergence of alternative media platforms such as OTT services, which have reshaped the advertising landscape.

• 3-2. Shifts in Viewer Demographics

• The viewing patterns of the audience are changing, directly influencing KBS as a public broadcaster. The proliferation of smartphones and the growth of OTT services have led to a decrease in traditional TV viewership, shifting consumption towards program-based viewing instead of channel-based. Since 2015, smartphones have overtaken TVs as the primary medium for the public, significantly affecting KBS's viewer demographic.

• 3-3. Maintaining Public Service Values

• KBS faces the challenge of preserving its public service values amidst evolving regulations and shifting operational frameworks. Changes in broadcast law and regulatory environments pose threats to KBS's identity as a public broadcaster, exemplified by issues such as the privatization of YTN. Strengthening its public service mandate necessitates restructuring the regulatory framework to ensure the independence and public interest of the broadcasting service.

4. Digital Transformation and Enhanced Accessibility

• 4-1. Expansion of Digital Platforms

• The media market is undergoing a deregulatory trend, prompting broadcasters to build digital platforms and adopt new ways of distributing content. This transition has led to increased exchanges and collaborations between broadcasters and digital content providers, playing a crucial role in accelerating digital transformation.

• 4-2. Mobile and Internet-based Content Delivery

• Since Netflix entered the Korean drama market in 2016, there has been a rapid increase in the production and consumption of mobile and internet-based content across the media market in South Korea. The proliferation of OTT platforms has resulted in a higher number of drama productions, expanding the overseas market and enhancing the global competitiveness of Korean dramas. As a consequence, the average production cost of Korean dramas has skyrocketed, with per episode costs rising from 300 to 400 million KRW in 2013 to various ranges from 1.2 billion to 5.8 billion KRW in 2023.

• 4-3. User-Centric Service Provision

• The digital transformation process has placed increasing importance on delivering user-centric services. Broadcasters are producing snackable content to swiftly address changing viewer needs, particularly appealing to new consumer demographics such as millennials. Furthermore, content creators are increasingly considering broadcasting formats from the initial production stages to better align with audience preferences.

5. Original Content Production and Global Cooperation

• 5-1. High-Quality Original Content Creation

• The media market in South Korea has undergone significant changes due to the emergence of mobile environments, making the production of original content increasingly essential. Following Netflix's entry into the South Korean drama market in 2016, the Korean drama industry has experienced internationalization alongside a rise in the number of produced dramas each year. Consequently, the average production costs of Korean dramas have substantially increased, with the average cost per episode soaring from approximately 300 to 400 million KRW in 2013 to 3 to 10 times that amount by 2023. For instance, the production costs of notable dramas such as 'Extraordinary Attorney Woo' (1.2 billion KRW per episode), 'Reborn Rich' (2.1 billion KRW), and 'Suriname' (5.8 billion KRW) reflect this upward trend.

• 5-2. Collaboration with Global OTT Platforms

• KBS, along with other Korean broadcasting companies, is expanding its content production and distribution through collaboration with global OTT platforms. Media experts suggest that the digital transformation accelerated by the COVID-19 pandemic has led users to rapidly shift towards OTT platforms. In response, traditional broadcasters are actively seeking entry into the digital market and establishing collaborative frameworks with OTT providers. This cooperation will serve as a foundation for broadcasters to create new forms of content.

• 5-3. Overseas Market Expansion for Korean Content

• Korean content has gained significant popularity in overseas markets, particularly due to the Hallyu (Korean Wave). However, there remains a need to expand the scale of Korean content's overseas presence. Industry stakeholders acknowledge the necessity for innovative overseas market entry strategies to maintain competitiveness. While performance on foreign platforms is positive, there is a recognition that enhancing competitiveness in the global market is critical. Experts believe that policy support, including regulatory alleviation, will help overcome barriers and facilitate overseas expansion.

6. Regulatory Reforms and Institutional Innovation

• 6-1. Restructuring the Broadcasting Regulatory Framework

• The traditional broadcasting industry has undergone significant changes since the emergence of comprehensive channels in December 2011, alongside the growth of cable channels such as CJ ENM, the rising popularity of YouTube during the 2017 presidential elections, and the advent of paid OTT platforms like Netflix following the COVID-19 pandemic. In response to these rapid changes in the broadcasting environment, it is crucial to restructure the broadcasting regulatory framework. The growth of OTT platforms necessitates discussions on applying the same regulations to all service types, emphasizing that updating the regulatory system to reflect current media conditions is now urgent.

• 6-2. Relaxation of Advertising Regulations

• KBS has experienced a sharp decline in advertising revenue, dropping from approximately 500 billion KRW in 2014 to around 100 billion KRW in recent years. This shift can be attributed to changes in the advertising market, particularly due to the emergence of alternative media such as OTT platforms. To address these challenges, there is a need for regulatory relaxation regarding advertising to allow for more flexible advertising operations, which would provide KBS and similar public broadcasters with opportunities to explore new revenue models.

• 6-3. Improving Governance of Public Broadcasting

• The current governance structure of public broadcasting in South Korea is facing delays in improvement due to extreme partisan confrontations. Dysfunction in the operation of the Korea Communications Commission has eroded public trust in the government. Recent statements from President Yoon Suk-yeol have expressed intentions to reinforce the public nature of broadcasting, which has raised expectations within the industry. Urgent development of a governance reform plan agreed upon by opposition parties is necessary to restore trust in the broadcasting sector and bring about sustainable change.

7. Diversification of Business Models and Profitability Enhancement

• 7-1. Content Licensing and Distribution

• Since 2017, there has been an increase in collaboration and interaction between broadcasters and digital content providers in the South Korean media market. The original content production and acquisition war has become fierce as broadcasters face both viewer loss and declining advertising revenues. In this environment, content licensing and distribution have become a key strategy for sustaining their operations.

• 7-2. Direct Sales to Consumers via Digital Platforms

• The acceleration of digital transformation has led to a rapid shift of users to digital platforms such as OTT services. This shift has caused traditional legacy media to face a crisis, prompting them to establish direct sales channels with consumers. Especially after COVID-19, this trend has become more pronounced, necessitating the establishment of stable revenue models through direct consumer engagement.

• 7-3. Hosting Events and Workshops for Revenue Generation

• As competition in the media market intensifies, offline activities such as events and workshops are gaining attention as new revenue sources. These events provide opportunities to enhance brand recognition and strengthen relationships with consumers. Particularly, within the domestic media industry, there has been an effort to diversify business models through these events and workshops, despite facing challenges related to rising content production costs.

Conclusion

• The findings underscore the pivotal moment that KBS is experiencing; it must instigate a profound digital transformation and innovate in original content production to remain relevant in the swirl of a dynamic media environment. The rise of OTT platforms not only presses KBS to rethink its strategy but also to embrace a broader, more global perspective. A focus on regulatory reform is recommended to ensure that KBS has the flexibility and support to fulfill its public broadcaster role amidst changing viewer demographics and declining traditional revenue streams. However, this report also recognizes limitations, such as KBS's entrenched bureaucratic structures and resistance to change, which pose significant hurdles. Future success lies in leveraging technological advancements to reach global markets more effectively and adjusting business models to include direct consumer engagements and diverse revenue streams. Implementing these strategies could enable KBS to maintain its relevance and continue serving public interests in both domestic and international spheres.

Glossary

• KBS [Company]: KBS (Korean Broadcasting System) is South Korea's public broadcaster, responsible for delivering a wide range of news and entertainment programming. As a public service entity, KBS faces numerous challenges in adapting to the changing media environment while striving to maintain its public service mission amidst declining advertising revenues and evolving viewer preferences.

• OTT Platforms [Technology]: OTT (Over-The-Top) platforms refer to internet-based services that deliver media content directly to consumers, bypassing traditional distribution methods. The rise of these platforms poses significant challenges for traditional broadcasters like KBS, leading to declines in viewership and advertising revenues.

Source Documents

• 미디어 시장 환경 변화와 KBS 같은 공영방송사의 대응 전략 분석go-public-report-ko-0018ea29-37c4-4a5b-99ae-fcb439723422-0-0