War looms as global OTT players land in Asia

Asian market is kicking off in earnest. After securing a firm foothold in western markets, leading global OTT player Netflix has now entered Asia, and latecomers such as Disney+ and Apple TV are following in its footsteps. Completing their entry into western markets within two years after service launch in 2019 thanks to an upsurge in content demand amid the pandemic, Disney+ and Apple TV plan to penetrate the Asian market in earnest from 2H21.

Asia shows high growth potential in OTT market
Asia takes up 60% of the global population. By country, China represents 18% of global population, India 18%, Southeast Asia 9%, and East Asia 3%. Global OTT players such as Netflix and Disney+ are focusing on the Southeast Asian and East Asian markets, for which combined population accounts for 12% of the global population, a level similar to North America and Lain America’s portion of 13%. However, Asia’s Netflix subscribers equate to only 18% of North America and Lain America’s combined subscribers, a level indicating ample room for subscriber growth

Korean Wave shows staying power in Asia
Korean content caters well to the tastes of Asian viewers. Having started with Dae Jang Geum, the Korean Wave has continued into 2021 in Asia, with new drama series Vincenzo recently gaining popularity. For this reason, Netflix has focused on securing Korean content since its penetration into the Asian market (since 2019). The OTT company has signed a content supply contract with J Contentree and Studio Dragon, and more than half of its 2021 Asia content investment budget of W1tn is to be directed toward Korean content.

Moreover, recent Korean drama series such as Kingdom, Sweet Home, and Crash Landing on You have proven that Korean content can succeed beyond the Asian market. We believe that demand for Korean content that appeals both to Asian and western viewers will pick up among OTT players.

Korean content boasts cost competitiveness
While Korean content is earning popularity, it also boasts cost competitiveness. Netflix original series Bridgerton S1’s production cost per episode amounted to W8.0bn, which is 2.7x higher than that for Korea-made Sweet Home S1 (W3.0bn). When comparing fantasy offerings, Netflix’s The Watcher S1 showed production cost per episode ofW11.0bn, which is 4x higher than that for Arthdal Chronicles S1 (W2.8bn).

As Korean tent-pole dramas, Sweet Home and Arthdal Chronicles offer production costs just a fraction of those for western-made dramas—a fact pointing towards both the strong cost competitiveness of Korean content and the ample room remaining for ASP increase. In our view, Netflix is likely to increase its investment per episode for Korean content, considering its popularity. In addition, as Netflix is not the only global OTT player seeking to purchase Korean content, Korean content’s production cost per episode and minimum guarantee look set to ratchet up further down the road. Business Korea