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<p>ThemeGallery Diagram</p> <p>Cable Television Industry in Korea:Today and Future</p> <p>April 8, 2014</p> <p>Yoo S. Yang, Ph.D. ()Chung-Ang University ()</p> <p>Seoul, Korea</p> <p>History 1995 Cable TV Service launched: </p> <p>48 SOs with 24 PPs and Terrestrial broadcast channels(KBS, MBC, SBS)</p> <p> 1999-2000 Deregulation of the Cable Industry Vertical and horizontal integration allowed (MPPs, MSOs, MSPs) Licensed PPs (news, home-shopping) and Unlicensed PPs (registration only) SO Ownership 33% allowed to conglomerates, foreigners, press </p> <p> 2003 10 million subscribers 2005 Digital Cable TV service launched 2007 VoIP service 2008 15 million Subscribers (80% of household) 2008- 2010 Deregulation of the Media Industry </p> <p> Convergence of Telecommunication and Broadcasting 2008 IPTV launched 2011 Four new general programming channels (GPCs) launched</p> <p> 2013 14.8 million subscribers (6.2 mil. Digital/ 8.6 mil. Analog)</p> <p> Multi-channel cable service launched in 1995 with 48 licensed system operators and 24 licensed program providers.However, the 1998 financial crisis in Asia brought critical damage to the cable industry and massive deregulation of the cable industry was conducted in order to restructure and reshape the cable industry for survival and sustainability. Due to the deregulation, the cable industry showed a remarkable growth, reaching the target of 10 million and 15 million subscribers in 2003 and 2008 respectively.</p> <p>The second wave of deregulation in 2008 aimed to reform the media industry that has been heavily dominated by the three terrestrial broadcaster groups, and to introduce strong competitors into the media market to drive digitalization of the media infrastrucutre. Three newly licensed IPTV service operators, subsidiaries of telecom companies, and 4 general programming channels majority each owned by one of the four major newspapers. </p> <p>As of December 2013, Koreas cable industry boast of close to 14.8 million subscribers.</p> <p>Cable Industry in Korea Five vertically and horizontally integrated cable media groups (MSPs: </p> <p>Multiple System Operators and Program Providers) 92 system operators(SOs) in 77 franchise areas 264 program providers(PPs) now in service</p> <p>Multiple System Operators</p> <p>Multiple Program Providers</p> <p>channels</p> <p>3</p> <p> 92 System operator (SOs) are providing service in 77 franchise areas5 MSOs running 77 SOs dominate the cable marketThese MSOs are vertically integrated, running MPPs and strongly influencing the channeling business in Korea. 264 Program Providers (channels): Each broadcast network has multiple PPs as its subsidiaries. Major MSOs also run multiple PPs.</p> <p> There are 12 Licensed PPs (6 Home-shopping channels, 2 News Channels and 4 General programming Channels), and the rest are unlicensed but registered program providers. </p> <p> MSP(multiple system operator and program provider) is actually a media group that are vertically and horizontally integrated and exert dominant market power following the industry value chains. Since terrestrial broadcasters are in fact very highly integrated (from platform, content production to cable program channels), these MSPs are now improved position to effectively compete against the terrestrial media groups in Korea.</p> <p>Cable TVs important role in Korea</p> <p>Critical Access to Terrestrial Broadcast Programs</p> <p># of Employees</p> <p>Cable TV hires 17,500 employees in Korea</p> <p>- SOs : 4,846- PPs : 12,654 employees</p> <p>Broadcast television networks employ13,691 workers</p> <p>7.9%</p> <p>69.1%</p> <p> Source: Television Viewing Behavior Study (KCC 2012)</p> <p>Cable Satellite Terrestrial broadcast</p> <p>IPTV no TV</p> <p>4</p> <p> Despite the dominance by the broadcast networks in the TV ad market, Koreas cable TV companies have been playing an important role.</p> <p>First of all, the cable industry has been and will be the most important delivery medium for the terrestrial broadcast networkWithout the Cable networks, Korean viewers cannot watch programs aired by the terrestrial broadcasts.In 2012, 89.1% of television households watch TV thru Pay TV networks, only 7.9% directly.</p> <p>Secondly, the cable television industry in Korea employs 17,500 workers now, hiring more than satellite and IPTV network operators. Cable program providers (PPs) employs almost the same as the Broadcast network operators.</p> <p>Cable Industry: Revenues</p> <p>36%</p> <p>48%</p> <p>4%12%</p> <p>PPs Annual Revenue in 2012</p> <p>Program ChannelsHome shooping channels</p> <p>Total Revenu</p> <p>eUS </p> <p>$ 5.3 bil.</p> <p>1,054 1,132 1,253 1,487 1,691 1,8161,937 2,122 2,3201,581</p> <p>2,057 2,3502,761 3,053 3,300</p> <p>3,9604,717</p> <p>5,548</p> <p>0</p> <p>2,000</p> <p>4,000</p> <p>6,000</p> <p>8,000</p> <p>10,000</p> <p>12,000</p> <p>14,000</p> <p>Annual Revenues by Broadcast Networks in Korea [unit : billion KW,%]</p> <p>television broadcast networks Cable television networks</p> <p>Program Providers Satellite television networks*</p> <p>IPTV</p> <p>Year 2013SOs: US$ 3.2 bil.PPs: US$ 5.9 bil.</p> <p> Home shopping channels account for almost 50% of the total revenue among program providers.</p> <p>2004 2005 2006 2007 2008 2009 2010 2011 2012</p> <p> Cable market in Korea has been steadily growing over the past 10 years, showing 17% annual growth rate on average. In the year 2013, total revenue of cable system operators reached US$ 3.2 bil. from year 2012s US$ 2.2 billion, while PPs recorded US$ 5.9 billion from US$5.3 bil. In 2012.</p> <p>Out of US$5.3 billion earned by program providers, home-shopping channels account for almost 50% of the total. Korea now has 6 home-shopping channels (CJ oshopping, GS Shop, NS, , , &amp;).</p> <p>Cable Network Subscribers (2008-2013)</p> <p>Five MSOs, running 77 SOs, account for 80% of the cable subscribers in Korea.</p> <p>1.9</p> <p>6.2 mil</p> <p>15.2014.86 mil</p> <p>0.0</p> <p>2.0</p> <p>4.0</p> <p>6.0</p> <p>8.0</p> <p>10.0</p> <p>12.0</p> <p>14.0</p> <p>16.0</p> <p>18.0</p> <p>2008 2009 2010 2011 2012 2013</p> <p>Mill</p> <p>ion </p> <p>subs</p> <p>crib</p> <p>ers</p> <p>A. Cable networks D. Cable networks Cable networks Total</p> <p>13.3</p> <p>8.6 mil</p> <p> Total number of cable subscribers has been slowly decreased over the past six years from 15.2 million down to 14.8 million subscribers.Five MSOs, running 77 SOs, account for 80% of the cable subscribers in Korea. </p> <p>About 40% of 14.86 mil. cable subscribers are digital cable network subscribers at the end of the year 2012, and analog subscribers are switching to digital services now. Industry expects that the number is quickly getting larger recently as Cable System Operators invest more in digitalizing the system.</p> <p>However, analog subscribers are strong target market both for IPTV and D. cable operators. </p> <p>Despite the decrease of subscribers, SOs and PPs revenue UP!!!</p> <p>15.2 mil 14.8 mil.Cable TV </p> <p>Subscribers</p> <p>0</p> <p>1,000</p> <p>2,000</p> <p>3,000</p> <p>4,000</p> <p>5,000</p> <p>6,000</p> <p>7,000</p> <p>2008 2009 2010 2011 2012 2013</p> <p>US$ 3.2 billion</p> <p>US$ 5.9 billion </p> <p>Unit: Bil. Won, 10,000 households</p> <p>US$ 2.1 billionCable SOs Revenue</p> <p>PPs revenue</p> <p>US$ 2.8 billion</p> <p> Despite the slight decrease in total number of subscribers from 15.2 million down to 14,8 million, the cable industry shows sharp increase in their total revenue over the past 5 years.</p> <p>Why?</p> <p>Digital cable subscribers with higher ARPU, compared to analog subscribers ARPU.Consistent revenue from broadband services</p> <p>TV Ads market</p> <p>Year 2012</p> <p> A major source of revenue, the TV advertising market in Korea, is seriously dominated by the terrestrial broadcast groups KBS, MBC, SBS and their subsidiaries that runs multiple cable channels. </p> <p>Based on their original content production power, these media groups account more than 60% of the total TV ad revenue in Korea, while the cable industry as a whole accounts for 39% only.</p> <p>Digital Services by the Cable TV </p> <p> interactive services Smart Broadband Services UHD Channels on Cable OTT services</p> <p> Here are digital services offered by the cable industry these days in Korea.</p> <p>Digital Cable Network Services in Korea</p> <p>VOD(movie/TV drama) TV shopping Cloud-based consolgames</p> <p>Interactive learning TV garaoke TV stock trading</p> <p>10</p> <p> Started in Feb. 2005, the cable operators now provides interactive services and have more than 150,000 video programs.</p> <p>Digital cable services include not only VOD but also TV shopping, Interactive games, interactive learning, TV Garaoke and TV stock trading.</p> <p>Smart Broadband Services</p> <p>App Store</p> <p>Personalized VOD service Web-browsing</p> <p>UPPER BODY(App)</p> <p>Back 11</p> <p> Since 2012 smart-broadband services were offered by the system operators on a trial basis, ad is expected to provide full service in 2014.</p> <p>Also, the cable industry undergoes a joint project to build a HTML5-based TV App-store for SOs in Korea.</p> <p>UHD Channels on Cable</p> <p>12</p> <p> In July 2013, five major system operators demonstrated UHD service for the first time and opened a UHD channel in the beginning of the year 2014.</p> <p>By the end of this year, the industry expects to run commercial UHD channels and UHD-quality VOD service.</p> <p>OTT services by Cable Operators</p> <p>13</p> <p> CJ Hello visions tving secured 5 million users in two years, providing live-streaming video of major broadcast network and cable channels as well as VOD services.</p> <p>C&amp;M introduced pooq in alliance with MBC</p> <p>HCN introduced Every On TV in alliance with Pandora TV</p> <p>Government Regulations in Korea</p> <p>Two Regulators now on the Cable industry</p> <p> Communications policies Pay TV network policies (Cable, IPTV, </p> <p>Satellite, Program Providers)</p> <p> Licensing and Re-licensing of terrestrial broadcast networks and general program channels</p> <p> Ex-post regulation of broadcast business (illegal behaviors)</p> <p>Korea Communications Commission</p> <p>Ministry of Science, ICT and Future Planning</p> <p>15</p> <p> The cable industry in Korea is now directly regulated by two separate regulatory bodies, Korea Communications Commission and the Ministry of Science ICT and Future Planning.</p> <p>KCC takes charge in licensing/ re-licensing of terrestrial broadcast and, interestingly enough, newly licensed general program channels and news channels.</p> <p>Most of detailed rules and regulations now belong to the jurisdiction of the newly organized Ministry of Science ICT and Future Planning.</p> <p>*** Recently, as the industry get more competitive and growing dominance by the major media groups, FTC is investigating possible anti-competitive behaviors of market dominant players in the media industry. As the media industry gets more market oriented and deregulated, there is a growing tendency that market players take their own actions under the rules of the market, rather than relying on the coordination efforts or guidelines by the regulators. On content control? Self-regulatory approach by pay-TV operators.</p> <p>Regulations on Pay TV Network Business in Korea</p> <p>Cable Network Satellite Network IPTV</p> <p>Cross-ownership Maximum 33% of cross-ownership No cross-ownership regulation</p> <p>Market Shares</p> <p> Limit 1/3 of 77 franchise areas Limit 1/3 of total cable subscribers Now same as IPTV (2014 revised)</p> <p>No limit Limit 1/3 of total Pay TV network subscribers</p> <p>Max.Subscribers* 5 million 8 million No limit 8 million</p> <p>* Assuming 15 million Cable subscribers, and 24 million households of Total Cable and IPTV subscribers</p> <p>Broadcasting Act Internet Multimedia Broadcast Services Act</p> <p>16</p> <p> Currently, Korea has differential restrictions on different network types of the Pay TV business now, as you can see in this slide to name a few. More detailed differences are clearly found as we follow down to the lower level of the legal system which is composed of Act Enforcement Ordinance (Presidential Decree) Enforcement Rules Ministry Notifications. </p> <p>IPTV is regulated under a separate act, Internet Media Broadcast Services Act, which favors IPTV operators over existing terrestrial TV or cable TV broadcasters.Here shows how the Broadcasting Act and Internet Multimedia Broadcast Services Act regulations on operators ownership by foreigners, cross-ownership and subscription share in order to prevent market monopoly.Very recently, a few months ago, KCC and MSIP revised the ordinance for fair competition between the cable and the IPTV. Now the vertical and horizontal integration thru mergers and acquisitions is expected in the cable industry in order to raise competitive capabilities. </p> <p>The next slide shows how urgent it is for the cable operators in Korea to proactively attract its current analog subscribers.</p> <p>Pay TV subscribers by Network</p> <p>0</p> <p>5</p> <p>10</p> <p>15</p> <p>20</p> <p>25</p> <p>30</p> <p>2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013</p> <p>A. Cable networks</p> <p>D. Cable networks</p> <p>Cable networks Total</p> <p>IPTV</p> <p>Satellite networks</p> <p>Relay Cable networks</p> <p>total</p> <p> The total number of Pay TV(Cable, IPTV, Satellite) subscribers is 27 million, steadily increasing and is expected to grow due to the increasing trend of single-headed households recently. The average size of household in Korea is now 3.4 down from </p> <p>The cable subscriber is now about 15 million, still more than 55% of the market. However, take a look at the remarkable growth of the IPTV.</p> <p>The number of IPTV subscribers surpassed that of digital cable subscribers in 2011, and rapidly increases now, threatening the future market position of the cable industry in Korea.</p> <p>IPTV expects to have more than 10 mil. subscribers by the end of the year 2014.</p> <p>Challenges and Opportunities</p> <p> Rapid penetration of IPTV services Digital Content fee charged by </p> <p>KBS, MBC, SBS and Newly licensed media channels</p> <p> The rise of OTT(over the top) service</p> <p> KCCs intention to relax restricitions on terrestrial TV advertising</p> <p> Switching to Digital Cable (14.8 million households as captive market) </p> <p> New digital services (MVNO, VOD, Home Security)</p> <p> A pending Special Bill to support Digitalization of the Cable Industry (2014)</p> <p> Deregulation on the cable industry KCCs agreed to the License </p> <p>Fee Hike for KBS along with the plan to halt advertising on KBS</p> <p> Challenges:</p> <p>The most urgent and continued challenge faced now is the IPTV services, targeting about 8 million former analog cable subscribers and new single-headed households. IPTV operators extends their experiences and marketing power. The second, thought settled down temporarily, is the push by the terrestrial broadcast raising the digital content fee to SOs. Already in 2010 and 2011 the district court, ruled out favoring the terrestrial broadcasters in three cases, putting more weight on copyrights protection. Terrestrial broadcasts demand Digital content fee based on the number of digital cable subscribers, as they have charged to IPTV operators. The only bargaining tool for the individual SO is to find a way to technically avoid or legally bypass the current signal conversion requirement for retransmission. The rise of OTT service and nScreen services has not brought strong damage to the cable industry yet. However, the tide of digital innovations cannot be avoided.Recent intentio...</p>