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Subscribers to IPTV reached ten million in August 2014. The milestone was achieved in just six years since the launch of IPTV in 2009. IPTV’s rapid growth has brought various impacts to the film industry. Some people predict that its growth will make a seismic change in film screenings beyond bringing about an increase in film sales. Some say that IPTV will be a new platform to replace theaters. Let’s take a look at the status of the current and the future of IPTV market which is showing explosive growth.

What Fuels the Growth of IPTV?

Friend: The Great Legacy (hereafter Friend 2) was released in November of 2013 and drew 2.97 million viewers, making USD 21 million in sales. Considering that the film starred Hallyu actor Kim Woo-bin and was directed by Kwak Kyung-taek of the box office hit Friend (2001), the film fell short of its box office goal. But Friend 2 made up for its rather disappointing ticket sales from its IPTV market. The film posted USD 4.6 million in sales in the IPTV and digital cable TV markets from January to December of 2014. This meant that Friend 2 earned one fifth of its theatrical sales in the ancillary markets. As a consequence, the film ranked third in the 2014 IPTV download standings. Other films also put up a good fight in the IPTV sector to people’s surprise.

A case in point is Obsessed. Kim Dae-woo, the ‘master of melodramas’ was chosen as the director of the film, making headlines even before the release of the film. But the film inked 1.44 million admissions, failing to reach its break-even point of 1.5 million admissions. But in the IPTV market, Obsessed was a hit. The film took seventh place in the 2014 IPTV standings and recorded USD 2.8 million won in sales so far. Besides, the film topped the VOD chart at number one (USD 800 thousand in sales). For the Emperor managed to draw 600,000 audiences at theaters but placed tenth in sales on Olleh TV. So-called small budget films such as Murderer and Stray Dogs did not receive much attention in theaters but enjoyed good responses on IPTV. For example, 88,000 spectators watched Murderer at theaters whereas on IPTV, there were approximately 86,000 views. The number of its views on IPTV is almost the same as the number of its viewers in theaters. The remarkable growth of IPTV is naturally getting attention from the film industry. This is why IPTV contents are on a sharp rise.

On occasion, some films’ IPTV sales outstripped their theatrical sales. Steel Cold Winter managed to earn a disappointing USD 150 thousand at theaters but brought in USD 250 thousand on IPTV among others. Profits from its ancillary rights topped those from its theatrical release. Moreover, some genre films play on IPTV fresh off theaters. This means they are screened on IPTV after a short theatrical release. In this sector, erotic films become the mainstream. Studios are planning and producing a wide array of films for IPTV. The current expansion of the IPTV market is expected to grow continuously for the time being.

Market Triples in Four Years

The size of the IPTV market tripled over the past four years. In 2010, the market was estimated as USD 100 million. But it nearly tripled to USD 297.1 million in 2014. The domestic ancillary market including IPTV accounts for about 15% of the total value of the domestic film market (USD two billion). Some analyses indicate that the growth of the IPTV market will bring about huge positive economic effects. Recently, the economic and management think tank of KT, Digieco, released a report on IPTV’s economic achievements and an outlook on its growth in the next generation. The report says that the market’s steady growth coupled with the continuous support through investment will create USD 7.1 billion in production and 34,000 jobs from 2015 through 2017.

The ancillary market is rapidly growing globally as well. According to a report called Global Entertainment and Media Outlook: 2014~2018, the world online streaming market has been expanding rapidly, recording USD 5.24 billion in 2012, USD 6.57 billion in 2013 and USD 8.27 billion in 2014. In particular, steaming companies such as Netflix has been emerging as a powerful new player, leading experts to predict that the trend will make a big change in the paradigm of the way people watch movies.

Netflix is a dominant steaming company with the largest subscriber base in the world. Last year, the online film distributor chalked up about USD 4.8 billion in annual sales. As of 2015, Netflix has 39 million subscribers in the U.S. and 18 million outside the U.S. The company is planning to expand its service all over the world.

Netflix is planning to branch into Korea in 2016 and many forecast that it will have a huge impact on the Korean film market. Lately, the strong popularity of Netflix sparked a sharp drop in paid TV subscribers, fueling the so-called ‘cord cutting’ phenomenon. “It is now time to change the system where there is a delay of months before streaming a film after its theatrical release,” said Netflix Chief Content Officer Ted Sarandos, stirring up the industry. Then how are people in the online film business in Korea reacting to Netflix’s upcoming foray into the Korean market?

“The Netflix service consists mainly of works released one or more years ago. But the Korean ancillary market is flooded with new works. Thus Netflix will not mix with the Korean ancillary market,” said MOON Ji-hyung, an assistant manager at KT Media Hub who promotes Olleh TV.

“Unless Netflix tries making changes in its service, the company will have difficulties in adapting to the Korean market. We are seeking out ways to cope with Netflix’s advancement into Korea,” said LIM Young-seok, a manager at SK Broadband. “Without a proper localization strategy, Netflix may fail in Korea.”

Can IPTV Service Replace Theaters?

It is uncertain if IPTV and digital cable TV will be able to take the place of theaters. Many people believe that films could only be truly enjoyed at theaters. Also, we cannot ignore the power of the multiplex theaters. But the ancillary market including IPTV is already growing explosively. Some films are produced just for IPTV. Last October, Warner Brothers Korea launched its IPTV premiere channel on Olleh TV. The channel features IPTV-only films among Warner Brothers’ productions. Many suspect that the move was made largely due to the lack of screens in Korea which compelled Warner Brothers to implement a new strategy to find a solution in the new platform. “This partnership laid the foundation for bringing overseas films to people faster than theaters,” said KIM In-sik, the head of KT Media Hub. “This initiative implies that the domestic digital ancillary market established itself as a new film distribution channel beyond remaining a secondary rights platform.”

It is natural that the creation of a new market accompanies difficulties. Not only does the new market engender negative side effects such as overproduction of films, it could also lead to abnormal distribution. For instance, Young Mother 2 was premiered on a single screen and it drew only one viewer. Its theatrical sales recorded merely USD 8. This ludicrous situation took place because a film has to satisfy a precondition where films are to be screened at a theater prior to hitting the IPTV market. The IPTV industry made this condition to maintain the dignity of its ecosystem. But the condition is driving temporary expedients. This can be considered as the dark side of the remarkable growth of IPTV.

The explosive growth of the domestic IPTV and cable TV market creates new opportunities for the Korean film industry but the advent of formidable overseas players can become a threat. A lot of attention is being placed on whether or not the domestic IPTV market will be able to leap further which is currently at a crossroads where opportunities and threats coexist.

By JI Yong-jin, reporter for Magazine M

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