South Korea and Japan Emerge as Key Battlegrounds in the Streaming Wars

(THR) Netflix is so famously data-driven that understanding its growth strategy tends to be ruthlessly straightforward: “Follow the money.” Recently, a growing share of the streamer’s cash pile has been pouring into two key content categories in East Asia: South Korean drama and Japanese anime.

In February, Netflix held a star-studded event in Seoul, where it pledged to spend $500 million on South Korean film and series in 2021 alone. A month later, at an event in Tokyo, the company said it would premiere upward of 40 new original Japanese anime titles this year — double the number it released in 2020.

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The investments, analysts say, signal the unique international appeal of the two content categories as well as the growing importance of Asia to Netflix’s future — particularly amid rising competition and plateauing subscriber expansion in the U.S. and Europe. Just this week, Netflix put out a rare public disclosure in Seoul showing that its revenue in South Korea more than doubled to $356 million (415.45 billion won) last year.

“For sure, these are the two planks — Korean drama and anime — that have been driving a lot of Netflix consumption and subscribership throughout Asia,” says Vivek Couto, executive director of consultancy Media Partners Asia. The two categories have “been vital for them in South Korea and Japan, obviously, but also powerful in Southeast Asia — and even the U.S. and other global territories to an extent,” Couto says.

In 2020, viewing hours for Korean content in Asia quadrupled compared to 2019, Netflix says. Anime titles, meanwhile, appeared on Netflix’s top 10 list of most watched series or movies in nearly 100 countries last year, in places as diverse as Taiwan, Thailand, France, Italy, Peru and Chile. Within Japan itself — which remains the world’s third largest economy and is forecast to become Netflix’s largest revenue market in Asia Pacific this year, overtaking Australia and New Zealand — anime and K-drama frequently occupy every single slot on Netflix’s top 10 list. The streamer’s steady supply of 2021 releases, including Korean sci-fi and thriller The Silent Sea, series spinoff Kingdom: Ashin of the North, and family anime Eden, will only add to the momentum.

The strategy appears to be working so well for the company that it’s unlikely the boom times in the anime and K-drama industries will dissipate any time soon. Instead, it could be just the beginning. As Disney+ and HBO Max ramp up their own local content operations in the region, they would appear to have little option but to follow Netflix’s playbook. “Anime is a must-have for any platform that wants to grow in Japan,” says Aya Umezu, CEO of GEM Partners, an entertainment market research firm in Tokyo.

“I believe what you have seen so far from the Korean creative community is just the tip of the iceberg,” says Minyoung Kim, Netflix’s vp content for Korea, Southeast Asia and Australia/New Zealand, noting that the streamer further expanded its footprint in Korea recently by leasing two large studio spaces near Seoul. “There are so many more diverse stories that haven’t been told in the traditional system that are just waiting to be told,” she adds.

Netflix’s massive spending and first-mover status, however, will make other streamers’ growth efforts in the region somewhat more complicated, analysts and insiders say.

The existing competition for content between Netflix and local Japanese players like Hulu Japan and U-Next already has pushed prices sharply upward. “The growth of anime globally is a great thing for the industry, but animation in Japan is a highly specialized profession and there is a need to increase the capacity to meet the rapidly growing demand,” says Taiki Sakurai, who heads Netflix’s anime team under the title of chief producer.

Similar dynamics are at work in Seoul. The cost of working with top Korean talent and proven hitmakers “is shocking — even compared to just a year ago,” says an insider at a rival U.S. streamer in the region. And there is good reason to worry that pricing pressures are tipped to accelerate.

Around the time that Netflix launched its service in South Korea in early 2016, the Korean TV industry was enjoying a bonanza of licensing demand from China, where K-drama regularly outperformed hit Hollywood series on cable TV and local streaming services. But that same year, China instituted a blanket ban on Korean entertainment imports as punishment for Seoul’s decision to install the U.S.-made missile defense system, known as THAAD, on the Korean Peninsula, which Beijing viewed as an affront to its national sovereignty. The sudden evaporation of Chinese licensing and distribution revenue hit Korean studios’ growth strategies hard — while also opening doors for Netflix and its deep pockets.

In late February, China and Korea’s state broadcasters signed a landmark TV co-production agreement, which many in both country’s industries interpret as a sure sign that the ban is in the process of being lifted. The result for Disney+ and HBO Max could be an influx of Chinese cash competing for Korean stars just as they are looking to sign their own deals in the country.

Still, there are plenty of moves left to be made, insiders say. On April 2, Korean business news outlet Herald Economy reported that WarnerMedia has held talks to buy a sizable minority stake in K-pop label HYBE (formerly known as Big Hit Entertainment), famously the home of BTS and the recent acquirer of Scooter Braun’s Ithaca Holdings. The Herald said that the terms of the deal, if it’s reached, would give HBO Max exclusive international streaming rights to BTS concert movies and other K-pop-related content opportunities.

Sources close to Disney in Asia, meanwhile, say the studio is looking to build out a robust team and slate of Japanese scripted originals, believing the category offers under-leveraged value. The studio also is said to be pursuing a more targeted, rather than high-volume, approach to anime, picking marquee hits that match the Disney+ brand.

Within the Japanese market, the biggest fish in the anime world still remains uncaught. After years of resisting selling its hand-drawn anime classics to streaming platforms, Hayao Miyazaki’s legendary Studio Ghibli cut a deal with HBO Max for North American rights to most of its catalog, and with Netflix for everywhere else in the world except Japan. Bagging the exclusive Japan rights to Ghibli classics like Spirited Away and Princess Mononoke would make any streaming service “almost must-have,” says GEM Partners’ Umezu.

“Two or three years ago, I would have told you Ghibli movies would never go to a foreign streamer in Japan,” Umezu adds. “But right now, it feels like anything could happen.”

Source: The Hollywood Reporter by Patrick Brzeski