As SBS’s multimedia distributor, SBS Contents Hub has focused on developing and expanding in media markets for the broadcaster’s content, adding video-on-demand (VOD) technology to its website and forging profit-sharing arrangements with peer-to-peer (P2P) broadcasters.

The company is now shifting its focus to new platforms, which include smartphones, tablet PCs, Internet protocol TV (IPTV) and smart TVs in addition to existing paid cable networks.

As of now, there are more than 20 million smartphone subscribers in Korea, and it is believed that content distribution through smartphones may surpass content distribution via PCs over the next three to five years.

Korea also has more than 4 million IPTV subscribers who appear to prefer watching VODs on IPTV over watching them on PCs. In addition, the accelerating shift toward N-Screen, which enables access to content across a wide variety of platforms, further brightens the outlook for related industries.

Telecommunication companies’ LTE networks will provide faster Internet browsing and download speeds than 3G networks. This could lead to a change in the way people consume multimedia content.

Under current unlimited 3G plans, data transfer rates are not particularly fast, and subscribers are giving up on using their phones to watch and listen to multimedia content.

However, once LTE is widespread, subscribers are likely to consume more content because of the blazing speeds that new networks can achieve. A typical LTE plan of 62,000 won per month allows consumers to download approximately 3 gigabytes of data.

Through downloading, not streaming, multimedia seems to have become the primary means of consumption. Furthermore, content distributors should be first in line to harvest the fruits of the LTE revolution because they are already prepared to distribute existing content to telecom service providers.

Exports

SBS Contents Hub is expected to have solid drama exports in 2012 following its success in 2010 and 2011. The increased popularity of Korean pop culture in Japan and other countries will likely lead to continued overseas momentum.

The quality of SBS’s TV content should also propel overseas sales, as the company’s key dramas generated strong ratings relative to their competitors in 2011.

While the increased popularity of Korean pop culture has been a key driver of drama exports, Japanese broadcasters have other incentives to air Korean dramas.

Compared to local products here, which cost 260 to 270 million won per episode, Japanese dramas are expensive with a cost of around 530 million won.

If Korean dramas generate similar TV ratings to Japanese dramas, Japanese broadcasting networks would be better off importing Korean dramas rather than producing their own. While Chinese dramas can be produced even more cheaply, they are not yet attracting interest from Japanese viewers.

Japan is a major importer of Korean dramas. Considering the country’s distribution network and market size, it is the most critical one.

Japan accounts for a relatively small proportion of SBS Contents Hub’s exports. The company sells dramas directly to Japanese broadcasters without using local sales agencies. Since the company does not utilize Japan’s developed distribution network, its market share in Japan has been lower than that of its competitors.

Going forward, SBS Contents Hub will be relying on local sales agencies, and it is expected that exports to Japan will grow in the long term and the company will catch up with its competitors in terms of market share.

SBS airs around 25 dramas per year. Among these, there are estimated to be three to five exportable ones. Even for dramas that are unlikely to be exported, viewer ratings are important, as cable channels and other platforms are willing to pay higher prices for popular programs.

The following attributes can make a drama exportable: firstly, content that is not particularly culturally specific; secondly, actors and actresses with decent name recognition, and thirdly, trendy themes. Without these attributes, high TV ratings are the only bargaining chip that a company can possess.

In 2011, most SBS dramas aired on weekdays drew double digit ratings, according to TNS Media Korea. These dramas consistently beat KBS and MBC programs. This should give SBS Contents Hub a decent amount of negotiating leverage as it forges distribution deals with IPTV and cable companies.

After the massive success of “Secret Garden” in early 2011, “Sign,” “City Hunter,” “Tree with Deep Roots,” “Protect the Boss” and “A Thousand Days’ Promise” have either drawn high viewer ratings or generated interest.

These dramas are highly exportable and feature actors with high overseas profiles.

Earnings outlook

In the fourth quarter of last year, SBS Contents Hub posted disappointing results. Both revenue and operating profit missed market consensus estimates, coming in at 39 billion won, down 19.4 percent from a year ago, and 100 million won, down 97.6 percent, respectively. These weak results were attributable to impairment costs and weak exports.

Two of SBS’ mega hits — “Tree with Deep Roots” and A Thousand Days’ Promise — beat the competition by a wide margin in the fourth quarter, and this is expected to lead to a brighter revenue and earnings outlook for the company in the second and third quarters of 2012.

High TV ratings could lead to higher IPTV VOD revenue and overseas exports, which would flow through to SBS Contents Hub’s operations six to 18 months after the ratings were recorded. Buyers usually initiate purchase negotiations after the ratings of a drama’s final episode are tallied.

As SBS dramas beat the competition in terms of ratings in 2011, the 2012 and 2013 outlook for SBS Contents Hub is rosy.
The company’s revenue is forecast to hit 222 billion won and 259 billion won in 2012 and 2013, respectively and the operating profit, 36.1 billion won and 42.9 billion won over the same periods.