Case study: OnDemandKoreas free TV streaming

Korea's film and TV producers can raise profit abroad through 3rd-party distributors

By James B. Oldroyd and Cha Young-joon

Founded in 2010 by Cha Young-joon, OnDemandKorea is an online media distributor and publisher. It aims to provide a video streaming service of Korean films and TV programs to viewers outside of Korea. It is currently under the beta testing stage, with the full service slated for later this year.

The company is currently in talks with several studios and revenue is projected to exceed $100,000 per month in just a year. The company is located in Orange County, Calif. and has four employees.

'Korean Wave'

Imagine people in Saudi Arabia watching the Korean soap opera "Winter Sonata" from their living room couches, or Americans excited for each new episode of action thriller 'Athena' - sights unimaginable just 15 years ago. Yet, now the world's entertainment eye is now often squarely focused on Korea.

The popularity of Korean culture, especially its TV dramas, has been increasing so rapidly in the last decade that it is often called the "Korean wave (hallyu)." Last year alone, the export of Korean entertainment products - movies, dramas, music, computer and video games and etc. - was more than $1.87 billion and the figure is expected to double in the year 2011, according to a report from the Korean Ministry of Culture, Sports and Tourism.

Challenge: how to compete with free distribution

But the increased popularity does not always mean increased revenue. Creating a viable business model is critical even for products with high brand recognition. Take, for instance, Taobao's triumph over Ebay in China, and Google's focus on monetizing search rather than Yahoo's focus on monetizing content.

The strategic question for Korean entertainment firms is how to find a way to successfully compete with the free distribution of their content.

Currently, the majority of international online viewers of made-in-Korea entertainment products are assumed to be using them free of charge, through the prevalence of illegal online distributors. Websites such as mysoju.com, kongdisk.com and host of others provide an easy way to find and enjoy illegally acquired Korean films. In most cases, these sites do not have the content in their own servers. They rather provide links to outside servers and web sites where the illegal - and often low-quality - Korean films are stored. They make profits by carrying advertisements.

Major Korean content providers such as the three broadcasters of MBC, KBS and SBS are feverishly working to identify and eliminate the sources of the piracy. But their efforts are comparable to fighting the mythic creature of Hydra - you can shut one Website down, only to see a hundred more emerge in its place.

There are three reasons in that the Korean film studios and broadcasters have struggled. Firstly, it is easy for people with internet connection to access free, pirated content. Secondly, it is cumbersome to take legal actions against those elusive illegal websites. Thirdly, it is difficult to understand the full financial ramifications of the underground market for their business.

Lessons from Internet/cable industry

The history of modern business repeatedly demonstrates that once a product is available for free, it is virtually impossible to turn it to a paid business model. In other words, a pay-per-view solution is unlikely to successfully compete with the free, pirated content, which is already widespread on the Internet. Instead, Korean entertainment firms can embrace the concept of free service and find a way to make a profit by adopting a different, but familiar business model - advertisement.

Here, however, content providers have struggled to realize that being free means not only providing their products for free of charge, but also having a hassle-free delivery system that is as easy to use as are the systems provided by illegal Web sites. They also have to know that illegal downloading services such as mysoju.com are not bound by licensing or copyright protection, and therefore can offer a wide range of movies and dramas than any one studio or broadcasting company.

In this respect, what content providers need is an unbiased third-party distributor, who can share profits from advertisements with the content providers.

It is curious that many content providers feel comfortable in sharing profits with traditional TV and cable companies through advertising funded licensing fees, but at the same time have resisted similar relationships with online distributors. Each studio's efforts to create their own online store are akin to having each studio create their own cable network or broadcasting company.

A better and historically proven model that is widely successful in international markets is aggregating the full Korean content together for online viewers through partnership with third-party distributors.

OnDemandKorea was created to fulfill this role. The firm works just like a cable TV company as an open platform for any film or TV studios but is focused exclusively on sending the Korean Wave abroad.

This way, online viewers gain access to a full wave of made-in-Korea films and TV programs. The service can effectively compete with illegal services as it can offer the original video quality, whereas pirated screens are usually captured in an inferior medium.

It is yet to see whether OnDemandKorea can bloom into a fully successful business. But such an attempt will help Korea's media and entertainment industry compete against online pirates, and re-monetize the stolen value of their products. Eventually, the emergence of a third-party online publishing industry will help the growing popularity of the Korean Wave be turned into a growing stream of revenue.

James Oldroyd is an assistant professor of management at SKK Graduate School of Business. Cha Young-joon is an MBA student at SKK Graduate School of Business and the founder of OnDemandKorea.