By Kim Hyun-bin
A handful of ruling party lawmakers have been pushing a bill that will reclassify over-the-top (OTT) businesses as broadcasters. The move will place them under the Broadcasting Act, making them eligible to receive money through the Broadcast Communications Development Fund (BCDF) while also taxing them on their business profits.
Major broadcasting stations including KBS, MBC and SBS have been paying the tax and receiving funds through the BCDF.
According to the government, the fund's purpose is to ensure "the public benefit and public nature of broadcast communications in response to a new communications environment in which broadcasting and telecommunications are merged." The fund is provided by the Korea Communications Commission (KCC) through the Broadcasting Act to broadcasters to fund production of certain types of programming.
However, a handful of ruling Democratic Party of Korea (DPK) lawmakers requesting the changes previously worked for major broadcasters.
Every time the Science, ICT, Broadcasting, and Communications Committee is held there have been continuous requests to the government to collect additional taxes from OTT service providers through the BCDF.
Earlier this month, DPK Rep. Jung Pil-mo requested the changes from both Science and IT Minister Choi Ki-young and Korea Communications Commission (KCC) Chairman Han Sang-hyuk. In committee meetings in July and August, DPK Rep. Han Jun-ho requested the same.
Telecommunication and major broadcast companies including home shopping channels and IPTV have been paying the tax every year. But the recent move aims to include OTT platforms under the same tent. Currently, OTT businesses are classified as additional communications service businesses, not broadcast businesses.
Why is it important?
The current Science, ICT, Broadcasting and Communications Committee is full of allies of major TV broadcasters, with most blaming OTTs for the difficulties the broadcast stations face today. So they want competitors, especially the OTT platforms, to take similar responsibility and pay their fair share.
Rep. Jung Pil-mo previously served as vice president of KBS. "We need to include internet portals and OTT service providers in the BCDF," he stated.
However, ICT Minister Choi drew the line saying, "The issue needs to be thoroughly thought out."
MBC announcer-turned-lawmaker Rep. Han Jun-ho of the DPK said to KCC Chairman Han Sang-hyuk, "The BCDF creates the foundation for a fair competition environment. What are your thoughts?"
The KCC chairman responded, "In principle the tax should be collected for the same service category to ease the inequality gap."
If the change is made, the OTT firms will need to reveal their local sales data. It will show how much local and global content giants, such as Netflix, have profited in the country, while a portion of those profits will be taxed.
However, the policy could backfire as the content providers might raise the monthly user fees to cover the tax cost, which will only burden customers.
Home shopping channels are taxed up to 6 percent of their business profits, in accordance with the country's Broadcasting Act.
The local OTT industry says companies are investing heavily in the fairly new field for future growth which is resulting in net losses, and that there aren't that many local OTT businesses capable of paying the tax. KT's Wavve is the country's top OTT platform, recording 97.2 billion won in sales last year, but it also showed a net loss of 21.2 billion won.
Last year, the three major broadcasting stations ― SBS, MBC and KBS ― were taxed 14.2 billion won, 10.5 billion won and 8.7 billion won respectively. However, they also receive KCDF funding from the KCC to develop certain programs each year. KBS acquired 8.7 billion won from the BCDF last year matching the taxes it paid for the year.
Meanwhile, the OTT sector is covered by the Information and Communication Promotion Fund (ICPF), under which major telecom companies pay for LTE and fifth-generation (5G) network frequency allocation costs. Just this year alone a total of 610 billion won has been collected through the ICPF and 499 billion won by the BCDF.
"The government collects the fees to give operation licenses to broadcast companies and to better protect their rights, but OTT businesses do not need prior approval from the government," an OTT firm official said.
A bill is pending in the National Assembly to integrate the ICPF into the BCDF.
A bill to include YouTube in the BCDF already fell through last year, with the target now having been switched to Netflix.
The government has vowed to aid the OTT market's future growth so it is not easy for the OTT service providers to meet the additional regulations. This is the reason why the government is hesitant to take sides with the ruling party lawmakers with regard to levying additional taxes on the OTT providers.
In June, eight branches of the government jointly announced the digital media ecosystem development plan to enhance the local OTT market so it can better compete with global content giants such as Netflix and Disney Plus.
The ICT ministry, culture ministry and the KCC each came up with their own measures, but there are worries stirring across the industry that the move could create more unnecessary regulations.
Soon after the announcement, the Ministry of Science and ICT announced it will establish a consultative body jointly with Cheong Wa Dae to provide more support for the OTT market.