|A still from Squid Game, a series on Netflix that was written, directed and produced in Korea Courtesy of Netflix|
Netflix faces deteriorating consumer sentiment by refusing to pay for network usage
By Kim Bo-eun
The huge success of the Netflix series "Squid Game" has led to a surge in network traffic, raising calls for the global content producer to pay for the usage of telecommunications infrastructure. At the crux of the issue is who will take on the bigger burden of surging data costs ignited by the popularity of streaming content during the COVID-19 pandemic.
Officials said Korean telecom firms have no choice but to pass on some of the costs of upgrading their networks to the top contributors of the capacity growth, going against the so-called "net neutrality" principle which demonstrates that all internet traffic should be treated equally.
Some say this rule has become outdated in the era of streaming content. Also, in Korea, Netflix is being increasingly viewed by the public as forcing local content producers to serve merely as subcontractors for platform giants.
SK Broadband said Sept. 30 that it filed a lawsuit demanding Netflix pay for using its network. The latest move comes after a local court in June dismissed a request by Netflix to confirm it is not liable to pay for using SK Broadband's network, to which Netflix appealed the following month. The network operator said the lawsuit was filed separately from the ongoing court dispute, as Netflix had not committed to negotiations following the June ruling.
SK Broadband was unavailable for comment on the matter on Monday.
The network operator claims it had to make major investments into upgrading its network, as the number of Netflix subscribers has spiked in recent years. Netflix has contended that its role is to produce and distribute content, while internet service providers (ISPs) are responsible for their network infrastructure.
This is dispute dates back to 2019 when SK Broadband asked local authorities to intervene. But the burden for SK Broadband has continued to increase. According to the company, traffic from Netflix skyrocketed to 1,200 gigabits per second (Gbps) as of September, from 50 Gbps in May 2018.
SK Broadband has had to keep allowing Netflix to use its network, based on the principal of net neutrality.
This generated controversy, given that foreign firms such as Netflix and Google do not pay telecommunications firms for using their networks, while local content providers such as Naver and Kakao do.
Netflix says it's been paying ISPs commissions for years in the United States in order to guarantee much faster streaming speeds.
Netflix unveiled a report recently intended to emphasize its investments amid mounting criticism over the issue. But as expected, the announcement didn't include the specifics of its commitment to net neutrality issues.
Rather, citing a report from a consulting firm Deloitte, Netflix highlighted that the success of its releases in Korea has brought an estimated 5.6 trillion won ($4.68 billion) worth of economic effects to the local economy, by not only providing work for partner firms but also via a spillover effect into sectors including consumer goods and tourism. The report said this has enabled Netflix to help create over 16,000 jobs here.
Netflix launched its service here in 2016. Since then, 80 shows and films have been produced here for the platform. The company has invested 770 billion won to create local content and earlier pledged to spend 550 billion won in Korea this year alone.
Netflix Services Korea made 414.45 billion won in revenue last year, which was up 123 percent the previous year, backed by the surge in subscribers.
Additionally, some have pointed out that "Squid Game" is a series that was written, directed and produced in Korea with $500 million in investments from Netflix, but the streaming giant owns the intellectual property of the show and exercises complete control over its content.
The logic behind Netflix's ownership is based on its investments into the content to enable its production. Netflix also takes credit for promoting the Korea-produced TV show, given the series has been distributed worldwide via its platform.
Over-the-top (OTT) content service providers' contracts with partner firms are generally structured this way. The OTT firms outsource production, but own the core intellectual property of the content.