Netflix Gains Strength in South Korea, Inks Two Deals

Netflix (NTFLX) has inked a multiyear content distribution agreement with South Korea’s JTBC Content Hub, Deadline reported yesterday. The partnership, through which Netflix will be able to stream JTBC’s premium South Korean TV dramas across over 190 countries, will hit the screen in 2020.

Netflix launched in South Korea in 2016, and in April 2017, it entered into an international licensing agreement with JTBC. The deal includes approximately 600 hours of TV shows, both scripted and unscripted. Some of JTBC’s successful shows include Sky Castle, My Country: The New Age, Life, and Something in the Rain.

Last week, Deadline also reported that Netflix had entered into an agreement with Korea’s CJ ENM and its subsidiary Studio Dragon. The alliance, which will kick off in 2020, will involve Studio Dragon producing original shows Netflix will globally distribute. Netflix will also receive the distribution rights to other selected Studio Dragon titles that aren’t part of the partnership. Deadline noted that the deal included a clause whereby CJ ENM could sell up to 4.99% of Studio Dragon shares to Netflix. CJ ENM’s existing partnership with Netflix has produced shows such as Stranger, Arthdal Chronicles, Mr. Sunshine, and Romance Is a Bonus Book.

K-drama, or Korean drama, has become immensely popular in the past few years. Its quality content, high production values, and unique storytelling have won over audiences across the world. K-drama is a booming industry in South Korea, and much of its revenue comes from exports.

As per BBC in June 2018, Ma Jung-hoon, the producer of the hit series Something in the Rain, said, “The industry’s tripled in size since the early 2000s.” He added, “Half of our income comes from international sales. Of that 70% is from Asia and about 30% from the US.” BBC also quoted official figures suggesting that exports for Korean drama stood at $239 million.

A November 12 article in the Korea Herald indicated that at the end of October, Netflix had nearly 2 million subscribers in South Korea. WiseApp, an industry tracker, revealed the data. As per the data, the number of subscribers had more than doubled from last year. It’s been increasing since February 2018.

On Netflix’s fiscal 2019 first-quarter earnings call, Chief Content Officer Ted Sarandos said, “We had some great international breakouts where they really helped drive excitement in — by the way of example, Kingdom in Korea that did phenomenal and get watched and it’s getting watched all over the world and throughout the region. So, yeah, we think we’ve been able to work on a very local basis and very global basis with the content this year, this quarter.”

According to its fiscal 2019 third-quarter earnings results, Netflix has nearly 97.7 million international subscribers. It thinks most of its future growth will come from global markets, and we feel it’s on track to achieve that expectation. Its subscriber base in South Korea is on the rise, and it’s the same story in India. A July article in the Economic Times contained an estimate by IHS Markit regarding Netflix’s number of Indian subscribers. It predicted that the number would triple to 4.1 million in 2019. Read Netflix India Sees 700% Revenue Growth in Fiscal 2019 for more info.

Netflix is also seeing increased subscriber additions in other international markets. In Australia, it surpassed 11.6 million subscribers in May 2019, according to Roy Morgan research. Similarly, the Rio Times, a Brazilian newspaper, indicated that Netflix subscribers in Brazil had crossed 10 million as of September.

The company wants to add 7 million subscribers to its global markets in the fourth quarter of fiscal 2019. The US market has become saturated. Therefore, the streaming giant has to focus more on foreign markets. It also has to add more content with local appeal.

Netflix is betting big-time on international markets. Its approach to creating and promoting overseas content across markets is also unique. It doesn’t adapt content to other countries. Instead, it believes in creating content with local flavors and then sharing it worldwide. South Korean content on the company’s platform is the most prominent example of this.

Analysts have reiterated that they expect Netflix to see impressive growth in global markets. In June, Digital TV Research said that the over-the-top market’s global growth would climb from $68 billion in 2018 to $159 billion in 2024. In this context, MarketWatch quoted Beth Kindig as saying, “Netflix is the clear leader globally.” In July, Guggenheim analyst Michael Morris also gave NFLX a “buy” rating owing to its international opportunities, according to Barron’s.