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(LEAD) (News Focus) Rise of OTT players spurs media M&As in S. Korea

All Headlines 19:09 February 21, 2019

(ATTN: MOVES 14th para to 11th para)
By Kim Eun-jung

SEOUL, Feb. 21 (Yonhap) -- If the rise of global content streaming services like YouTube and Netflix have taught any lessons to those in the Korean media industry, one thing is for sure: You have to become big to survive.

An explosive growth in demand for over-the-top (OTT) content in the world's most-connected country is speeding up mergers and acquisitions (M&As) among local cable TV operators and telecom companies.

(LEAD) (News Focus) Rise of OTT players spurs media M&As in S. Korea - 1

OTT refers to content providers that distribute streaming media as a standalone product directly to viewers via the Internet and multichannel television.

The pivot away from satellite and cable delivery is causing many traditional players in the telecom and media space to reset their business strategy and look to acquisitions to expand their global footprint.

LG Uplus Corp., the nation's smallest mobile carrier, fired a starting gun by moving to grab a majority stake deal with leading cable TV operator CJ Hello last week.

If CJ Hello's acquisition is finalized, LG Uplus will become the nation's second-largest pay TV operator, with a 24.4 percent market share, up from its current fourth place.

"The stake acquisition will serve as the first step to improving the quality of the nation's broadcasting market," Lee Hyuk-ju, the carrier's chief financial officer, said. "We expect to create new growth momentum with a synergy effect from combining media and telecommunication."

Just a week later, top mobile carrier SK Telecom Co. said its fixed broadband subsidiary, SK Broadband Inc., will merge with the No. 2 cable TV operator, t-broad, paving the way for the expansion of the company's media business.

SK Telecom signed a memorandum of understanding with Taekwang Group, t-broad's largest stakeholder, on the merger of their two subsidiaries.

Together with t-broad's cable TV subscribers and SK Broadband's Internet Protocol (IP) television users, the merged company is expected to have 7.7 million TV viewers, taking up 23.8 percent of the pay TV market.

"IPTV and cable TV are the linchpin of the pay TV market's development," SK Telecom said in a release. "We will create synergy between IPTV and cable TV to enhance the media ecosystem."

Besides such moves, the interest by KT Corp., a leading telecommunication company, in taking over cable operator D'live suggests that the bids to become bigger will continue going forward.

All of these deals come as economies of scale have become an increasingly important factor in creating original content and analyzing big data to provide customized services.

"The local media market is confronting fiercer competition from global streaming services such as YouTube and Netflix," Yun Eul-jeong, an analyst at Shinyoung Securities, said. "The restructuring of the pay TV market is expected to accelerate media content investment as major players seek ways to better position themselves against the global media giants."

While the nation's telecom companies tapped into the pay TV market with their IPTV a decade ago with a bundle package for their broadband subscriptions, they have grown rapidly to take over the traditional cable and satellite TV stations in recent years.

But the future of TV is moving toward streaming video services as more South Koreans are watching video content on their PCs and mobile devices whenever and wherever they want.

According to application tracker Wise App, YouTube held a dominant market share of 86 percent in terms of mobile video watching time as of November. AfreecaTV, a local video streaming service, held a mere 3 percent of the market share.

Wise App also revealed that the number of Netflix users on Android jumped from 340,000 in January last year to 1.27 million in December, showing the fastest growth of all platforms.

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Market watchers say the combination of shrinking cable TV demand and the rise of OTT players will inevitably change the media landscape, which could leave only a handful of players in the market.

"As economies of scale are an important factor when negotiating deals for content and home shopping channel commission fees in the pay TV market, IPTV's acquisition of cable TV stations is expected to create synergy effects," Kim Jun-seop, an analyst at KB Investment & Securities, said.


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