Netflix's Introduction of Ads Shakes Up Broadcast Advertising Market... Domestic OTTs 'Taking a Wait-and-See Approach'

5,500 KRW per month with 4-5 minutes of ads per hour... 12 trillion KRW annual profit
Ad migration from TV to Netflix
Local OTT "Considering overseas expansion... difficult for now"

[Image source=Yonhap News]

[Asia Economy Reporter Oh Su-yeon] The global largest online video service (OTT), Netflix, is shaking up the market by introducing an ad-supported subscription plan. As Netflix emerges as a strong competitor to broadcast advertising, it is expected to reshape the advertising market landscape. Domestic OTT providers are closely monitoring the potential impact of the ad-supported subscription plan while taking a wait-and-see approach.

Netflix's Ad-Supported Plan Already Proven, 72.2% Say "Will Use" in Survey

On the 14th, Netflix announced the launch of a new subscription plan called 'Ad-Supported Basic' in 12 countries including South Korea. The Ad-Supported Basic plan costs 5,500 KRW per month, adding advertisements to the existing Basic plan priced at 9,500 KRW per month. It is 4,000 KRW cheaper than the Basic plan, with 15 to 30-second ads shown before and during content, requiring viewers to watch an average of 4 to 5 minutes of ads per hour. Content download is not available.

Netflix's ad-supported plan is expected to perform well. According to a recent survey conducted by the Korea Press Foundation on the intention to use Netflix's ad-supported plan, 72.2% of respondents expressed a positive intention. Among them, 68.9% said they would decide based on the amount of ads or the subscription plan details, while 3.3% said they would use it unconditionally.

Media market analysis firm Ampere Analysis forecasts that Netflix will generate an additional annual profit of $8.5 billion (approximately 12 trillion KRW) by 2027 by introducing the ad-supported plan. According to a report by The Wall Street Journal, Netflix expects to gain 4.4 million additional subscribers (1.1 million in the U.S.) by the end of this year and 40 million (13.3 million in the U.S.) by the third quarter of next year with the launch of the ad-supported plan.

Overseas, Paramount+, Peacock, and HBO Max have already introduced ad-supported plans. Disney+ also plans to launch an ad-supported plan at $7.99 per month (approximately 11,500 KRW) in December.

Domestic Advertising Market Stirred, Korean OTT Industry "For Now, Watching"

The introduction of Netflix's ad-supported plan is stirring the domestic advertising market. With strengths in branding effects and targeting technology, and as a popular platform among key consumer groups, it is expected to threaten broadcast advertising and shake up the market.

Choi Yong-hyun, a researcher at KB Securities, said, "The OTT advertising market will officially open starting with Netflix and Disney. The domestic Netflix advertising market alone is expected to grow to 1.2 trillion KRW by 2025." He added, "OTT advertising will spread from Netflix to domestic and international OTTs, and advertisers' ad spending will shift from TV media to digital media."

Domestic OTT providers are taking a cautious stance. Although they have no immediate plans to introduce ads, they are closely watching the impact Netflix may have. While it is an attractive business model, considering the variety of bundled discount plans and purchasing power in Korea, the short-term impact on the market is expected to be limited.

An industry insider said, "The ad-supported plan has successful cases in the U.S. and seems likely to become a notable service. In North America, where subscription fees are high and multiple subscriptions are common, or in developing countries with lower purchasing power, the ad-supported plan can secure subscribers." He added, "However, from the perspective of domestic companies, it may be considered when expanding overseas, but looking only at the domestic market, it seems difficult to introduce an ad-supported plan immediately. Designing the business model will take time."

This content was produced with the assistance of AI translation services.