×

Netflix bets on Korean drama for expansion

Entertainment service providers are betting on South Korean content to bolster their reach, underscoring the cultural clout of region's fourth-largest economy.

The latest to jump on the bandwagon is Netflix, which last Wednesday announced an original 12-episode drama series that will be adapted from a popular South Korean online comic series.

The announcement is seen by analysts as a move to tap into South Korean pop exports with Netflix streaming the drama to global audiences in 2018.

It also came after the company announced a content creation budget of $6 billion in 2017, topping a projected $4.3 billion at NBCUniversal, parent company of CNBC.

Netflix Inc. partnered with Japan's SoftBank Group Corp. for the Japan launch of its video-streaming service on September 2, 2015.
Ken Ishii | Getty Images
Netflix Inc. partnered with Japan's SoftBank Group Corp. for the Japan launch of its video-streaming service on September 2, 2015.

"The Korean content category is becoming vital…it has high production value and the content travels," said Vivek Couto, executive director of consultants Media Partners Asia.

Major consumers of South Korean cultural exports include economies in Southeast Asia and greater China.

Netflix entered Asia in 2015 and is rolling out original productions in the region.

Other entertainment companies riding the South Korean pop culture wave include Hong Kong telcommunication giant PCCW Ltd. with its Viu streaming service and Turner Broadcasting's Oh!K subscription-based TV channel. South Korean content dominates programming on both channels that available in various Asian countries.

Mirae Asset Daewoo's analyst Jee-hyun Moon said alongside Amazon Video and Youtube Red, Netflix has not yet gained a foothold in South Korea, so local content will give the service a boost.

Netflix's foray the soap opera genre is especially exciting.

"In the Hallyu (Korean Wave) trend, the major genre is drama. Films and variety shows can be popular, but the lifespans of these shows are shorter," said Moon.

The web-toon may also have potential in China, where South Korean pop culture is pervasive even though authorities are trying to curb performances by Korean celebrities to protest its disagreement with the U.S.' deployment of the Terminal High Altitude Area Defense system in the peninsula.

The Chinese market remains elusive to many foreign media players keen to break into the world's second largest economy due to strict censorship laws. Social media platforms Facebook, Instagram and Twitter are banned in the country.

Netflix has all but given up on setting up a platform in China in the short-term.

"The regulatory environment for foreign digital content services in China has become challenging. We now plan to license content to existing online service providers in China rather than operate our own service in China in the near term," Netflix said in a letter to shareholders in October. This is even as it acknowledged that licensing revenues in China will be "modest".

To play the long game so that it will eventually be ready when regulations are relaxed, Netflix needs to first stay in it, said Moon.

"Netflix wants to generate other revenue streams including that from content licensing to the Chinese platforms. If Netflix gains some brand awareness in China and other Asian countries through licensing content, they can get other opportunities in the future," she said.

Follow CNBC International on Twitter and Facebook.