Enter the Dragon: Netflix Steps Closer to Borderless Content with Korea’s CJ ENM
This Monday Netflix quietly announced a new strategic partnership with potentially far-reaching ramifications for how it weathers the direct-to-consumer (D2C) storm of 2020.
The December 30th press release officially announced the production and output deal agreed on November 21st 2019 between Netflix and Studio Dragon, a production company owned by CJ ENM, a leading Korean media company spanning Korean TV and film and K-Pop.
In the press release, Minheoi Heo, CEO of CJ ENM, described the agreement as helping the company’s mission in “strengthening borderless content and expanding global distribution”. This ambitious global strategy dovetails with Netflix’s increasing need to provide zeitgeisty, localised and regional content in order to compete effectively with newly launched streaming rivals Disney+, Apple TV+, and soon to launch Peacock, and HBO Max.
Prior to this deal being agreed, Netflix will have been able to analyse the worldwide and country-by-country engagement for Studio Dragon titles already on its platform, such as Mr Sunshine, and Stranger. This therefore will significantly reduce the return on investment risk for Netflix and strengthen its negotiating position when it begins licensing discussions with CJ ENM.
For the owners of Studio Dragon, the established commercial relationship with the US streaming platform, alongside the continuing growth of its international subscriber base make Netflix the preferred option for expanding its audience reach beyond its established East Asian base. With 91% of Netflix’s subscriber base currently outside of the Asia Pacific region, the distribution and engagement opportunities for Studio Dragon among the 158 million global Netflix subscribers is currently unrivalled.
Localisation versus niche
The big four D2C players which are going to move heavily into streaming in 2020 are all doing so following the tried and tested globalisation strategy of distributing US-centric content on a global basis. To avoid commodification, the weaponisation of content has thus far differentiated the competing subscription video on demand (SVOD) services – something Netflix pioneered with the exclusive remake of House of Cards in 2013.
Relying on original and exclusive content to grow and retain engagement still represents a significant gamble in what remains a hits-based business. The traditional industry rule of thumb is that one in 10 new shows will be commercially successful, and while streaming services have an inherent advantage in being able to use data analysis to tailor commissions towards proven hits on the service, there are no guarantees that a similar plot line or shared talent will ensure high engagement metrics.
Licensing in proven longtail hit content formats such as Korean drama, which also have strong regional appeal (SVOD services in South East Asia for example compete directly on their Korean drama offerings) allow the streaming services to maintain their differentiation while reducing dependency upon the vagaries of the hits model.
The downside of course is that licensing is not the same as ownership, hence the inclusion of a clause for Netflix to acquire 4.9% of Studio Dragon at an unspecified time in the future.
Netflix’s battle between originals and licensed content is set to become more fraught, as growing competitive and financial pressures will make licensing an increasingly attractive option for a company laser-focused on retention and non-commodification.