SK Telecom and SK Broadband to Invest $3.5 Billion in Contents

Jan 22, 2020

Ministry of Science and ICT (MSIT) gave a final approval to the merger between SK Broadband and t-broad resulting in South Korea’s biggest and the first merger between an IPTV company and a cable TV company.
It has been confirmed that SK Telecom and the corporate merger promised during a screening process that they would invest $3.50 billion (4.1 trillion KRW) in contents. It will be interesting to see whether the merger will act as a new stimulant to the media market and lead to more M&As.
◊MSIT gives a final approval to the merger
MSIT evaluated the merger based on locality, fair trade, protection of viewers’ rights and interests, and development of South Korea’s broadcasting industry. At the end, it applied a prior consent from Korea Communications Commission (KCC) to its decision and finalized and informed SK Broadband and t-broad of 32 approval criteria and 7 recommendations.
Regarding locality, MSIT has ordered the corporate merger to operate its IPTV business and cable TV business separately for at least five years. Regarding IPTV, it has ordered the corporate merger to provide cable TV’s local channel contents as “free VoD (Video on Demand”. The corporate merger’s cable TV business needs to establish plans on how it is going to operate local channels and disaster broadcasting and submit a plan to MSIT on how it is going to carry out those plans.
This is a measure to maintain contents and products at the very least even if a cable TV company, which is a local business, is absorbed by an IPTV company that is a nation-wide business.
Regarding fair trade, MSIT believed that a possibility of the corporate merger limiting competitions within the multichannel TV broadcasting market would be low.
However, it has ordered SK Broadband and t-broad to submit how much they are paying in PP (Program Provider) fee as it believed that the corporate merger would have higher bargaining power towards home shopping companies and PPs. It has also ordered the corporate merger’s IPTV business and cable TV business to have separate negotiations based on their services with home shopping companies.
MSIT considered the fact that the corporate merger will be South Korea’s biggest and the first merger between an IPTV company and a cable TV company. Due to raised bargaining power, MSIT has prepared necessary tools that will prevent the corporate merger from abusing its power on small to midsize PPs.

SK Telecom and SK Broadband to Invest $3.5 Billion in Contents

◊The corporate merger to invest $3.5 billion
MSIT stated that SK Telecom and the corporate merger proposed a $3.47 billion (4.0621 trillion KRW) investment plan for five years until 2024 and that it would tighten its inspection system through approval criteria.
SK Telecom and the corporate merger submitted a plan that would invest $764 million (893.7 billion KRW), $1.92 billion (2.2434 trillion KRW) and $791 million (925 billion KRW) into cable TV, IPTV, and OTT (Over The Top) service called “Wavve” respectively. The amount of these investments is a 78.9% increase from investments from SK Telecom and SK Broadband between 2014 and 2018. SK Telecom and the corporate merger also added $598 million (700 billion KRW) during a screening process by MSIT.
MSIT has requested the corporate merger to prepare specific plans and submit them within three months and it has decided to check how the corporate merger’s investments are carried out each year.
This decision is seen as an approval criterion based on MSIT’s will to induce better competitive edge in South Korean contents politically in order to deal with influence of multinational media companies such as Netflix and Google from spreading.
Based on an expanded platform, SK Telecom and SK Broadband are now equipped with conditions that will allow them to carry out next strategies within the media and the cable transmission markets that they have been relatively inferior in compared to the mobile telecommunications market. They have shown their will to accelerate their investments in next-generation contents such as AI, VR, AR, and 5G in addition to their current OTT platform “Wavve”.
◊South Korea’s multichannel TV broadcasting market reorganized into a three-horse race
SK Broadband will be able to own 24.03% of market shares as it has been reborn as a corporate merger between an IPTV company and a cable TV company. When its market shares are combined with market shares of KT and KT SkyLife (31.31%) and LG Uplus and LG Hellovision (24.72%), three major South Korean telecommunications companies will own 80.06% of market shares of the multichannel TV broadcasting market.
Because the ratio of market shares of the telecommunications companies to market shares of cable TV companies within the market is 8 to 2, the market has been restructured with the telecommunications companies at the center. The companies are expected to compete against one another in order to grab an upper hand of the market. President Park Jung-ho of SK Telecom has hinted additional strategies such as pushing SK Broadband to go public.
As KT and LG Upluus are also taking additional actions, there is a good chance that the telecommunications companies will look to acquire cable TV companies in the future. MSIT and KCC are also predicting that there will be follow-up M&As.
“We believe that there will be many M&As in the near future.” said a representative for MSIT. “We are going to have close discussions with relevant departments regarding follow-up M&As so that such M&As can be carried out as soon as possible.”
Staff Reporter Park, Jisung | jisung@etnews.com

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