[Column] Can IP Business Solve the Problems in the Content Industry?"

Author: Woojin Cha | K-pop music critic

2023.May

There are many movies and drama series based on webtoons and webcomics. However, this approach, which is now taken for granted, was a work-around to overcome the crisis in the content industry. The IP business, which emerged as a problem-solving method for the content industry, is still experimental and uncertain.The most anticipated works of OTT in 2023 have one thing in common: they are mostly based on webtoons or web novels. In other words, it is a strategy to increase their chances of success.

The process of adapting popular works from different fields into other media is called the "media mix" strategy. The adaptation of a novel into a movie is a typical example. However, the media mix in the 2020s has a slightly different direction than traditional cases like the novel-to-movie approach. It is often planned as a media mix from the beginning, or it may have an extended nature that shares the worldview of webtoons/webnovels. Why is that? To understand, we need to rewind to about a decade ago.

Issues: Streaming and Platforms

Since 2015, the content industry has faced a major challenge: cord cutting, especially in the United States, the largest content market. Cord cutting refers to the practice of watching shows online instead of subscribing to pay cable television. It has been driven by the proliferation of media that individuals have access to, including PCs, smartphones and tablets.

Netflix has been a key driver of the cord-cutting trend, which began to emerge around 2010. Netflix launched its streaming service in 2010, and Spotify launched its U.S. service in 2011. Both companies represent streaming, and the cord-cutting phenomenon exploded under two underlying conditions: mobile and streaming. First and foremost, 2015 was the year that the mobile market began to proliferate globally.  Despite their larger populations, regions such as India, Indonesia, Mexico, and Brazil, which were once considered to have limited market potential due to challenges such as a lack of telecommunications infrastructure, cultural differences, and economic barriers, emerged as key markets. Wireless Internet has made it relatively easy for countries like Indonesia, with its many islands, or Mexico, with its deserts and wastelands, to solve the problem of costly telecommunications networks.

In the context of mobile and streaming, content platforms like Netflix and Spotify quickly became mainstream. Moreover, in an unexpectedly isolated environment due to the COVID-19 pandemic, content platforms experienced an unprecedented surge in consumption. In the six to seven years since 2015, the content industry has experienced a disruption of the existing industry structure and has been forced to come up with new business models, as the rise of streaming platforms has accelerated polarization.

The production cost of a movie or drama series is getting higher and higher, while the profit margin of a streaming platform is very low. That is the nature of the platform business. The platform's monthly subscription fee is lower than the price of a theater ticket, which allows it to attract a large number of users, but in the end it is inevitably paid on a sliding scale based on the proportion of time that is streamed.

Blockbusters are no better off. Moreover, Netflix's contractual terms are such that it buys all rights (secondary copyrights and business rights) for an additional 10-20% of the production cost of a single film. This practice has become standard on other platforms as well. As a result, producers find themselves in a structural contradiction where they receive no additional revenue even if their content is number one on a global OTT like Netflix. This explains the shift of Marvel series, which played a key role in Netflix's growth, to Disney Plus. Unable to create their own platforms, production companies have been forced to look for alternatives to increase their return on content production costs. On the other hand, the pandemic also created additional opportunities.

From the perspective of the financial markets, the pandemic period was a crisis for almost every industry. It was during this time that interest in virtual spaces and virtual assets, such as the metaverse, increased. Capital concentrated in the tech and telecom sectors rapidly depreciated in the unpredictable context of the end of the pandemic and the outbreak of war in Ukraine. In contrast, the entertainment sector, such as drama, games and music, was largely unaffected. Once again, it was confirmed that entertainment delivered in a digital environment is impervious to economic downturns.

In fact, it has the potential to combine and synergize with other industries. In this context, the current trend of global financial capital, including Middle Eastern funds, flowing into the content sector in 2023 can be understood. However, while the industry has grown in size, the business model and revenue structure of the content industry has not been revolutionized. While interest in the content industry is growing and investment is increasing, the vision of new revenue models remains unclear. There is a need to improve and expand the revenue models for movies, music and games.

Concerns: How to Monetize Popularity?

The IP business is gaining attention in this context. The primary challenge currently faced by the content industry is the necessity to explore alternatives to weakened business models. In simple terms, it is a way to address the issue of 'having popularity but lacking a way to monetize it' by developing derivative products based on IP.  

The IP business is about selling rights, not products. It is a business that acknowledges the value gained from popularity and influence as 'rights' and commoditizes these rights. Of course, it is not easy to turn abstract popularity into a tangible business. To achieve this, strategies are implemented to structure content for scalability and maximize the derived added value. This is where the roles of community and commerce become especially important.

Let's briefly explain that the community is fandom, and commerce is merchandise, using Marvel as an example. Marvel's popularity is not limited to its work. The characters are expanded into merchandise, and the stories are expanded into other areas. This enables productization and maximization of profits. What if a studio like Disney acquired Marvel and could not create its own platform? It would be natural to secure the rights or collaborate with a company that holds them.

It is not just the movie industry growing; the 'story industry' is expanding. This story industry is developing in the direction of diversifying revenue models based on characters and stories. The same trend applies to video content being connected to webtoons/web novels. There are countless examples of successful video adaptations of text and visual content throughout history. In particular, many bestsellers from the 80s and 90s were adapted into movies after 2000.

Bestselling novels by Tom Clancy, such as "Patriot Games", "The Hunt for Red October", "Rainbow Six", and "Jack Ryan", have been reborn as blockbuster movies, PC games, and OTT series over the past 30 years. Works like "Twilight Saga", "Harry Potter", "The Lord of the Rings", "Game of Thrones", and "Dune" are all adaptations of original novels into visual content. In the same way, there are more and more cases of successful movie adaptations of web novels/webtoons, such as "What's Wrong with Secretary Kim?", "Black Priests", and "Reborn Rich," not only in Korea but also globally. The success formula of Marvel, connecting weekly comics, graphic novels, movies, dramas, and games, can be applied to webtoons/web novels as well.

Methodology: The Potential for Structural Connectivity

Furthermore, the distinctions within the content business are disappearing. LE SSERAFIM of Source Music, a label under HYBE, is collaborating with NAVER Series to release a webtoon with a unique worldview called 'Crimson Heart'. The author Kim Cho-yeop, who is known for both her popularity and the quality of her work, is involved in the creation of this worldview.

The author Kim Cho-yeop is affiliated with Blossom Creative, a subsidiary of Blossom Entertainment, an actor management and video production company. This company includes famous writers such as Kim Young-ha, Kim Jung-hyuk, Park Sang Young, Jang Ryujin, and Bae Myung-hoon. Blossom Creative has a business model that expands the storytelling IP not only through author management, but also through publishing and video production through its own publishing house: the management company publishes, while the K-pop agency creates webtoons. NAVER, HYBE and Blossom Creative are all connected through the IP called 'Crimson Heart'. Moreover, this IP is likely to expand beyond webtoons and music to games and even commerce.

The IP business is not just about transferring or expanding content to other media. It is about how the core values of different industries are structurally connected. What makes the case of LE SSERAFIM interesting is that it is not a case of extending an already successful product, such as a webtoon or a webnovel, into other areas. Instead, it is being created and developed from the outset with these connections in mind. This suggests that the current (or future) IP business model is focused on "connectivity" rather than "expansion". This is an important point that needs to be reiterated: the IP business is a business model focused on connectivity, not expansion.Harvard Business School professor Bharat Anand, in his book The Content Trap, has argued that the core of the 21st century content business lies in 'connectivity'.

The storytelling industry can be connected to music. Manufacturing can be connected to webtoons. Characters can be derived from music. Podcasts can be connected to storytelling. If you look at the IP business with these connections as a core value, a lot of things will look different than they have before. Since this area is still in the experimental stage, more cases, whether successful or not, need to emerge.

Author WooJin CHA  is a Music (especially K-pop), Entertainment, Media Industry Expert based on SEOUL