The Korea Times | April 11, 2007
Korean culture industry feels the FTA
Korean publishing, movie and cable television industries are concerned about consequences of free trade agreement and increasing U.S. competition
By Kim Tae-jong
The nation’s culture industry is gearing up for the repercussions of the free trade agreement (FTA) signed with the United States, and each sector is preparing damage control for possible side effects from the pact.
For many the forecast is gloomy over concerns the agreement will result in damage to the local industry as it comes into competition with a giant that dominates entertainment and culture-related businesses worldwide 40 percent according to a Pricewaterhouse Cooper Global Entertainment and Media Outlook report in 2003.
Skeptical about government support measures, they argue that the U.S. will gradually take over the less competitive domestic industry because of the FTA, which includes strengthened copyright protection, extension of royalty payments and freer direct and indirect investment.
However, they also point out that it is time for structural reform in the industry with the production of creative work and renewed efforts to tap into foreign markets moves that have been suggested to tackle its deep-seated problems. But it is possible that there will be insufficient time for these tasks as the grace period in each sector is quite short.
The agreement is expected to strike a blow to the publishing industry, as the period for royalty payments has been extended to 70 years from the death of an original copyright holder, up from 50 years. This agreement will go into effect two years after the FTA is ratified.
The extension means that local companies will pay more royalties in the translated book sector, which make up 23 percent of the total market. However, industry insiders say it also has hidden issues.
"In the pact, the U.S. seems to have become more serious on copyright issues for their entertainment and culture business rather than tangible products," Han Ki-ho, president of the Korean Publishing Marketing Research Institute, said. "Our government obviously didn’t see it coming."
Under the pact, local companies may be not be able to publish as many translated books as they do now, not only because of costs but also due to more complicated and tightened requirements for copyright protection, which will further depress the local publishing industry, he said.
As a solution, the government has pledged 160 billion won for the development of the publishing industry by 2011. It also plans to set up a publishing and information center to offer necessary data to the public as well as the industry.
But Han strongly criticized the government’s plan, calling it hasty and lacking in concrete measures that could produce the desired results.
"Small publishing companies cannot afford increased expenses, and so many will go bankrupt. With the continued depression in the industry, local writers will be unable to get their books published unless they have a contract with a U.S. publishing company," Han said.
Han urged government understanding that this means unfair competition between David, the poorly-run local firms and Goliath, the U.S companies.
"The government should come up with more concrete and realistic support plans first to stabilize the industry. To help produce quality books and make them easily available, more public libraries should be set up. More money should be spent for creative works and the development of various outlets to publish books," he said.
The government accepted a number of American initial demands in various sectors including the reduction of the screen quota, which originally made it mandatory for cinemas to show domestic movies for 146 days per year but which was halved to 73 days last July.
Since the local film industry has seen setbacks in recent years with diminishing audience numbers, the FTA’s impact is expected to be more severely felt. The pact does not allow Korea to expand the screen quota again in the future even if the industry hits a serious recession.
"Without the quota, and if the situation does not improve, you don’t know how soon Hollywood will take over the local industry," Jang Dong-chan, the general director of the Korean Motion Picture Producers Association, said.
Local films have maintained over 50 percent in recent years. But last month, dropped to 21 percent while Hollywood films made up 70 percent with films such as "300" and "Music and Lyrics" performing well at the box office.
The poor performance of local films is leading to fewer local productions, and many projects have been pulled because of a lack of money.
Companies have to deal with high production budgets the average cost of movie production has soared to three billion won with two billion won spent on marketing. Such a film would have to attract at least 2 million moviegoers to break even, which most local films fail to do.
To assuage the domestic film industry, the government has pledged to create a development fund of 400 billion won, half of which will be provided by the Culture Ministry. The other half is to come from ticket sales revenue, without an increase in ticket prices.
The nation’s theater owners and production companies are outraged.
"We can’t really rely on the government’s lame promises. We don’t know how the fund will be raised and spent. We are now seeking a solution that may need us to make some sacrifices," Jang said.
They will more aggressively tap into overseas markets in Asia, Europe and other English-speaking countries, and stop pirated films through strong action campaigns and cooperation with new media operators.
But most importantly, they will seek a way to reduce production and marketing costs by cutting actors’ fees and staff salaries, Jung said.
The pact may be good news for American television drama buffs as they can watch the latest episodes of such hits as "Prison Break," "24" and "Lost" simultaneously with American audiences. But experts question just how much it will cost the program providers and ultimately the viewers.
In recent years, the nation’s cable television market has grown to 16 million viewers worth four trillion won. But about 200 cable TV firms in the nation, which are heavily reliant on American programs, argue the pact will allow U.S. media groups such as Fox, ESPN and CNN to take over the local industry.
"It is only recent that the domestic cable channels have been earning returns after years of hardship. We have set the table, and the U.S. giants are about to enjoy the meal without any efforts," Kim Sang-wook, the head of Contents Policy Team at the Korean Cable TV Association, said.
Under the current law, foreigners cannot hold more than 49 percent of shares in a broadcasting firm. But the FTA basically allows U.S. capital to invest indirectly in the Korean cable TV industry. The result is that foreign media giants can technically own and run local cable channels.
"Cable channels have a huge reliance on U.S. programs. But they were able to buy these programs at low prices, as U.S. firms, up until now had limited entry into the Korean market largely by the cap on foreign firms’ share holdings. But when the trade accord goes into effect, U.S. firms can raise prices of their programs, and to earn more money, if local companies cannot afford the high costs, a U.S. company can buy the station," Kim said.
The agreement also reduces the quota of domestic programming on cable channels down to 20 percent from 25 percent for movies and to 30 percent from 35 percent for animation. Programs from one country can make up to 80 percent of a channel’s programming, an increase of 20 percent from the current regulations.
As a solution, experts suggest cable channels increase the number of quality productions of programs to reduce the reliance on American programs.
To help local companies gain a competitive edge, the government plans to raise 50 billion won over 10 years. The fund will be used to cover program production budgets and the construction of infrastructure. But the government plan does not detail how the fund will be raised.
The accord will be in full effect in five years, following a three-year suspension period and two more years for ratification. But the general assumption in the local industry is that the time is not enough for local cable channels to fully prepare for the changes.