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Korea's Broadband Multimedia Marketplace
One of the worlds most advanced online gaming and Internet countries.
By: Gordon Feller & Mary McNamara
Created: March 26, 2003
Readers who use this information for investment purposes do so at their own risk!
Opinions expressed are just that and not based on insider information or information
otherwise obtained illegally. Abstract:
In 2001, the Korean software market was valued at $11.2 billion, and is expected to
grow 12 to 17% in 2002. One Korea’s fastest growing software sub-sector is multimedia
software, which integrates forms, animation, video and audio. Gaming is the most
significant multimedia software sector in the Korean market. In 2000, sales in the
domestic gaming industry were valued at $1 billion and expected to grow at an annual rate
of 15%. Internet-based multimedia services are very popular in Korea as a result of
wide spread broadband access. Entire movies, pop music songs and videos, comic books,
adventure games as well as the latest television programs are routinely downloaded through
on-demand services. The multimedia software sector is currently composed of Korean
companies that are almost exclusively focussed on local consumers. Few foreign companies
have succeeded in penetrating this specific sector of the software market. Korean gamers
are typically in their early teens and tend to continue playing up to the mid 30s, after
which game playing patterns decline drastically. With Korea’s many arcades, Internet
cafés and high Internet penetration, it has been a natural step for many gamers to begin
using new gaming platforms including wireless devices.
Report:
Korea ranks among the top countries in the world in terms of Internet
usage and broadband penetration. Korea's market for high-speed Internet access services
was valued at over US $ 2 billion in 2002. The size of the wireless Internet market was
valued at nearly US $ 1 billion in 2002 and is forecast to reach US $ 3 billion by 2005.
To accommodate projected increases in Internet usage and broadband demand, Korea's
high-speed infrastructure is still growing and should be completed by 2005. By the end of
2005, the average Internet access speed in Korea will be 26 Mbps, requiring more advanced
technologies and services for next generation networks including, DSL, cable modem, LAN
and the satellite Internet.
Internet Access Services
Korea ranks among the top countries in the world in terms of Internet
usage and broadband penetration. Korea's market for high-speed Internet access services,
was valued at over U.S. $ 2 billion in 2002,
and the wireless Internet market, at US $ 1 billion in 2002 with a forecast to reach US $
3 billion by 2005. To accommodate projected
increases in Internet usage and broadband demand, Korea's high-speed infrastructure is
still growing and should be completed by 2005. By
the end of 2005, the average Internet access speed in Korea will be 26 Mbps, requiring
more advanced technologies and services for next generation networks including, DSL, cable
modem, LAN and the satellite Internet.
According to a recent survey by the National Computerization Agency,
over 50 percent of Korea's population of 47 million people use the Internet, and over 90
percent of the users are connected to "high-speed" networks at a data
transmission speed of one megabit per second (Mbps) or faster. The market for high-speed
Internet-access services has grown at explosive rates over the past two years. Internet
access penetration using Digital Subscriber Line (DSL) was only 26 percent as of December,
2000, and increased dramatically to 50 percent by December, 2001. Asymmetric DSL (ADSL)
has attracted 5 million of the 8.6 million broadband subscribers in Korea, and the
remaining 3.6 million subscribers use other broadband services, including cable modem,
LAN, satellite, and ISDN. Among all member countries of the OECD, Korea had the highest
rate of broadband subscribers, as of May, 2002. Korea's total number of broadband
subscribers is estimated to have surpassed 10 million by the end of 2002.
Since 2000, the nature of Koreans' Internet usage has changed
dramatically. The number of users who use the Internet for shopping, emailing, and
participation in cyber communities has increased, while those who use Internet for data
only have decreased. By the end of 2001, over 11 million Koreans, 24 percent of the
population, had subscribed to Internet banking services and carried out transactions
on-line, an increase of 280 percent over 2000. On-line stock transactions represent 69
percent of the total stock trading activity in Korea.
Korean Internet Service Providers (ISPs), which own and operate their
own Internet backbone networks, include Korea Telecom, Hanaro Telecom, SK Telecom, Dacom,
Onse Telecom, GNG Networks and Powercom. Recently, Dreamline merged with Hanaro as a
result of restructuring among the major ISPs. The total number of ISPs increased from 83
in 2001 to 92 in May 2002. In the second half of 2002, the major ISPs with network
backbones are planning to invest as much as USD one billion in networking infrastructure
to upgrade wireless LAN services as well as to transmit with Dense Wave Division
Multiplexing (DWDM) equipment.
The mobile Internet market is also growing explosively through the
use of mobile phones and Personal Digital Assistance (PDA) through 2.5G technology
currently, and through 3G technology in 2003. The "killer applications" offered
by Korean ISPs for handheld mobile devices are currently ring bells tones, games, and
exciting graphics downloads to decorate the phone screens.
In
2001, the South Korean software market was valued at $11.2 billion, and is expected to
grow 12 to 17% in 2002. The software industry is taking up a greater share of Korea’s
GDP each year and is expected to surpass 3.5% in 2002. One Korea’s fastest growing
software sub-sector is multimedia software, which integrates forms, animation, video and
audio.
Korea
is one of the world’s top three information technology countries and is taking an
aggressive approach to acquiring and adapting new technologies. Korea’s Information
and Communication Ministry is investing $1.2 billion in South Korea’s software
industry until 2005. The funds will be directed to encourage software start-up companies
to develop cutting-edge technologies, educational software, training of software
professionals. Financial assistance is also available to aid Korean software companies to
export.
In
2001, the Korean government announced its plan to invest $130 million over two years to
promote promising software industries in areas such as wireless Internet, online games and
components. Approximately 60% of this total will go to the development of mobile Internet
service platforms and 3-D online games.
Gaming:
In
2000, sales in the domestic gaming industry were valued at $1 billion and expected to grow
at an annual rate of 15%. Sales in the industry were broken down as follows:
- Arcade games: 60%
(also includes hardware)
- Online games, 22
- PC games 13%
- Mobile gaming 3%
- Console
video games 2%
The
Korean government has made a concerted effort to promote the growth of the game
development industry by exempting men who work in the game development industry from
mandatory military service, lowering the tax rate on game developers from 30% to 15%, and
implementing a government aid program for new gaming software development projects.
Several
Korean universities offer game development and design programs. Therefore, students will
graduate with degrees such as game development, design and programming.
Online
Gaming
At
the end of 2001, Korea’s PC household penetration stood at 77%. Korea’s
mainstream gaming market relies on the PC format, especially network-based multi-user
games.
Korea
has 26 000 Internet cafes, known as ‘PC bangs’ (PC rooms), that are open 24
hours a day. PC bangs offer a variety of online services including shopping, Internet
phones, visual chatting and music downloading, are immensely popular in Korea. The most
popular attraction at PC bangs are networked games. PC bangs are commonly patronized by
students and young businessmen. PC bangs, with their social atmosphere, are fertile
grounds for network games.
Gaming
Consoles
The
game console market is small compared to other Asian countries. Although some Korean video
game buffs are purchasing console hardware and software titles, many of them are smuggled
from Japan. Microsoft and Sony plan to launch their next-generation game consoles (X-Box
and Play Station 2) in Korea during the first quarter of 2002.
Wireless
Gaming
Given
Korea’s high level of gaming and the wide proliferation of wireless devices, wireless
gaming is the new and emerging trend. 2.5G handsets are becoming the dominant mobile phone
standard, however, they will soon be replaced with 3G which will replace old models and
appeal to a new customer base.
The
Korea Game Development and Promotion Institute estimates that the Internet and mobile
gaming market will be valued at $120 million by 2003. Approximately 33% of mobile
telephone users play games on their phones, and this figure is expected to increase to
almost 60% by 2003.
An
estimated 50% of mobile subscribers will be using 3G handsets by 2006. The technological
advances brought forth by 3G mobile phones will allow more sophisticated games and will
further drive the market for mobile games. Revenue generated by gaming on wireless devices
is forecast to significantly increase by 2005 and generate more than $1.5 billion in 2006.
As
3G services are launched, an increasing number of gamers will begin paying for games on a
pay-per-play basis, which will eventually become the most common payment method for
gaming.
Internet-related
Multimedia
As
much as 82% of Korean households owning a PC have Internet access. Korea has the
world’s highest Internet broadband penetration rate at 76%, of households, 8.5 times
higher than the rates of any other developed nation. By June 2002 there will be
approximately 10.2 million broadband subscribers, up from 7.8 million at the end of 2001.
The number of users is expected to top 15 million before 2005.
Korean
subscribers have five major uses for their Broadband access:
- information and data
research (88%);
- gaming (66%);
- news (60%);
- television and radio
broadcasts (43%); and
- on-line shopping (32%)
Many
web service providers in Korea no longer cater to modem users, preferring to offer
services and content to high-speed broadband clients. As a result, text heavy web sites
are no longer the norm.
Internet
based multimedia services are very popular in Korea as a result of wide spread broadband
access. Entire movies, pop music song and videos, comic books, adventure games as well as
the latest television programs are routinely downloaded through on-demand services.
According to the Korea Federation of Internet Broadcasters there are approximately 800
Internet broadcasters active in the market. Advertising and pay-per use services are
expected to generate $789 million by 2003.
All
three of Korea’s primary television broadcasting stations (KBS, MBC, and SBS)
broadcast live over the Internet as well as post the most recent episodes of their
original programming online for viewers to download without cost. Cable channels,
especially music channels like m.net, offer live access to the content being broadcast on
cable and also offer on-demand video. M.net intends to continue to offer on-demand music
videos as a fee-based service in the latter part of 2001 or in early 2002. Local movie
channels partnered with specific Internet providers also make movies on demand available
to their subscribers.
SBSi,
the Internet division of SBS, has made webcasts into a particularly profitable business by
offering real-time purchase opportunities. If a viewer wants to purchase any item on the
screen, including clothing worn by on-air personalities, a simple click will take the user
to a virtual shopping mall with purchase information.
Multimedia
portal sites have become very popular as a central location for on-demand content,
typically targeted to a particular audience ranging from educational interactive programs
for children to age restricted material.
There
are over 1000 webcasting stations in operation. Webcasting services in Korea are estimated
to generate $786 million in 2003 from advertising and pay-per- use services. Forty-three
percent of broadband subscribers use their access for television and news webcasts.
Virtual
avatars were cited as 2001's number one trend in Korea. Virtual avatars, a projection of
one’s own cyber character developed from a photograph, are provided by several
domestic multimedia companies, including game software makers and portal providers. The
success of avatars is closely related to current trends among Korea’s youth that
valued the expression of individuality. As a result, the market size of the avatar
industry was valued at $243.3 million, with new designers and characters being
continuously introduced to meet market demand and provide consumers with more choice. The
avatar concept has also emerged as a new online business model and income source for
dot-com companies that have suffered from chronic losses.
Wireless
Internet-related Multimedia
Given
that the number of wireless subscribers is reaching a point of saturation, Korean telcos
expect to derive substantial revenues from the wireless content used by their clients.
According
to the Ministry of Information and Communication, a growing number of Korean consumers are
using various contents on the Internet through their cellular phones, especially gaming
and entertainment applications such as strategy and video games, gambling, music videos,
and movie trailers. A new growth area is the popularity of Multi-Media Messaging (MMS).
MMS has a popular “buddy” messenger application which has several features that
enable users to send messages using voice, image and live video technologies that have
revolutionized the previous SMS text-based message services.
A
total of 17.7 million subscribers applied for wireless Internet service by the end of
November 2001. If users of ordinary cellular phones, which have no pre-installed web
browsers are included, the number of wireless Internet users reached 23.6 million,
accounting for 81% of the Korea's total mobile phone subscribers.
KTF,
the country's second largest mobile carrier, formed alliances with Korean’s three
major broadcasters in late 2001 to provide popular television soap operas, entertainment,
news, traffic and weather programs over its icon-based multimedia mobile network,
Multipack, beginning in late February 2002, heating up competition for a top slot in the
video-on-demand (VOD) market among mobile carriers. KTF will also plan to offer major FIFA
World Cup games in real time during the competition to be held in Korea in June 2002. The
company also plans to set up its own multimedia broadcasting station in the first quarter
of this year to offer personalized multimedia content services its subscribers.
South
Korea's mobile telecom providers expect to sell 250 000 personal digital assistants (PDAs)
in 2002 to customers of their wireless Internet portals. The PDAs are expected to be
widely popular as they are more conducive to accessing multimedia, financial information,
and game playing due to their larger full colour screens and audio systems.
E-learning
In
2000, the educational software market was valued at around $70 million and was mostly
comprised of CD ROM titles. While the off-line educational software market is shrinking,
the online education service market is expanding drastically due to well established and
exploding broadband Internet infrastructure in Korea.
Koreans
place a high premium on their children’s education and spend an estimated $108
billion on public and private educational expenses, including tutoring. In 2000, education
was one of the largest Korean family expenditures and represented 16.6% of the
nation’s GNP, a figure that is four times greater than that spent in Japan.
Korean
families, private corporations, and government organizations are increasingly recognizing
the importance of English language skills creating many opportunities for on-line and
software based multimedia English language instruction.
As
of April 2001, the Korean government had installed a total of 10 064 personal computers in
elementary, middle, and high schools in the country. Students and teachers at these
schools are now able to access the Internet and use educational software as part of the
curriculum. The Korean government plans to have every school networked by 2002 via
broadband connections in order to provide a learning environment under which multimedia is
fully utilized.
There
is high demand for educational software and online learning in Korea. A recent survey on
online learning services conducted by the Korea Consumer Protection Board found that 42.6%
of respondents received poor online services. The survey also indicated that over 45% of
respondents deemed English education was the most widely sought-after only learning
service. Overall results of the survey revealed that current online educational services
available to Koreans are lacking in the areas of customer service and user-friendliness
and the general quality of online learning.
Opportunities
There
are opportunities in this market for foreign companies, however, chances of success are
much stronger if foreign companies partner with a Korean company or find a strong and
reputable local agent. There is a tendency to “buy Korean” and a solid partner
is an asset to assist foreign companies to enter the market.
Opportunities
exist for foreign multimedia companies to form joint ventures with Korean multimedia firms
to develop multimedia content for online games, music and music video content sites, as
well as electronic books and Internet based educational tools for all ages.
Financing
Fast-tracking
is occurring for foreign companies looking to invest in the Korean market. Tax incentives
are available for foreign companies, which in some cases result in a 10-15% increase in
their profit margin. Foreign companies that have formed a joint venture with a local
company are also eligible for a three-year tax exemption.
Additional
information on Korean regulations on tax reduction or exemptions for foreign direct
investment can be found on the Korean government’s web site at http://www.korea.net/menu/government/law/law.htm
Key
Players
There
are more than 500 game-related companies operating in Korea, with 48% involved in
development and manufacturing, 22% in distribution and 30% doing both.
The
local multimedia software sector is composed of Korean companies that are almost
exclusively focused on the domestic market. The 2001 forecast exporting status of Korean
multimedia content is $354,000, up 7.5 times from $46,000 in 1998. Few foreign companies
have succeeded in penetrating this specific sector of the software market.
Domestic
gaming companies dominate the South Korean market. There are close to 1300 game developers
in the country. Korean gaming market is divided into game production (86%) and
distribution (14%).
The
most prominent Korean player in the market include NC Soft Inc., Actoz Soft, Taewool
Entertainment and TripleDice Online Gaming Company.
Seoul-based
CCR is the maker of Korea’s most popular multi-player network game, Fortress2 blue.
As of December 2001, the game had almost 13 million registered users.
Broadband
service providers, including Thrunet, Hanaro and Korea Telecom have introduced webcast
portals for their clients. They have begun to develop their own content and to purchase
content from other stations and webcasters.
Key
foreign players in the market include Nexon Asia. Nexon Asia is located in Singapore.
Nexon Asia, a Singapore-based company, works with partners in the Asian market to service
games in several countries including Korea, Hong Kong, Taiwan and Thailand. The company
currently has six games on the market.
Destination
Games based in Austin, Texas, is an Internet gaming venture of the co-founders of Origin
Systems. Destination Games is partnered with Ncsoft, provider of the world’s most
popular online game, Lineage, to leverage their games within Korea.
SK
Telecom, Korea’s largest mobile operator, is expected to significantly increase its
market share in the near future as 3G wireless gaming increases in popularity. Foreign
companies including the UK’s Vodafone and Japan’s DoCoMo are also expected to
make significant inroads in the Korean 3G gaming market in coming years.
End-Users
Korean
gamers are generally between the ages of 12 and 35. However, the key demographic group is
in their early-to-late teens and tend to continue playing up to the mid 30s, after which
game playing patterns decline drastically. With Korea’s many arcades, PC bangs and
high Internet penetration, it has been a natural step for many gamers to begin using new
gaming platforms including wireless devices.
Fighting
and sports games are wildly popular in the Korean market. There is no market distinction
between the games played by men and women.
There
are two types of multimedia gamers in Korea: hardcore gamers, who use constantly and tend
to play complex games and casual gamers, who do not use so frequently and look for more
simple games with fewer obstacles to achieve the goal of game. Casual gamers currently
outnumber hardcore gamers.
Key
Points to Remember
Competition
in the gaming sector is fierce. The majority of revenues generated in the industry come
from game memberships and pay-per-use fees from establishments such as Internet cafes, as
well as through servicing the gamers (e.g. through on-line upgrades). High visibility and
easy access are essential when marketing online games to Korean consumers.
Foreign
companies interested in the Korean multimedia software market must focus on the
development of a unique product of high quality. Experience has shown that if the product
is not of top quality, companies who are quick to create an inexpensive imitation of the
product will often see a quicker and more lucrative success in the Korean market than the
original producer. Due to Korea's high-density, homogenous population, word of mouth can
make or break a product, especially in the fast-paced gaming industry, where marketing is
difficult.
Foreign
companies entering the Korean multimedia software market must localize their products and
ensure that the software content and packaging is translated into Korean.
Import
Duties and Tariffs
South
Korean tariffs are based on the value of the goods and average a rate of 8%. Customs duty
is levied on all imported goods, with the exception of imports of certain goods for
government use, certain capital goods and equipment for developing technology. It is
important to stay informed, as the South Korean government can alter tariff rates by a
decree within certain parameters. To remain up-to-date contact the Korea Customs Service
or visit http://www.customs.go.kr
Tariffs
on materials used for education purposes and computer software duties are zero percent.
Import
Regulations-Procedures and Regulations
South
Korean import procedures are complicated. The Ministry of Commerce, Industry and Energy is
responsible for composing import procedures and the requirements for import licenses.
However, the foreign exchange banks administer the licenses. For more information on
Korean import regulations, contact the Korea Customs Service or visit http://www.customs.go.kr
An
import contract is concluded when an offer based on a written contract between a South
Korean trading agent and a foreign supplier is received. Documentation
Customs
clearance is the responsibility of the importer, who will need an import license and a
bill of lading to obtain customs clearance. In some cases, a certificate of recommendation
from the relevant trade association is also required. Special certificates may be required
and are assessed on a case-by-case basis.
Labeling
Certificates
of origin should also accompany the goods and should be written in Korean, English or
French. On the good itself, the country of origin must be marked with a “Made
in” or “Product of” label in either Korean, English or Chinese. It must be
in an easily identifiable place, in a way easily read by the end purchaser and in a
permanent form. The marking should be on each individual item. However one may mark the
package where it is not possible to mark the good itself (i.e. where marking would damage
the good or where the good is usually sold in a packed condition). You may label a good
with an adhesive sticker, a tag, or by other measures approved by the Chief of Customs
House.
Trade
Risks
The
one major trade risk is the inadequate protection of intellectual property rights. Like
any software, multimedia software is subject to piracy and imitation in Korea.
Korea
has joined the following international treaties for the protection of Intellectual
Property:
•
The Convention Establishing the World Intellectual Property Organization (1967) • The
Paris Convention for the Protection of Intellectual Property (1980) • The Patent
Cooperation Treaty (PCT) (1984) • The Budapest Treaty on the International
Recognition of the Deposit Microorganism for the Purpose of Patent Procedure (1988) •
The WTO Agreement on Trade related aspect of Intellectual Property Rights; TRIPs Agreement
(1995) • The Berne Convention for the Protection of Literary and Artistic Works
(1996) • The Strasbourg Agreement Concerning the International Patent Classification
• The Nice Agreement Concerning the International Classification of Goods and
Services for the Purposes of Registration of marks.
The
South Korean Government is planning to join the Protocol Relating to the Madrid Agreement
Concerning the International Registration of Marks treaty in 2002.
Korean
Government Contacts
Korea
Customs Service Clearance Bureau Daejon Government Complex 920 Doonsan-Dong, Seo-Gu Daejon
City 302-701, Korea Tel.: (82-42) 481-7688 Fax: (82-42) 472-2100 Internet: http://www.customs.go.kr
Ministry
of Information and Communication (MIC) 100,Sejongno Jongro-Gu Seoul 110- 777, Korea Tel:
(82-2) 750-2000 Fax: (82-2) 750-2915 Internet: http://www.mic.go.kr
Ministry
of Culture and Tourism 82-1, Sejongno, Jongro-Gu Seoul, 110-703 Korea Tel.: (82-2)
3704-9650 Fax: (82-2) 3704-9659 Internet: http://www.mct.go.kr
Ministry
of Commerce, Industry and Energy (MOCIE) Government Complex II 1, Joongang-dong,
Kyonggi-do Gwachon, 427-723 Korea Tel.: (82-2) 503-9440/1 Fax: (82-2) 503-9438 Internet: http://www.mocie.go.kr
Korean
Industry Associations
Korea
Association of Information and Telecommunication (KAIT) 2 nd
floor, DongAh
Villart Town II 1678-2, Seocho-dong, Seocho-gu Seoul 137-070, Korea Tel.: (82-2) 580-0581
Fax: (82-2) 580-5999 Internet: http://www.kait.or.kr
Korea
Information and Contents Business Association (KIBA) 4 th
floor, Eulji
Telephone Office 58-5, 6-ga, Eulji-ro, Chung-gu Seoul 100-196, Korea Tel.: (82-2)
2264-3636 Fax: (82-2) 2271-1647 Contact: Mr. Keun-Tai Kim, President Internet: http://www.kiba.or.kr
Korea
Multimedia Association 5F Rinnai Bldg. 652-5, Yoksam-dong, Kangnam-gu Seoul, Korea E-mail:
info@multimedia.or.kr Internet: http://www.multimedia.or.kr
Korea
Game Development & Promotion Institute 32 nd
floor, Technomart
Bldg. Kwangjang-dong, Kwangjin-gu Seoul, Korea Tel: (82-2) 3424-4137 Fax: (82-2) 3424-5039
E-mail: jayw@gameinfinity.or.kr Internet: http://www.gameinfinity.or.kr
Korea
Chamber of Commerce and Industry 45, 4-ka, Namdaemun-no, Chung-ku Seoul 100-743, Republic
of Korea Tel: (82-2) 316-3114 Fax: (82-2) 757-9475
Korea
IT Industry Promotion Agency (KIPA) Green Bldg. 79-2, Garakbon-dong, Songpa-ku, Seoul,
138-711, Korea Tel:(82-2) 2141-5000 Fax:(82-2) 2141-5199 E-mail: webmaster@software.or.kr
Internet: http://www.kipa.or.kr
Korea
International Trade Association (KITA) Trade Tower, World Trade Center 159-1,
Samsung-Dong, Kangnam-ku Seoul 135-729, Republic of Korea Tel: (82-2) 551-0114 Fax: (82-2)
551-5100 Internet: http://www.ec21.net
Korean
Software Industry Association (KOSA) 11 th
floor, Green
Bldg. 79-2, Garakbon-dong, Songpa-ku, Seoul, 138-711, Korea Tel: (82-2) 405-4500 Fax:
(82-2) 405-4501 E-mail: webmaster@mail.sw.or.kr Internet: http://english.sw.or.kr
Korea
Trade-Investment Promotion Agengy (KOTRA) 300-9, Yumgok-dong, Seocho-gu Seoul, South Korea
Tel.: (82-2) 3460-7114 Fax: (82-2) 3460-7777 Internet: http://www.kotra.co.kr
Useful
Internet Sites
Korea
Software Industry Association: http://english.sw.or.kr Government of Korea: http://www.korea.net
Korea International Trade Association: http://www.kita.or.kr Korea Game Development &
Promotion Institute: http://www.gameinfinity.or.kr
Readers who use this information for investment purposes do so at their own risk!
Opinions expressed are just that and not based on insider information or information
otherwise obtained illegally.
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