Short Essay 1- Suen Yuen Yi (1155224246)- "The Co-opetition of Two Media Giants- Netflix and CJ Entertainment: The Opportunities and Risks"

The entertainment industry is evolving rapidly due to technological advancements and changing consumer preferences.  CJ Entertainment, a leading South Korean film and entertainment enterprise, has found in Netflix a powerful ally which offers a global reach and technological prowess. Their partnership mainly focuses on distribution, licensing and creation, which has created new values and various risks for both parties simultaneously. This analysis will explore their co-opetition by SWOT analysis and identify their new values and risks.


Overview of CJ Entertainment and Netflix
CJ Entertainment is the largest entertainment and media company in South Korea, with diverse business in film, TV channel, music and artist management. Their high-quality production ability on TV series and film is well-known, who has successfully produced and distributed award-winning films - “Parasite”, gained international recognition. CJ Entertainment also invested in a local subscription VOD streaming platform “TVING” with JTBC and Naver in 2019.

Netflix is a world-leading streaming platform, which transitioned from DVD rentals to  video-on-demand service with over 230 million subscribers worldwide by 2023. It has established an original content’s brand “Netflix Original”  and become a significant player in film and TV series production.

SWOT Analysis and their Compatibility

Strengths	Weaknesses
CJ Entertainment 1.  Industry Expertise: With a deep root in the S. Korea Entertainment Industry, CJ has a board database on local audiences’ flavours, cultural complexity and market dynamics. 2. Brand Recognition: CJ has a trusted name with high quality productions, which resonate with local audiences and international acclamation.   3. Awards Recognition: CJ’s film and drama earned nominations and won prizes in various local and international awards academy, which created K-pop waves in the global market and enhanced its global recognition.  Netflix Global Reach: With over 278 million subscribers in Q2 2024, Netflix has a vast international subscribers base Advanced Technology: the platform of Netflix applied advanced algorithms for users’ content recommendation, enhancing user engagement and retention. This also proves that Netflix has an in-depth database on consumers’ behavior. Brand Loyalty: Netflix’s established brand equity and customer loyalty create a habit for audience to watch any content it licenses or produces	CJ Entertainment Limited Global Presence: CJ is a powerhouse in South Korea, but lacks distribution channels and recognition in Western markets. Resource Constraint: As a traditional media company, CJ heavily relies on sponsorship and advertising income. It may face financial challenges in rapidly scaling production due to market demand. Dependence on Local Market: CJ heavily relies on the local market, which may be vulnerable to local economic fluctuations and changing consumer preferences. Netflix High Production Cost: Netflix’s strategy of heavy investment in original content can strain finances especially if certain projects do not meet expected returns Market Competition: Increasing competition from other streaming services providers, i.e. Disney+ & some local OTT, can dilute Netflix’s market share and subscribers growth Lag in Asia Markets: Based on Netflix demography in 2024, most subscribers are from English speaking countries,  while the Asia-Pacific region is the smallest contributor to global revenue due to content, pricing and regulation.
Opportunities	Threats
CJ Entertainment  International Distribution: Partnering with Netflix allows CJ to leverage Netflix’s global reach, provide wider distribution for its films and dramas, encourage cross platform exploitation to maximize the revenue of distribution from Theaters ticketing, TV Sponsorship to subscriptions. Increase Investment: The partnership may lead to increased investment by joint-venture projects, enhancing production quality and marketing efforts. K-content goes global:  The co-productions can blend Korean content with Western storytelling techniques, and appeal K-content to diverse audiences. Netflix Market Expansion: Netflix can strengthen its presence in the Asian market through partnership with established local company Subscribers Growth: By offering exclusive CJ content, Netflix can attract new subscribers interested in Korean film and TV programmes Unique Content Portfolio: Netflix access to high-quality Korean films and series for users to pick.	CJ Entertainment Keen Global and Local Competition: CJ entertainment competes with both global giants like Warner Bros and Disney, also has the threat of local production companies in Korea and other markets with lower cost. Content Restriction in global: Different countries have varying regulations on content, like China’s strict content regulations on K-Content, forbidden Korean films and dramas enter China market, which limited CJ’s access to a larger market. Consumer Behaviour’s Change: Consumers behavior will follow the market change. As consumers increasingly prefer streaming services over traditional cinema and TV, CJ needs to adapt quickly to the changes or risk losing its audience. Netflix Increased Competition: Competitors like Disney+, HBO Max are aggressively expanding their content libraries. For example, a k-drama on Disney + has created a spy and superhero hit by breaking the most-watched Korean original on Disney + globally, based on hourly streamed. This will be threatened Netflix’s uniqueness on exclusive Korean Content library Market Saturation: in mature markets like the US and Europe, Netflix is experiencing slower subscriber growth due to high penetration rates. Based on the 2023 Statistic, subscription growth in N. America was only 2%, compared to double-digit growth in previous years.  Licensing Wars: Major Studios are launching their own streaming platforms, e.g. shows from NBC, Disney and WarnerMedia accounted for over 30% of Netflix’s most-watched content in 2020, but these studios had pulled their content from Netflix library which impacts the viewer retention.
Compatibility
Netflix noticed very early on that K-content is not just in high demand in the local market but also being heavily consumed in the APAC market (Japan, Southeast Asis, the US, Latin America and even the Middle East). Therefore, Netflix and CJ entertainment have a strategic partnership on content production since late 2019. CJ entertainment sold  4.99% of a subsidiary-Studio Dragon's shares to Netflix. Studio Dragons has released more than 30+ Korean content to Netflix, which makes 2023 the most profile year for Netflix. The shows created by Studio Dragon will have different distribution and licensing methods to deal with the “Crash” in districts. The Netflix invested drama series will be aired on terrestrial TV stations simultaneously, acquired exclusive global streaming rights (except in China) and non-exclusive streaming rights in Korea.

New values 

After the co-opetition, Netflix has been able to raise its prices without losing customers, who have increased its plans by $1-2 in the US while continuing to add new users.   Also, Netflix has more than 6 million subscribers in South Korea. Korea has a population of 51.7 million people, the amount of Korean subscribers in 2023 was just 10% of the population. Therefore, there is a huge opportunity for Netflix to grow their subscribers in Korea. Korean content also ranks the top on the Netflix charts in terms of the number of consumed hours of original content produced in the country from which it originated,  with local titles accounting for nearly 68% of watched shows

According to the survey by Deloitte, which accurately examined the socio-economic impact of Netflix on the Korean creative ecosystem since 2016,  “Netflix investment in content production in Korea has contributed almost 5.6 trillion won ($4.3bn) to the country’s GDP across related fields, from publishing, to webtoons, to consumer goods. In addition, the report found that Netflix has helped create more than 16,000 jobs.” 

“Netflix Original” will be labeled on Studio Dragon’s show, which also brings up a “Netflix effect”. This is a phenomenon that the shows that appear on the platform will launch actors and directors from obscurity to instant stardom. In 2021, the original drama “Squid Game” brought great influence to the world with 1.65 billion hours of streaming in the first 28 days. According to Bloomberg, this show cost 21.4 million to produce, but Netflix estimated this IP created almost 900 million in impact value for the company. According to CNBC, “Squid Game” propelled Netflix's subscriber base by growing 4.4 million in Q3 of 2021. The growth increased Netflix Q3 revenue by $7.5 billion. 

Meanwhile, with the investment of Netflix, the IP dramas produced by Studio Dragons are sweeping the globe. The content distribution on Netflixs has blurred the geographical borders and united the global audiences, also helped CJ entertainment to access the international markets and expand its market presence beyond South Korea. According to the report by Parrot Analytics, the success of the Netflix original series from CJ “Kingdom” garnered millions of views globally and contributed to a 20% increase in viewership of Korean content on the platform in 2021. This also enhanced CJ’s brand equality, with increased visibility of CJ films and dramas on Netflix, CJ has solidified its reputation interantionally. 

Risk for Both Sides

The co-opetition between two giants also brings various risks. Netflix plans to invest $2.5 billion in the next 4 years to produce more K-content shows. This investment has doubled the amount that Netflix has announced in 2016. As mentioned, the megahit of “Squid Game” had led Netflix to the top spot in the industry in 2021. However, no new hit series emerged to follow in the footsteps, while Netflix is facing the declining numbers of subscribers recently, which bring financial pressure to Netflix under the great production cost. Since the “Netflix’s Original” content is exclusive to the platform, it’s vital to increase and maintain its user base to make the content profitable. According to the Data management platform service Mobile Index data, the Netflix Monthly active users has dropped by 16 percent from 13.06 million in December 2023 to 10.96 million in June 2024. Meanwhile, the streaming platform that is invested by CJ entertainment  “TVing”,  has surpassed Netflix in daily viewing hours in 2024. The K-drama that broadcasted exclusively on Tving and tvN (the subsidiaries of CJ)-  “Lovely Runner” achieved unexpected influence in the global market. The daily viewing time of the final episode on Tving, reached 2.5 million hours, surpassing Netflix’s 2.41 million hours on the same day, which shakened Netflix's No.1 OTT status. 

Under the surge in international interest in Korean film and television, Netflix paid high attention to the original content in South Korea. Studio Dragon, which is invested by CJ and Netflix, needs to keep producing significant and hit content IP to the exclusive OTT platform to keep its leading status. However, there is keen competition among industry, Netflix has signed another multi-year deal with JTBC (another content hub in South Korea) to co-develop and showcase JTBC’s prime-time high quality TV drama. This may threaten Studio Dragon’s status and Netflix may not rely on Studio Dragon only to provide great K-content, which could limit CJ’s bargaining power and its exposure to markets. 

Conclusion

The co-opetition between CJ Entertainment and Netflix demonstrated how traditional media companies can leverage partnerships with new media platforms to enhance their global reach and content offerings. Both parties are facing unique challenges and opportunities in a rapidly evolving landscape, but their partnership enables them to navigate the complexities of modern distribution and content consumption effectively.