Squid Game(2021), a South Korean television (TV) series created by Hwang Dong-hyuk, has caused a global sensation. According to Google Trends, thousands of parodies have been generated on the Internet, and games that appeared on the series, such as dalgona, have garnered worldwide attention. The success of the series highlights the potential of Netflix both as a media platform and a leader in creating cultural phenomena. However, Netflix’s path to its current success was not an easy one. In fact, difficulties and controversies follow Netflix even to this day.
Netflix was founded by Reed Hastings and Marc Randolph in 1997 and started off as a DVD subscription service. The service provided subscriptions that allowed customers to rent and watch unlimited numbers of movies on videotape or DVD as long as they returned them in a prepaid envelope. Then, in 2007, it launched online streaming, which allowed the viewers to directly access the videos on the Internet, which signaled the beginning of Netflix as the public knows it today. It was a slow transition at first, but the platform soon expanded globally and has now become the largest media and entertainment company, providing services in over 190 countries.
The rise of Netflix marks the era of over-the-top (OTT) services. OTT platforms operate directly through the Internet to provide users with video content, unlike traditional media, which relies on mediators such as cables or satellites to deliver its content. With the emergence of OTT services, the method of media consumption has changed drastically. According to Forbes, streaming video via OTT platforms such as Netflix, Amazon Prime, Hulu, and Tving slightly exceeded broadcast TV in terms of audience share as of May 2021 (26 and 25 percent, respectively). The growing impact of OTT platforms, Netflix in particular, has raised several questions over the emergence of a possible monopoly within the film industry and media delivery. Other concerns such as issues surrounding net neutrality have also arisen with the growing success of Netflix.
The Technical Foundation of Success
Netflix’s prosperity is the product of multiple technological innovations that come together to provide its users with an efficient, personalized media experience. The Netflix Recommendation Engine (NRE) promotes efficiency by filtering content through user preferences, and this still only scratches the surface of the revolutionary home entertainment service that the platform has introduced. On its official website, Netflix explains that, like many media platforms, it does not simply monitor user preferences but measures user behavior by tracking data that includes – but is not limited to – personal information, the devices used to stream specific content, browsing and scrolling patterns, and replayed scenes.
Yet one of the most prominent features that sets Netflix apart from other OTT platforms is its catalog of over 3,000 content categories that are strategically and selectively presented to consumers depending on their online behavior. From girl-power musicals to inspiring underdog dramas based on real life, Netflix is aware that viewers are intrigued by remarkably specific categories of media. In addition to its customized categorization, Netflix utilizes the power of design through thumbnails tailor-made for its consumers. According to Vox, Netflix has an efficient service specifically designed to automate this process known as Aesthetic Visual Analysis (AVA), which is a set of algorithms that scan Netflix videos for the most appropriate images for use as thumbnails.
In addition to the algorithmic tools used to encourage viewer activity and maintain retention rates, media consumers simply find the limitless, timely nature of Netflix’s original content valuable. Netflix spearheaded the rise of exclusive online television and film content within mainstream culture with its second original series House of Cards (2013), a political thriller detailing a politician’s journey of revenge, being a spectacular success for Netflix, receiving 33 Primetime Emmy Award nominations and eight Golden Globe Awards. With critically acclaimed and socially evocative Orange Is the New Black (2013), a comedy-drama revolving around the lives of female prisoners debuting on Netflix the same year, Netflix quickly became recognized as not only a distributor of existing media content but also a creator of high-quality entertainment.
The relative creative freedom of Netflix’s platform provides opportunities for storytellers around the world to deliver their ideas to a wide audience without worrying too much about the budget or the restraints of domestic corporations. In particular, in countries like Korea, where more conservative limitations are in place for public broadcasting services, writers and producers are granted a liberated creative outlet with Netflix’s assistance. Screenwriter Kim Eun Hee, who wrote Netflix's original series Kingdom (2019), admitted in her interview with Netflix Korea that, being a highly violent, provocative zombie thriller, Kingdom would have been quite challenging to get past the censorship of Korean television. Because she envisioned Kingdom as a historical drama, Kim also realized that the production costs would be prohibitive. In these circumstances, Netflix as a global production contributor can support creators to overcome fiscal and social limitations.
This relationship between Netflix and local content creators around the world has proved to be an immensely profitable investment for the company. Squid Game is a good example of this, with Netflix estimating that it has generated nearly 891 million United States dollars (USD) in what it refers to as *mpact value for the company. Even Dean Garfield, Vice President of Public Policy at Netflix, expressed his surprise when he heard that the number of households to have watched the series – over 142 million – had well exceeded the total number of Netflix users in America. According to The Korea Herald, Garfield also affirmed Netflix’s ambition and willingness to invest in creating more Korean content in his press conference held in Korea on November 4, 2021. Given the decline in Netflix’s stock and its slowest weekly subscriber addition rate for the past four years, the massive popularity of Squid Game will encourage Netflix’s push towards further investment in the production and international marketing of foreign content.
Netflix’s Questionable Monopoly & Its Implications
Given the expansive and interconnected media network, Netflix’s rise as a prominent content provider has not only influenced the dynamics of the OTT market but also that of media distribution and production. The gradual integration of OTT platforms with the movie and TV industry can be seen as a threat to the various stakeholders in more traditional media. This is largely due to the online nature of many streaming services, which eliminates the physical and systematic limitations that characterize original media consumption. With OTT platforms, consumers are not limited to a schedule in which they have no say. The gravitation of audiences toward OTT platforms – especially with the coronavirus disease (COVID-19) pandemic – indicates a paradigm shift in the way people consume media.
Yet even with OTT platforms enjoying a dominant position as a provider within the media market, Netflix still presents itself as a potential monopolist within this competition. The most compelling evidence for this is Netflix’s unparalleled annual budget for new content, which, according to Bloomberg’s analysis, was approximately 16 billion USD in 2020. The same Bloomberg article compares this number with Hulu’s budget of three billion USD and Amazon Prime’s budget of seven billion USD. The resources Netflix can provide its creators thus give it a stronger status and a more reliable reputation.
Nevertheless, many have dismissed the idea that Netflix will create a monopoly, arguing that media corporations have exhibited flexibility in the ever-changing market as they have become aware of the profitability of OTT platforms. The rise of other OTT platforms, catching up to the sheer amount and quality of Netflix’s original content, can be seen through the 2021 Emmy Awards, with HBO receiving 130 nominations, one more than Netflix’s nomination count of 129. This indicates the competition that Netflix in producing original, critically acclaimed content, which has been the result of rising OTT platforms such as HBO recognizing the diverse nature of consumer preferences and harnessing it to gain profit.
In addition to pursuing critical acclaim and accolades, targeting a narrower demographic to take advantage of a solid user base has reaped benefits for companies like Disney, which has launched its own OTT platform, Disney Plus. With its long history of family-friendly content and large fan base, Disney withdrew its content from Netflix and now provides an exclusive platform for households with younger audiences whose media consumption revolves around Disney’s content. Furthermore, Disney Plus provides its users with a permanent library; it does not have to reacquire property licenses for content it already owns. Unlike the temporary nature of Netflix’s licensed content in its library, Disney Plus has a plethora of entertaining shows and movies for its users to watch. The introduction of platforms that provide unique features that Netflix cannot offer challenges the idea that it will monopolize the market.
One takeaway from the current dynamic of the foreign OTT market is the significance of original content as a vital factor in determining a platform’s competitiveness. Nevertheless, the appeal of foreign OTT platforms in Korea due to their wide variety of original content makes it difficult for domestic OTT services to compete in the streaming market. Indeed, Korean OTT services like Wavve and Tving, which mainly focus on the online distribution of cable television shows, are in an unfortunate position. This has been exacerbated by Korea leading the way in a storytelling renaissance, with the successful release of Squid Game following that of the films Minari (2021) and Parasite (2019). According to Professor Lee Myung Sun (School of Media and Communication), “invisible competition and conflict are likely to occur between foreign OTT platforms and Korean platforms.” Professor Lee also claims that, although regional self-sustainability and economic power are needed to gain some leverage within a competitive economy, foreign investment alone will not allow Korea’s local, social, and cultural qualities to shine in the content market. With this in mind, it would be desirable for domestic content to be distributed to a global audience via effective joint domestic and foreign investment.
Conflict and Controversy
Controversy has also arisen with regards to the infrastructure required to deliver the content that Netflix produces. In particular, net neutrality has been a topic of discussion, especially the responsibility of content providers (CPs) to support and maintain the quality of Internet services. Net neutrality is a principle that emphasizes the role of Internet service providers (ISPs) to treat all data in a nondiscriminatory manner. According to Reuters, SK Broadband, one of the largest ISPs in Korea, handled 1.2 trillion bits of Netflix data in September 2021, a 24-fold increase from May 2018. Although it is the second-largest traffic generator on Korean networks, Netflix has refused to pay network usage fees based on the net neutrality argument.
Yoon Ho Jung, a member of the National Assembly, addressed the issue of Netflix’s refusal to pay by saying “Netflix is playing ‘Squid Game’ without a participation fee,” criticizing Netflix’s free ride at the expense of Korean network companies. Yoon expressed his willingness to pass legislation if needed to prevent Netflix from further benefiting from the current situation. According to Hankyung, Garfield has expressed his determination not to pay for the service in his meetings with the National Assembly and Korea Communications Commission (KCC). This issue has resulted in conflict between Netflix and SK Broadband and is expected to continue in the future.
According to Korea JoongAng Daily, the conflict has led to a series of lawsuits between the two companies. The first court rulings in June decided that Netflix had an obligation to pay usage fees because it utilizes services that are provided at a cost. However, Netflix filed an appeal to a higher court on July 15 and submitted a statement outlining the reasons for the appeal on November 5. With Korean tech companies and foreign companies such as Apple and Disney Plus expressing their intention to pay network usage fees, pressure on Netflix is expected to intensify due to controversy over fair competition.
Netflix suggests that it can take responsibility for the increased traffic using an alternative method. According to Economist, Netflix has proposed an open connect appliance (OCA), which is a cache server that saves the content in the service country that reduces the costs by controlling the timing and the distance of the traffic. OCA is currently in use in 140 countries. According to Netflix, implementing it will alleviate heavy traffic by 95 percent. However, ISPs are concerned that they would have to bear the cost of connecting the OCA to users. SK Broadband argued that this is just a method of reducing what Netflix should be paying for.
In an interview with Professor Jon Jungbien Moon (Business School) on the issue of network usage fees, he mentioned, “It is about time to ask the most valuable companies to share their prosperity with their key business partners, the ISPs, so that the network infrastructure can expand without congestion.” Although the principle of net neutrality thus far has fostered the success of tech companies, Professor Moon believes that, because they have become one of the most valuable companies, CPs of a certain size should be charged network fees.
Netflix was also criticized for its irresponsibility in handling issues with Dave Chappelle, an American comedian who faced backlash over his comments about the transgender community. When his comedy special The Closer was released on Netflix, his remarks that “gender is fact,” and that LGBT people are “too sensitive” enraged many people. Whether it was a blatant attack on the LGBTQ community or an attempt to push the boundaries of stand-up comedy, it is clear that many found his remarks degrading. Netflix’s reaction to this issue, however, was surprising. According to *The New York Times*, Netflix suspended a transgender employee after she posted a tweet disapproving of Chappelle’s show.
Although Netflix has denied allegations that the suspension was the result of her tweet but because she has attended an unauthorized director meeting, several other employees from Netflix organized a walkout and a protest on October 27. Eventually, she voluntarily resigned from the company. Initially, Netflix Chief Content Officer Ted Sarandos evaded this issue by focusing on the line that distinguishes comedy from hate speech, stating that stand-up comedy is an art that pushes boundaries. Sarandos said that this is “an important part of their contents offering” since “our members enjoy it.” Regardless, the platform has kept its stance of prioritizing entertainment for several years. With a similar issue in 2019, when Netflix blocked an episode dealing with criticism of the Saudi Arabian government, Hastings responded with “We’re not trying to do ‘truth to power.’ We’re trying to entertain.”
To what extent Netflix has a duty to monitor its content is questionable, especially with concerns for freedom of speech. According to Professor Moon, there is a line between a broadcast station and a content platform, with the former a centrally monitored system and the latter a mediator. Professor Moon emphasized that platforms should offer “diversity.” Because forms of justice might not be the same for all viewers, Netflix should take a neutral stance on these controversies unless it is a Netflix Original. During a Marché International des Programmes de Communication (MIPCOM) Online+ event, which is a trade show for entertainment content, Sarandos expressed his shock that the American audience tried to regulate free storytelling in 2020. This issue not only highlights the line that separates free speech from hate but also Netflix’s marketing decisions and the significance of platforms. However, from the perspective of free speech, how Netflix treated the employees that voiced their concerns was questionable. Although Sarandos later expressed his remorse regarding this by saying Netflix “screwed up,” the way Netflix handles internal problems needs to be reevaluated.
With its variety of media content and associated diversity, Netflix has drastically changed the nature of media consumption. Despite this, it has faced challenges as the needs of other parties such as the government and ISPs have started to increase with the growth of the company. Also, its diversified views have at times caused conflict between audience members regarding what is right or wrong. This has been magnified by Netflix as a company sometimes reacting poorly to these situations. Will these controversies someday lead to its demise? In fact, Professor Moon argues that Netflix “feeds” on these controversies because they attract the viewer’s attention. When faced with the dilemma of how Netflix should differentiate itself, Professor Moon again focuses on “diversity,” mentioning that finding the right content creators and maintaining their originality as it did with Squid Game will achieve diversity without provoking disapproval of viewers.
Despite the ever-evolving nature of media, the fundamental dynamic between the deliverers of a certain message and the people who receive the message remains constant. The rise of Netflix represents an intriguing point in the history of the media-consumer relationship because it has highlighted the algorithmic process of analyzing abstract user preferences with unprecedented efficiency. Yet this rising media giant has faced the consequences of increasing pressure and competition within the current OTT market. Hopefully, this will not only serve as a cautionary tale for Netflix itself but also other media providers, highlighting potential areas of improvement in order to maintain a healthier, more stable media market.