Earlier this February, Spotify finally launched its service in South Korea, claimed as the world’s sixth-largest music market according to the IFPI (International Federation of the Phonographic Industry). This brings Spotify’s total number of active markets to 93. However, a dispute with Kakao M was brought to the public one month after the official South Korea launch.

Kakao M is one of the largest co-publisher companies in South Korea and also owns a music streaming service called MelOn. Apparently, it is the most popular streaming service among millennials and Gen-Z.

The dispute between Spotify and Kakao M resulted in virtual worldwide protests. Spotify and Kakao M failed to agree to a new license which affected Spotify users outside Korea, as Kakao M had not licensed its content for use on the company’s new Korean service which launched in February.

Spotify users were no longer able to listen to Kakao M’s big artists like IU, Zico, Seventeen, Epik High, and many k-drama OSTs.

Examples of songs taken down by Spotify

Not only being protested by the fans, the artist also expressed his disappointment in Twitter:

The mass online protest was responded by both parties that the two companies will continue to distribute the music via Spotify to the over 345 million Spotify listeners in 170 countries around the world.

It was never easy to launch in South Korea

If it were easy, Spotify would have launched in South Korea much earlier.

The key factor of success for overseas companies penetrating a new market is their level of localisation. There are many global businesses that failed because it couldn’t resonate with the local users.

Actually, Spotify’s launch in South Korea was a very bold move as it had yet to sign deals to provide Korean music tracks from local music distribution giants like Kakao M, which owns tracks of popular singers such as IU, Zico and Monsta X.

Many industry insiders are also curious as to why Spotify decided to launch without Kakao M.

It won’t be easy to compete with local players such as MelOn, Genie, Bugs, Soribada, etc. These local music streaming services have accounted for several music awards and shows – which Spotify is not part of.

Gaon Digital Chart includes the streaming number from MelOn, Bugs, Flo, Soribada and other locals streaming service

And we know that South Koreans prefer using local products. Their popular search engine is Naver not Google, the maps they use is Kakao Map or Naver Map, and the messaging app they frequently use is Kakao Talk, not Whatsapp.

So what can Spotify do to make South Korean users switch to them instead of staying with existing streaming services?

Spotify needs to learn from Netflix. 

When Netflix first entered, major Streaming services, such as CJ E&M and SK Telecom, turned down Netflix partnership requests. Their aim- deny Netflix access to local content that South Koreans might want to stream, and deter Netflix from becoming a major competitor in this area. 

However, Netflix must have found ways to make local allies. It did convince some entertainment firms, e.g. JTBC,  to license content to Netflix. Netflix users can access and watch their contents an hour after it’s air time or on the next day.

Most importantly, Netflix started to develop its own Korean content. This was something that local artists found appealing and were keen to work with them.

With some successes, big artists and actors started to jump on the bandwagon. One reason was that Netflix, with its international reach, could help South Korean entertainers become more well known. 

Between 2015 and 2020, Netflix spent about $700 million on Korean content, on both licensing outside titles and making about 80 original films and TV series. In February 2021, Netflix announced another $500mil to be pumped into the country.

K-Drama contents in Netflix

The quality and quantity of content have successfully drawn South Korean viewers to Netflix, and today, it’s one of the top streamers in the country. It’s so successful that some Korean major firms are banding together to defend against Netflix.

Long journey ahead 

There are quite a number of lessons that Spotify can learn from this. South Korea is still quite a closed market.

It’ll need to find innovative ways to beat the current competition in music streaming services in South Korea, and then it’ll need to work extremely hard to prevent local competitors from band together to defend against it. 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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