The Death of the Korean DVD Industry: A Sign of Things to Come in the U.S.?

Sony Pictures is leaving South Korea because of sluggish sales and rampant piracy, The Korea Times is reporting this week. Sony isn’t the first studio to abandon the Korean market; according to the Times, Paramount, Universal, Buena Vista and 20th Century Fox have all ceased operations there, meaning there is no longer a major Hollywood studio operating in South Korea.

Korean DVD sales have been in a free fall in recent years. The newspaper quotes estimates for 2008 of some $285 million vs. $673 million in 2002. At the same time, blazing fast broadband is ubiquitous. The country’s average broadband penetration rate by household hit 90.1 percent last year; in Seoul, the rate was 107.8 percent. Korea’s broadband revolution is often touted as a sign of things to come for the rest of the world, but is the same true for the death of its DVD market?

There’s no question that film-swapping broadband users are behind at least some of the industry’s woes in Korea. In a recent survey, almost 50 percent of Korea’s Internet users have admitted to downloading movies from the Internet, and the typical user is downloading about a movie a week. Copyright isn’t even an issue with the folks that haven’t been getting their Hollywood blockbusters online. Instead, they simply deemed downloading as too complicated.

The slump of DVD sales numbers has also taken its toll on DVD rental stores. The Korea Times is reporting that there were 10,000 of these Blockbuster-type stores back in 2001, but the number was down to 3,500 at the end of last year. Finally, box office sales have been slightly down in 2007 as well, but some attribute this to the changing box office landscape rather than to piracy.

How much of this trend will translate to the U.S.? At this point, it’s hard to speculate, but there are some lessons to be learned in South Korea that should worry Hollywood, the most important one being that in the face of ubiquitous broadband, DVDs won’t be replaced by other physical formats or even VOD services, but by the cloud.

Interestingly enough, P2P networks aren’t at the center of the Korean downloading craze. Users are flocking to web-based storage solutions instead. The market for these so-called “webhard” services was originally popularized by LG, but now there are dozens of vendors, with some offering up to 1 Terabyte of storage space for free. The services are monetized through priority access points that guarantee higher speeds. There are supposed to be filters in place, but it’s obvious they don’t work.

Korean film studios now want their piece of the pie by becoming part of the cloud. According to KBS World Radio, they’re starting a webhard-based movie download service by the end of the year.