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Netflix pushes back hard at SK on network costsNetflix pushes back hard at SK on network costs

Netflix digs in against attempts by South Korea's SK Broadband to make it pay for using their network, after Squid Game's unexpected popularity.

Pádraig Belton

October 25, 2021

5 Min Read
Netflix pushes back hard at SK on network costs

In a calamari twist, Netflix is now pushing hard against attempts by South Korea's SK Broadband to make it pay network usage fees, after Squid Game proved unexpectedly popular.

"A single broadband player in Korea ... is seeking to use its dominance to extract an arbitrary payment from streaming services like Netflix", Dean Garfield, Netflix's vice president for global public policy, said in a statement yesterday.

Netflix was "simply making our shows and films available on the internet to Korean consumers, who mind you, are already paying for their internet connection," added Garfield.

Figure 1: Don't blink: Netflix is - unsurprisingly - pushing back against SK Telekom's demands for the streaming company to pay for the extra bandwidth involved in blockbusters like Squid Game.  (Source: Netflix) Don't blink: Netflix is – unsurprisingly – pushing back against SK Telekom's demands for the streaming company to pay for the extra bandwidth involved in blockbusters like Squid Game.
(Source: Netflix)

Imposing network usage fees would create an "unfair, anti-competitive environment," Netflix is arguing. And it would limit the ability of customers to get what they want if prices become prohibitive and freeze out streaming providers.

The streaming giant is also in "no doubt" that if SK succeeds in its bid to impose network access fees, network operators elsewhere will try to do the same, too.

Imposing network usage fees would discourage investment not only by Netflix, it notes, but also rivals like Walt Disney and Amazon, too.

Squid pro quo

Netflix is digging in after Squid Game resulted in a courtroom drama earlier this month.

At the start of October, SK Broadband sued Netflix, demanding it pay to use its network after Hwang Dong-hyuk's drama series and other hits caused data traffic to spike.

The case came weeks after Squid Game became an unexpected international breakout hit – and the broadband operator complained Netflix used 24 times as much network traffic that month than in May 2018.

In the month of Squid Game's release, Netflix was generating 1.2 trillion bits of data per second, and SK had to upgrade its network twice, says the operator. (Other services benefited too: Duolingo says, after the series, the number of customers wanting to learn Korean increased by 40% in the US and 76% in the UK.)

The 27.2 billion won (US$23 million) broadband provider, which is a subsidiary of the country's largest mobile operator SK Telecom, says Netflix should pay for 2020 alone what would equate to 6% of Netflix's revenue that year in the country.

That is incidentally nearly as much as the $38 million which Squid Game participants are competing over.

South Korea makes up 15% of Netflix's Asian customers and revenues.

Got to be squidding

For its part, Netflix is also appealing a South Korean court's earlier move in June where it declined to say the streaming provider wasn't liable for such extra data payments.

The court dismissed that case.

Netflix had meanwhile offered operators a compromise solution, called Open Connect, which could absorb 95% of data traffic by storing shows on its own servers, and sending them on to operators' local data centers, bypassing remote data transmission.

But SK Broadband and some other providers rejected the offer, saying the operators would still have to pay last-mile network costs.

Garfield went to bat for Open Connect yesterday, saying "the overwhelming majority of our ISP partners around the world" use it.

"We deliver it to them for free. It's proven to reduce at least 95% of network traffic, leaving lots of room for other content to go through," he adds.

But ultimately the bigger question comes down to whether streaming is going to break the back of net neutrality.

With its 1.7 million paid subscribers in South Korea, Netflix accounted for about 5% of daily Internet traffic in the country in the fourth quarter.

Want to know more about video and streaming media? Check out our dedicated Video/Media channel here on Light Reading. And globally, video streaming accounted for two-thirds of total downstream Internet traffic in 2020, rising to 71% in the US, says Comcast. Netflix says net neutrality means Internet service providers have to treat all content traversing their networks equally. It argues that SK is attempting to "double bill," with subscribers and Netflix now paying for subscribers' broadband use. But net neutrality also means Internet providers have less incentive to invest in upgrades to their capacity and speed. For the network providers, the growth of streaming services poses a threat to their fixed capacity along with similar rises in video conferencing and other data-slurping technologies like automated driving. If video streaming subscribers as a whole start having to pay upgrade costs for networks, the costs of the services will rise. And that's the real calamari twist. Related posts: SK Broadband demands Netflix pay for Squid Game delivery With five IPOs and $5B, SK plans Korea's SoftBank SK Telecom unveils next-gen AI chip, and ambitions Net neutrality moaning shows telcos are stuck in the past AT&T exits content big time in tie-up with Discovery South Korea sees 'sharp acceleration' in 5G demandPádraig Belton, contributing editor special to Light Reading

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Pádraig Belton

Contributor, Light Reading

Contributor, Light Reading

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