Chaebolplex v. Indie Movies - The Sequel

According to KOFIC / KOBIZ, Korea's 2,870 movie screens recorded almost 220 M admissions last year, a 49% increase in ten years. That's enough to take over (30% more populated) France, where admissions gained only 11% over the same period, from 190 to 209 M. Korean and Foreign films have basically maintained their positions on the market: around 50/50 for the number of admissions, 28/72 for the number of films released, knowing that the biggest blockbusters tend to be local (only Avatar appears in the all time top ten, as #3).

The number of movies released exploded (from 380 to 1,765), which is not a guarantee for quality, but an encouraging sign for culture diversity*. Indeed, the big 'chaebolplexes' that control the market have at long last started to propose independent movies.

Which doesn't mean that Korea's indie movie ecosystem is better off.

When six years ago, chaebolplexes were forced to feature them following the 'Pieta' scandal, I worried that they would struggle to kick their bad, closed circuit habits (see "Saving Korean cinema... and even Chaebolplex"), and that's pretty much what happened.

Just a few significant events that followed the 2012 'Pieta Law':
- 2013: ten indie movie producers pool their efforts to create Little Big Pictures
- 2014: CJ Group launches CGV Arthouse (chaebolplexes create their own 'indie' theaters)
- 2015: it gets political when AHN Cheol-soo brings the spotlight on the cause, and indies push for laws similar to the 1948 Paramount Decree (the "antitrust case that ruled against big movie studios operating their own movie theaters"**)
- 2016: Netflix launches in Korea
- 2017: produced by Netflix, BONG Joon-ho's 'Okja' is boycotted by Korea's biggest theater operators
- 2018: IPTV takes over cable TV as main provider, controlled by the Big 3 (KT, SKT, LGU+), and 'chaebolplex' snatch exclusivities for indie movies away from 'independent art houses', even for re-runs.***

How can indie theaters survive, or compete with lavish complexes that in terms of diversity, contribute essentially to one of chaebolplex's core business models: real estate. There are so much new complexes Seoul can host, and the 'art house' alibi provides a perfect 'alternative' offer to developments that target culture-friendly elites.

Institutions like Seoul Cinema or Indie Space embody the resistance, but for how long?

'Smells like Seoul Cinema spirit' (20180517 - www.instagram.com/p/Bi4AYl9ll7H/?taken-by=stephanemot)

'not sure the one in the middle will be featured in a chaebolplex' (20121213 - twitter.com/theseoulvillage/status/279079561419960320)

• follow our #chaebolplex hashtag on Twitter

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* on this issue, read " Heralding cultural diversity - a stronger and more sustainable Korean wave" (2013)
** "South Korea’s Chaebol-sized Movie Problem"  (WSJ 20150130)
*** "Art house cinemas lose their exclusivity : As more indie films are screened at theater chains, smaller venues suffer losses" (KJD 20180706)

Riding along 'horizontal verticals' in Magok District (Part II)

This is the second part of my focus on Magok District:

1. Framing Magok (Part I - Location)
2. Magok's horizontal verticals (Part II - Cluster)
3. Magok's lifespace (Part III - Environment)

***

2) Magok's horizontal verticals

In the first part we saw how, by its simple location and connectivity, Magok District enjoyed key assets for a business hub. In the third one, we'll see if its environment can, as advertised, attract researchers and creative minds. Here, we'll focus on the innovation cluster promise.

The signature used in recent advertorials sounds familiar, and as usual with previous Korean projects sharing similar ambitions in the past, 'Korean Silicon Valley Magok' ("한국의 실리콘밸리 마곡") is supposed to create a haven where big fish and small fry cohabit. But as usual, chaebol struggle to envision innovation clusters beyond proprietary ecosystems, which can become a major hurdle for diversity and creativity (see "Redrawing Korean Maps - Innovation Clusters").

Magok doesn't aim at aggregating value around business 'verticals' like the Sangam DMC, conceived as the name suggests for media and entertainment, or even Songdo, when it was desperately looking for a way to reboot and better market itself. Here, we're into 'convergence and fusion technology', more in the Pangyo Techno Valley vein, but with a stronger industrial - manufacturing touch.

As the first big fish to sign for this former swampy rice paddy area, LG Group set the tone for 'convergence and fusion', pooling Research and Development teams from key subsidiaries (LG Electronics, LG Chem, LG Display...) in its LG Science Park complex (18 buildings, capacity of 25,000 employees) to better tackle such challenges as robotics or A.I.. Similarly, Lotte Group is looking for new synergies between Lotte Food, Lotte Confectionery, Lotte Chilsung Beverage, and Lotteria...

Should we dub this higher stage of chaebolism 'horizontal verticals'?

Clockwise, the site of Tadao Ando's future LG Art Center / LG Science Hall, LG Science Park's ISC (Integrated Support Center), Kolon One and Only Tower.

LG Science Park Integrated Support Center (www.instagram.com/p/Bi8rK-slfWJ)

LG also provides the neighborhood with a cultural venue designed by Tadao Ando. The new LG Art Center will open in 2020 on Magokjungang 10-gil, across the LG Science Park and next to the park itself. The group will operate the theater for thirty years before offering it to Seoul city.

It's way too early to judge this new ecosystem, particularly since, like in the DMC, small players are supposed to join after the big ones. Urbanism and architecture can give us clues about the potential, though. For instance, LG Science Park can look like series of containers from a distance, but many buildings are porous, with atria and green walkways, giving the ensemble a campus-like touch, more open to its surroundings than other, more monolithic centers.

Unlike the actual Silicon Valley, where most companies of all sizes and shapes settled in existing urban or peri-urban environments, this research complex consists of contiguous lots, most of which will be developed by one powerful player. So if you're having a coffee in the Eastern half of Magok District, chances are it will be in a building owned by one of those, which may alter the way you pitch your startup over a cup of java.

***

If Magok District will welcome garage startups, they are not its main target. The aim is to boost innovative research in industries that do have fuzzy edges, but also complex cores and cycles, and it already signed enough significant players to succeed. More will want to join in a site ideally located for logistics and within the capital city, but quality of life will also be a factor. Ideally, Magok's environment must stimulate creativity, but in not necessarily too 'speedy' and disruptive ways. 

Is it likely to deliver? That's what we'll check in our last part of this focus.
 
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What's cooking, Korea?

In a recent focus on the decline of home made banchan in Korea*, Korea Joongang Daily mentioned busy schedules, and the boom in HMR (Home Made Replacement) products, new online services (e.g. The Banchan, about to be purchased by food major Dongwon Group), or restaurants proposing home food (jipbap).

Korea's tradition of homemade banchan is vaning. Many new products and services indeed (20160810 - twitter.com/theseoulvillage/status/763151485890809856)

To me, even more than the arrival of hypermarkets, the emergence of SSM or Super-SuperMarket  (dominated by the same oligopoly: Lotte Super, HomePlus Express, E-mart everyday) accelerated changes in HMR variety and packaging, particularly when it comes to targeting specific demographics, like single households. And as all the major producers seeked for differenciation, the HMR offer evolved from classic dishes to more creative recipes. 

Yet that creativity has yet to emerge for banchan in the Korean distribution, even online.

If theBanchan is more a food market before than a banchan specialist, it does offer a wide range of banchan, but without revisiting the classics. Furthermore, big food groups taking over this kind of potentially disruptive players doesn't bode well for diversity in the future.

I'm less worried about fewer Koreans preparing their own banchan - a logical trend - than about Korean palates being exposed to fewer kinds of banchan. And over the past few years, the decline in diversity for side dishes offered in Korea's mom and pop restaurants has been very spectacular. If it's linked to their struggle to stay in business in these times of crisis, old customer habits don't help: many remain reluctant to pay a fair price for Korean food (yet ready to pay way too much for mediocre Foreign food). 

The good news is that Korea, as usual experiencing societal changes at bballi bballi speed, seems to be rediscovering cooking way sooner than other nations. And not just young girls asking family recipes from their halmoni: people of all ages opening creative eateries, granddads venturing into the kitchen, food becoming a key driver in the startup ecosystem...

So be not afraid, Korea, and keep surprising us!

Seoul Village 2016
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* "Rise of pre-made banchan may herald end of an era: Busy schedules deal blow to culture of Korea’s quintessential side dishes" (KJD 20160810)

Saving Korean cinema... and even Chaebolplex

Evolution doesn’t teach us that only the fittest survive, but that even the strongest can’t survive when diversity is threatened, and that inbreeding is by no means a way out of extinction.

Last September, I stated my worries about cultural content diversity in Korea, particularly in a movie / broadcasting ecosystem dominated by chaebols ("Korean culture or Hallyu, Cultural contents or discontents"). And this morning, Korea JoongAng Daily published a focus on how 'Conglomerates direct Korea's film industry', which ended in similar calls for quotas supporting independent movies.

Data from the Korean Film Council (KOFIC) confirm the trend, the Korean market has become an oligopoly that all but banned independent movies from their multiplexes:

• In September 2012, the Big 4 claimed 93.1% of the distribution: 28.3% for Showbox Mediaplex (Orion Corporation), 24.2% for CJ EM, 21.0% for Next Entertainment World (the Twilight saga), and 19.6% for Lotte Entertainment
• Between 2008 and 2011, the top 3 CGV (CJ EM), Lotte Cinema, and Megabox (Jcontentree - JoongAng Group) raised their share of screenings from 62.2% to 86.7%. 
• 2 years ago, multiplexes devoted between 6.5 and 9% of their screenings to indie movies, and now they don't let them even reach 2% (of course never on prime time or prime locations):

Even KIM Ki-duk's award winning "Pieta" didn't get the exposure it deserved in multiplexes, in spite of excellent occupancy rates. And the victims are not only local indie productions: even international critic's darlings can’t make it there.

Yes, 2012 is a record year for Korean movies, and for the first time, the 100 M views barrier has been smashed. And of course the winners are well marketed, deja-vu blockbusters: 'The Thieves' (Showbox), 'Masquerade' (CJ EM), and 'A Werewolf Boy' (CJ EM), respectively a Gangnam Style 'Ocean's Eleven', a Joseon-times 'Dave', and a more elaborate 'Nell'-'Wolf' bibim. Needless to say, the government is not considering any regulation to tame what I call "chaebolplexes": the "Pieta Law" mentioned in the article sounds like charity for art-house theaters, and absolution for big complexes.

The big fishes think they're protecting themselves. As if an indie success could threaten them, or alter the overpowering image they project to their audiences. I'm using the plural, because these guys target not only movie goers, but also the developers who consider a multiplex to sex up their latest project (build a multiplex and they will come - Who? Why, the S.P.A.s and family restaurants those investors couldn't convince to sign for their mall, of course).

Make no mistake: the recent boom in multiplexes is not just about conglomerates claiming the lion's share of Korean cinema after noticing the first national blockbusters at the turn of the millenium - you're in Korea, it's the real estate, stupid!

And just like with coffee franchises*, you don't always consider supply & demand issues before opening shop. Except the entry ticket is much higher, and operators have to know a thing or two about yield management. And they'd better know where they're going when they multiply the number of big screens at the very moment movies get available anywhere anywhen anytime.

At the "hardware" level, they want to make the moviegoer's experience special: even your latest home entertainment system can't propose you a full "4D theater" experience, and even your comfiest la-z-boy can't beat the new "lounge" reclining seats (better than first class travel, twice the normal fee). But Starbucks learned the hard way that offering free wifi everywhere didn't mean anything if they forgot their core business: offering good coffee.
 
Korean operators are the only ones in the World who seem to believe the multiplex concept can survive without content diversity. It's exactly like operating a hypermarket and referencing only 4-5 items: that's not only bad business and terrible risk management, but also the very negation of your customer and your own future. You can't at the same build more theaters and reject diversity, get viewers addicted to blockbusters and expect high occupancy rates in the future. You think you're driving generations to your theaters, but you're killing the golden goose. You think you're building a market, but you're milking it at all levels without any vision whatsoever. And if you think you can guarantee diversity all by yourself, even by betting on your closed circle of fellow majors, you should know it simply doesn't work, particularly not in this country.
 
The inability to operate even partially open systems is a key factor of failure for Korean chaebols. Look how SK Telecom lost its global leadership in innovation in the early naughties when it sticked to a doomed ambition of controling the whole value chain instead of evolving and nurturing a more open and sustainable ecosystem. Look how Samsung lags behind in soft power and value aggregation beyond in-house solutions. Look how the Korean government struggled when it came to bringing together conglomerates and small players in the innovation process that could guarantee Korea some competitivity in the future. Look at those innovative start-ups wilt as soon as they're absorbed by organizations unfit for the new millenium. And look at those absurd award nights, when, every year, each major TV channel distributes glitzy prizes among its own drama shows in a parody of competition.

So yes, regulations are needed, and yes, truly independent movies (i.e. not from your usual masqueraded subsidiary or outsourced slave) must be given fair chances in multiplexes, including on prime time and in prime locations. Just like broadcasters must nurture the indie ecosystem. It will spur creativity and competitivity across the whole industry, help it source new talents, reach new viewers, and anticipate evolutions. Majors cannot achieve sustainability and international competitivity without it.

But the real change must also come from the chaebol themselves, and I'm sure that, in each of their top strategy teams, you can find at least one person who's perfectly aware of the fact that they can't postpone the cultural revolution anymore.

The first one to open up will be the true leader.

 
Seoul Village 2012
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* see "Brews and bruises" followed by "500 m, 80%, 100% urban crappuccino"

Every other Sunday

From April on, all hypermarkets and big stores in Korea will be forced to close every second and fourth Sunday of the month. The measure aims at protecting smaller players, and diminishing the market share of chaebols.

Of course, HomePlus-Samsung-Tesco, Lotte, eMart-Shinsegae, won't not lose it all: expect even more crowded Saturdays, and the acceleration of substitution by online shopping. And naturally, the clock keeps ticking for the bulk of traditional markets.

Yet I see a potential boost for diversity in leisure and cultural activities.

Seoul Village 2012
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Eric Kayser

July 14th, 2010, the French Embassy. All eyes converge towards Dominique Strauss-Kahn, head of the FMI and a favorite for 2012 presidential elections.

Not mine : I've already seen DSK at the same place 18 years ago, but it's the first time for Eric Kayser products to make a public appearance in Korea, and they taste absolutely delicious. If some bakers can be good in tradition or innovation, this one scores pretty well on both.

Bastille Day teasing was followed by the inauguration of the first branch in Yeouido (63City B1), and the brand is spreading like butter on a fresh from the oven baguette : The Plaza downtown, Lotte Department Store Cheongnyangni, and soon a restaurant in Samcheong-dong, plus the Galleria Centercity in Cheonan.

Kayser contributes to a spectacular boom in French bakeries (see recently Guillaume or Paul), but let's not forget local competition : Patisserie B just started making very nice Opera cakes.

Eric Kayser Korea
The Plaza (02.310.7500)
63City Yeouido (02.789.5687)
Lotte Dept Store Cheongnyangni (02.3707.1976)
Galleria Centercity, Cheonan (041.410.9779)

Seoul Village 2011

Online sales become the first distribution channel in Korea - or is door-to-door back ?

When I first came to Korea 20 years ago, Department Stores were becoming the main distribution channel for many consumer goods, taking over traditional door-to-door sales.

Convenience stores (FamilyMart, LG25 - now GS25 -, BuyTheWay, 7Eleven...) were also gaining ground. Then came the hypermarkets (eMart, Carrefour at one moment, Samsung / Tesco HomePlus, Lotte Mart...), and the SSMs / SuperSuperMarkets (Lotte mySuper, HomePlus Express, eMart Everyday...).

One by one, small groceries / mom & pop stores closed, and traditional markets plummeted, killed by discount shopping (or supposedly "discount" shopping : a recent survey pointed out that for many food items, traditional markets are actually cheaper). Survivors could count on a system that protected both food majors and small distributors : product packaging including the price tag regardless of the sales channel guaranteed the same price for such basic items as instant noodles or ice creams. But this system is about to be abandoned and anyway, it didn't mean much anymore : big discounters sell their own brands of instant noodles, and my local SSM offers a year-round 50% discount on all ice creams.

Even as competition raged between discount shops, many opening 24/7/365, Department Stores (Lotte DS, Shinsegae DS, Hyundai DS, Galleria DS...), sometimes growing into ambitious complexes (ie Shinsegae Centum City in Busan) remained ahead for many consumer goods and fashion.

Until now : online sales have just become Korea's first distribution channel.

This doesn't come as a surprise for anyone living in "ubiquitous" Korea : beyond pure players (ie Auction), even brick and mortar leaders are pushing ecommerce very hard, prefering cannibalization to the loss of a customer.

Somehow, we're back to square one and door-to-door sales. The first door is your mobile, PC or TV screen, but everything is done to deliver it wherever you live (home deliveries keep booming), wherever you work (Seoul would collapse without cheap express deliveries), and even wherever you go (ie location based services and mobile couponing).

Like for ADSL or FTTH, Korea's economy of access is unbeatable. Because of urban density, because major players are ready to offer what comes as a premium anywhere else, and furthermore because in many cases for smaller fish, the last mile is provided by people working under the legal hourly wage, ready to make a buck even if it doesn't make any sense if you simply take into account transportation costs. When you see a truck carrying about five hundred eggs on a highway, you know something is wrong. And when you order a book online, the delivery person is rarely twice the same plain-clothes individual.

I guess that's one of the reasons why Amazon is not in Korea. The retailer tried to do some business via Samsung / SIMS more than ten years ago but failed. So Amazon ships from other countries to international customers while Kim & Chang law firm securely protects Amazon.co.kr URL.

Of course, Amazon would face pure players in cultural goods, such as Aladdin (now Aladin.co.kr), or Kyobo Book Center (very ambitious in the ebook ecosystem), but I don't think it's about competition : players differenciating themselves on logistic platforms tend to struggle here. Carrefour left the country in spite of commercial success for regulatory reasons : it couldn't operate with its usual purchasing power model. I think the logistics equation could be very tricky for Amazon.

eBay is faring much better in Korea (as Auction.co.kr) - it even wolfed down G-market, snatching it away from Inter Park... but eBay is more into auctions and C2C than into retailing and B2C. And when it advertised massively on internet shopping, big retailers pushed the pedal to the metal.

But the biggest revolution for e-commerce in Korea this year is the end of Microsoft Explorer's de facto monopoly since July 1st : since 1999, all online shopping and banking services had to use ActiveX systems, but the Financial Services Commission put an end to it following the recent boom in smartphones.


Seoul Village 2010

Universal Studios Korea in Hwaseong

Universal Parks and Resorts will open its sixth and biggest park in Songsan Green City (Songsan-myeon, Hwaseong, Gyeonggi-do), just opposite China and South of Incheon, its international airport closer than ever since the opening of the new bridge.

As usually the case in such projects, the theme park is only part of a huge real estate project, complete with golf, hotels, outlets, and condos. But 4.3 M square meters is really massive. There will be a water park and a CityWalk similar to the Universal Studios Hollywood concept. Steven Spielberg will apply his own label, very much the Jack Nicklaus way (his version of "War of the Worlds" has a spot in USH as well).

Construction starts in March and the park should be inaugurated in 2014, two years behind the initial schedule (announced in 2007), and one after the Marvel Entertainment theme park planned in Busan (see "Beefing up Korea").

Along with its partners Lotte Group (26.7% via Lotte Asset Development) and POSCO Engineering & Construction (24.4%), Universal's Korean unit USKOR & Associates Co. added a dozen investors to the financing pool. The project is expected to cost USD 2.7 bn and the initial capital to reach USD 400 M. Not necessarily direct foreign investment, but a potential magnet for the whole region.

Highway 15 is bound to bring the bulk of the traffic from Incheon and Seoul, but the Sihwa sea dike may see part of the flow reach Songsan via Ansan and Daebudo. Southwestern Gyeonggi-do tourism should get a big boost, so let's hope seashores and nice areas will be preserved. Local authorities should watch for over development, and preserve the identity of the area beyond the park to really make a difference.

It's good for business to open such a franchise, but it's better if visitors can tell this difference from Hollywood, Orlando, Osaka, Dubai or Singapore.

Seoul Village 2010