Traversing Taiwan’s OTT Environment

Over-the-top (OTT) platforms are experiencing a peak in popularity in Taiwan as the pandemic alters consumer habits and more people turn away from subscription cable services. However, proposed government regulations could create some significant barriers.

More and more households worldwide are switching away from traditional cable television to view an increasing amount of audiovisual content through their mobile phones, computers, or smart TVs. The rise over the past decade of streaming content platforms like YouTube and Netflix have presented internet users with an attractive alternative to watching television the old-fashioned way, giving them more freedom of choice and limiting interruptions from advertising.

In Taiwan, streaming music and video – also known as over-the-top (OTT) media – is a more recent industry trend, but it is one that has caught on quickly as a growing number of platforms offer a seemingly endless variety of original content. As a result, OTT has become a highly competitive and saturated market, and local platforms have found it difficult to compete with more established competitors from China and the U.S. They must now develop strategies to make themselves stand out among their peers.

To further complicate matters, online piracy has been a consistent thorn in the side of legitimate OTT operators. An issue particular to Taiwan is the proliferation of pirated content hosted on servers located outside the country, especially in China.

In addition, the current absence of any OTT-related regulations has made Taiwan something of a Wild West environment for streaming-service providers. Although the National Communications Commission (NCC) introduced a draft OTT law this August, the initiative has met with strong criticism from industry representatives who say it could penalize lawful businesses and that it offers no help in tackling online piracy.

A March 2020 study conducted by the consumer research organization Kantar Worldpanel Taiwan found that 96% of Taiwanese aged 15-49 use an OTT video service, and that 78% watch online content at least five or six days per week. Because there are so many platforms to choose from, with some or all content offered free of charge, Taiwanese use an average of 3.2 services to view content. And given the very high rate of mobile penetration in Taiwan, the most common channel for consuming OTT content is via smart phones.

The higher consumption of OTT content is yet another change brought on by the COVID-19 pandemic. More time spent at home means more opportunities to binge-watch TV shows and movies online. And while the Taiwan government’s excellent early action in containing the coronavirus has made it possible to avoid the lockdowns and other restrictive measures taken in more heavily affected locations, OTT has still managed to thrive in Taiwan this year. The Kantar report on Taiwan’s OTT market notes that between January and March, the percentage of Taiwanese willing to pay for subscription streaming services increased from 26% to 35%.

According to the report, one of the top five providers of OTT content in Taiwan is LINE TV, an affiliate of Korean-owned, Japan-headquartered LINE Corp., which also operates a messaging app that is immensely popular in Taiwan. The streaming content service is just one part of the LINE ecosystem, which also includes mobile payment services and other social media functions.

LINE Taiwan General Manager Roger Chen says this ecosystem has been instrumental in building up a strong LINE TV user base in Taiwan, as features such as the LINE timeline can be used to make certain content go viral.

Popular messaging app LINE’s OTT platform LINE TV boasts a wide range of locally produced content for the Taiwan market, including drama series, feature films, educational programming, and theatrical productions. Photo: LINE

The company has adopted a successful business model for its OTT service in Taiwan. It initially offered a completely free advertising-based video on demand (AVOD) service to attract viewers. Later, it introduced an additional subscription video on demand (SVOD) option for those who wish to skip the ads and enjoy certain exclusive content by paying a monthly service fee.

Chen says that the variety of content on LINE TV is also an attractive feature of the platform, particularly its local content options.

“Many users refer to us as the OTT provider with the most Taiwanese productions,” he says. “We cover a lot of Taiwanese dramas, movies, educational content, and now even theatrical productions.”

Telecom operators are also getting in on the OTT game, providing unique content and viewing experiences driven by the introduction of 5G this year.

Another popular video-streaming option among Taiwanese is friDay Video, the OTT service offered by Far EasTone, Taiwan’s third-largest telco. T.Y. Yin, executive vice president of Far EasTone’s Consumer Business Unit, says that with a 5G connection, subscribers to the friDay service can enjoy 4K-quality streaming video, featuring films from six major movie studios, as well as a plethora of South Korean movies and dramas.

New rules adopted

Christine Chen, a partner at the Taipei-based law firm Winkler Partners, says that one of the major challenges related to OTT in Taiwan is “whether Taiwan-produced content and related industries will survive under global competition, including competition from China in particular, which shares a similar language and culture for movies and television series.”

The main Chinese contender in the OTT field is iQIYI, a subsidiary of tech multinational Baidu. The March 2020 Kantar report found that at that time, iQIYI was the second most popular subscription-based OTT platform in Taiwan, behind Netflix.

While Chinese companies have long been prevented from investing in Taiwan’s broadcasting and telecommunications industries, iQIYI and WeTV, the video streaming service offered by Tencent, were until recently able to provide Taiwanese with a local version of their platforms by partnering with local agents.

However, the Ministry of Economic Affairs (MOEA) this September moved to ban such arrangements, arguing that they violate the provisions of the Act Governing Relations Between the People of the Taiwan Area and the Mainland Area. Under the MOEA’s new regulation, agents who continue to partner with banned Chinese OTT service providers can be fined up to NT$5 million (US$170,000).

Some public figures, including politicians from the Democratic Progressive Party, have voiced concerns that the proliferation of Chinese-produced OTT content in Taiwan could foster more friendly attitudes toward unification with China and thus endanger national security. For its part, the NCC says that these kinds of regulations are based on the principle of reciprocity; since Taiwanese OTT companies are banned from operating in China, Chinese content providers should face the same treatment in Taiwan.

The NCC has issued its own draft OTT law, the Internet Audiovisual Service Management Act, which also targets Chinese streaming content. The law allows for OTT operators to register with the NCC on a voluntary basis. However, says Winkler Partners’ Chen, it also gives the commission “the right to set up a standard based on user figures, click rates, revenue, and influence in the market and publish a list of OTT platforms which will be obliged to register.” The NCC explains that the draft law applies the concept of “catching the big fish, while letting the small ones go.”

Roger Chen of LINE Taiwan says that while this approach may seem reasonable on paper, it isn’t sufficiently clear where the line is drawn, which could lead to later problems. “This kind of regulation would increase uncertainty and possibly encourage unfair play,” he says.

“If I see my platform as a large provider, I should register myself, then comply with all the requirements,” he explains. “And if I fail to comply with any one of them, I will be penalized. But if I say I’m a small provider, then there’s no burden at all. So, why bother with saying that I’m a large one?”

Furthermore, he says, the law only targets platforms that, like LINE TV, feature professionally produced content, while deliberately not covering those that rely on user-generated content (UGC), such as YouTube. However, a growing number of television stations and professional studios have started channels on YouTube, leading some to question whether it should be considered a purely UGC-driven platform.

Another area of the draft law that has come in for criticism from the industry is the requirement that OTT providers make periodic reports to the NCC regarding their revenue, user numbers, internet traffic, and the status of users, among other data. Companies have argued that this information is highly sensitive and should not be requested by the NCC. However, Chen of Winkler Partners says that if the NCC can ensure the security of this information, the requirement should not have a severe impact on the industry.

A further major industry concern related to the draft OTT law is the requirement that OTT businesses offer a certain amount of locally produced content on their platforms. An article in the law states that registered OTT content providers that do not include a special column for Taiwanese programs or fail to publicly disclose information related to its production or co-production of Taiwanese programs from the current year could be fined between NT$100,000 and NT$500,000.

To some international providers, such a mandate seems excessively punitive. An executive of a multinational company who declined to be named in this report says that of the roughly 3,000 hours of video content her company has on the shelf, only a fraction is produced in Taiwan.

“International media companies are like the central kitchen,” she says. “We collect most of our programs from overseas and over time, we release different programs in each country.”

It is unrealistic to expect that all of the international players will be able to produce enough local content to fill up an entire column on their platforms, she says. Even if they do, it’s uncertain whether that programming would be well-received in other locations. And while the law does also provide for incentives for Taiwan-produced content, she says that this area should be the purview of the Ministry of Culture, not the NCC.

Observers note that the law in its current form does nothing to address online piracy, the single most harmful issue to the legitimate OTT industry. A large portion of the pirated content is not hosted in Taiwan, and even when the authorities take action to remove a pirated website, several mirror sites pop up immediately afterward. Chen of LINE refers to this process as an “endless game.”

Winkler Partners’ Chen notes that during public hearings for the draft law, some stakeholders argued for collective punishment mechanisms for Internet service providers (ISPs) that host platforms with infringing content. “However, representatives of ISPs strongly stated that it is impossible for intermediaries to bear the cost of examining whether the internet content they’re transmitting is legal or not,” she says.

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