STB Go Digital Be Interactive Celrun

Hanaro's New Growth Channel: TV

2007-08-31

4330

Hanaro's New Growth Channel: TV

Wired South Korea

Opts for Downloads,

More Viewer Control

By EVAN RAMSTAD

August 30, 2007; Page B4

SEOUL, South Korea -- As telecommunications firms around the world try to boost revenue by shifting Internet users to high-speed broadband, a question arises: How do you keep growing after that? In South Korea, where broadband is already ubiquitous, one company is finding a way by providing on-demand video programs and movies to televisions rather than computers.

Hanaro Telecom, South Korea's No. 2 telecom firm behind Korea Telecom Corp., has signed 500,000 customers to its Hana TV service in its first year of availability. Executives expect that will double by early next year. "We now have a growth engine that will augment our broadband business," says Park Byung-moo, Hanaro Telecom's chief executive.

For about $10 a month, customers can choose from more than 20,000 programs, a figure that grows with each day's new shows, from Korea's TV broadcasters and numerous international content providers. Thousands more programs, chiefly movies but also education and other features, are available for varying pay-per-view fees.

Such a service is another big step in the shift of viewers taking control of their TV watching, an evolution that began with videotape recorders in the 1970s and has been characterized more recently by hard-disk TiVo and iPod machines. Hana TV is different because viewers don't have to record anything themselves.

For instance, a person who missed the main nightly newcasts, which air at 9 p.m. on South Korea's big networks, can order one of them via Hana TV at 10 p.m. There is a longer delay for entertainment shows; prime-time programs aren't available until the next morning.

With Hana TV, viewers don't have to record anything themselves.

The service uses so-called Internet protocol television, or IPTV, technology that a few dozen phone companies around the world are using to compete with cable-TV operators via TV broadcasts streamed over Internet lines. PCCW Ltd. of Hong Kong has about 800,000 subscribers to its IPTV service, more than the city's cable-TV provider, and systems in France, Spain, Belgium and Italy are also growing rapidly. In the U.S., AT&T Inc. has announced it will spend $6 billion to deploy IPTV via broadband lines, though it is still in the early stage.

South Korea is considered one of the most wired countries in the world because high-speed data access has been available virtually everywhere for more than five years. But the government, which is in the midst of reforming its bureaucracy and rules in telecommunications, doesn't allow telecom and Internet-service companies to directly compete with cable and satellite-TV systems. Other governments are also moving at different rates on IPTV.

That presented a growth problem for Hanaro and its bigger rival, Korea Telecom, since both firms had saturated the market with their broadband offerings. Hanaro's growth stalled about three years ago, and it started posting losses in 2005 as it scrapped with KT over broadband pricing.

The turning point came when Hanaro executives realized that even if regulators allowed them to offer streaming-video channels, they would find themselves in another "me-too" competition where price is the key differentiator. "The biggest strength on IPTV is interactivity. If you just focus on linear broadcasting, you are just using a very small part of its capability," Mr. Park says. "If you focus on interactivity, video on demand or whatever it is, you can develop a lot of services that differentiate from cable and satellite TV."

As a result, executives decided they would launch Hana TV as a download service rather than wait for regulators to rewrite the rules for streaming broadcasts.

"This was not something that was a replacement for cable or satellite. We had to contemplate whether customers would be willing to add another video service," said Dominic Gomez, chief operating officer for Hanaro. "The safe bet for us would be to wait for the regulations to change. We opted to pursue this," Mr. Gomez said.

The results so far are encouraging. To date, Hanaro says the average customer is downloading about 160 hours of programming a month. About 35% buy at least one pay-per-view program a month, and the average pay-per-view buyer buys three a month, rates that are considered high in the TV industry. In the second quarter, the company reported an 8% jump in revenue and a marginal $2 million profit, its first in two years.

Hanaro Telecom is also starting to attract advertisers to the service. It operates a home-shopping service on the system and recently hired sales people to sign up sponsors for certain types of downloaded programs.

Write to Evan Ramstad at evan.ramstad@wsj.com