Lee Seung-jae / LJ Film CEO

1. The history and the present of the Korean film industry

It took at least ten to at longest fifteen years for Korean movies to achieve the current paradigm in the industrial map. Take fifteen years. The paradigm of Korean movies went through 3 stages to grow.

The first stage is the early and mid-1990s. Around the 88 Seoul Olympics, the pre-modern regulations in the military junta began to be lifted. The full freedom was given to produce movies, and the screen quota system that had served as a cause of an abnormal industrial structure was scrapped. A new change took place in the market infrastructure, as well. The consumer electronics market saw video media appear.

The advent of the video market served as a critical source of profit, creating new value-added in the film industry. Based on the video platform, a shift in generations in the film industry began in earnest. At the top, conglomerates, which took the place of pre-modern owners of theaters, began to set their foot on the distribution market, and at the bottom, fresh young generation who connected themselves with video capital of conglomerates swarmed into Chungmuro, the South Korean version of Hollywood.

The first result of such trends was The Marriage Life in 1992, followed by successful movies such as Mr. Momma in 1993, Two Cops in 1994, and The Ginko Bed in 1995. With those four movies succeeded, the new first and second generations have been produced since the 1990s. Up until now, the first and second generations have been leading the film industry of Korea. As for producers, there are Shin Cheol, Yoo In-taek, Cha Seung-jae, Kim Hyeong-jun, Shim Jae-myung and Oh Jeong-wan, and as for directors, there are Kang Woo-seok and Kang Je-gyu. In some way, the early and mid-1990s was a transition from pre-modernity to the present 21st century.

The second stage is the mid- and late 1990s, around the Asian financial crisis in 1997. Based on the video platform, conglomerates, such as Samsung, Daewoo, Hyundai, SK and etc, had an eye to the main chance of stepping into the film industry, but under the IMF tutelage they began overall restructuring. As they were forced to take their foot back, the Korean film industry should face a crisis. At the time, what turned up as a new alternative was the movie fund that the Kim Dae-jung administration arranged to boost film production. Based on the fund, venture investment capital threw in the film market.

On the basis of the environment, a chain of successful movies like JSA in 1997, Shiri in 1998 and Friends in 1999 were produced. Later, with a lot of funds raised carelessly, rash investment frenzy saw Korean-styled blockbuster movies come to a miserable end. This period was double-edged with externally quantity rapidly expanded and with internally pre-crisis bubbles built up.

The third stage is from 2000 up to now, during which multiplex theater platform began buoyant. In 1998, the success of Gangbyeon CGV triggered CJ Entertainment to do film business in full scale. The year 2000 saw, along with Coex Megabox's success, Tong Yang enter in earnest into the film industry. During the period, based on the multiplex platform, CJ Entertainment and Showbox of Tong Yang turned up as new major players. Recently, with Lotte joining, a big- three system has been settling. And one of the noteworthy events is a collapse of Chungmuro's ingenious capital.

Cinemaservice owned by Kang Woo-seok who has represented Chungmuro history was taken over by CJ Entertainment in 2004, bringing its ten years to an end. Having basked in glorious successes from Two Cops in 1994 to Silmido in 2004, Director Kang Woo-seok beat a retreat from Cinemaservice. But how he would make his next ten years remains to be seen. Important events in this period are the collapse and crisis of small and medium sized investment/distribution companies.

Pure investment/distribution companies which have no multiplex face a life and death crisis because it is hard for them to set the virtuous circle of capital. Currently, the only variable capable of rivaling the big three players of CJ, Tong Yang and Lotte is mobile carriers, such as SK Telecom and KT, which take part in this field to build up DMB platform. Later on, the success of DMB platform could make the industrial map of the Korean film industry to meet a total upheaval.

2. The structure and contradiction of the Korean film industry

It is clearer to say that the Korean film industry is only ten years old from the mid 1990s, because no market for Korean movies existed at all before the time. In terms of the industrial infrastructure, however, it is more proper to say that the history of the Korean film industry started only five years ago since 2000.

The infrastructure of the film industry consists of four factors: Productivity, market share, capital and the size of the market. When it comes to the four factors as infrastructure standards, the industrial cornerstone for the Korean film industry was set just five years ago. The current productivity and market share of the Korean film industry rank second after those of the USA. Its financial infrastructure and market size, however, have a fundamental limitation, which comes from the nature and contradiction of the Korean market structure.

Most of all, the Korean film industry has a world-class competitiveness in productivity infrastructure, by accumulating the creativity know-how and technologies to produce movies and by keeping producing movie-making professionals such as producers, directors and staff. It has its own post-production technologies including CG and sound, as well. With high quality production capacity, Korean movies accounted for 50 percent of market share in the local market, competing against Hollywood movies.

And, in some degree, they laid the foundation for independent production capital, but failed to drive to build up the financial infrastructure for the industry. That is mainly because the total revenue structure is negative. In any industry, when the certain rate of return is consistently guaranteed, the financial infrastructure is laid.

There is no industry without the financial infrastructure. As the current rate of return is negative, no financial infrastructure in general meaning can be laid unless the government supports movie funds. Only multiplex theaters produce revenue. That is why the industrial map has been dramatically reorganized for recent five years, centered on the multiplex platform. Then why is the Korean film industry negative in the rate of return despite its growth in quality?

The reason comes from an excessive increase in cost and the abnormal structure of the market itself. So far, an increase in the rate of revenue has failed to catch up with a rise in the rate of cost. Despite staggering growth externally, dark shadows are cast internally. In addition, the abnormality of the market works as a fundamental limitation.

In window platform where movies produce revenue, theaters(multiplexes) rank top, followed by video/DVD, TV media(public broadcasting and cables), others including Internet VOD, DMB, Mobile, etc, and overseas. Among the window platform above mentioned, an estimated 80 percent of revenue comes from multiplexes. That is because still the Korean film industry stays stuck to a pre-modern box-office business disposition.

That is, the failure in theater box office results directly in investment loss, which is translated into the fact that the foundation for the knowledge-based value-added industry has yet to be set. When it comes to the domestic market structure of the USA and Japan, the revenue structure is evenly divided into three categories such as primary theaters accounting for 30 percent, secondary video/DVD market for 30 percent, and tertiary TV media for 30 percent. Moreover, as for the USA, it is evenly divided into the domestic and international markets.

As for Korea, however, the value-added copyright market is not only small, but also the development of the Internet and illegal piracies cause enormous loss to the market. In an attempt to break away from the abnormal market structure, internal structure improvement should be urgently preceded.

Among total ticket revenue, the revenue sharing for a theater against production/investment/distribution should go down to 40 percent from the current 50 percent. In addition, a new media such as DMB and Mobile should rev up to replace the video/DVD platform. The primary challenge is to increase the revenue rate by improving the internal market structure like that. The adjustment of the revenue sharing for a theater down to 40 percent could raise the revenue rate from minus to zero base. Nevertheless, the most fundamental limitation the Korean film industry has is that the size of the market is basically too small.

Now, the Korean film market is nothing but 1/9 times that of Japan. The total number of screens is estimated to be 1,400, and the total number of annual audience is over 130 million. In future, the screens are expected to be more than 2,000, and audience to increase to 200 million. Even though the domestic market grows, it is hard to expect it would double. In size comparing to other industries, the Korean film industry is nothing but a small market.

The synergy effect the cultural industries have should be put aside in this article. In order to secure the rosy future of the Korean film industry, it should open ups a new global market. When it comes to industrial aspects, any business without a global market is highly likely to reduce to a local business. The Korean Wave or Hallyu penetrates the Japanese market, but is limited to certain movies. Thus, Korean movies account for less than 5 percent of global market window. Then, how could it be possible for Korean movies to open up the global market?

3. Global Strategies and Challenges ahead of Korean Movies

Overseas markets Korean movies can push open are located in Asia, Europe and North America. According to market characteristics, the size and character Korean movies can take are different to each market. Thus, the Korean film industry should draw up different strategies.

1) The size and characteristics of the Asian market

The Asian market means Japan and Chinese speaking regions such as China, Hong Kong and Taiwan. The Southeast Asia is too far-fetched regions to discuss now. Among Chinese speaking regions, Hong Kong and Taiwan have a market for Korean movies, but mainland China seems to have only a strong potential.

Thus, the current Asian market means the Japanese market. Even in Japan, not all the Korean movies have marketability, but some in which popular Korean Wave actors/actresses starred are sold. But, Japan is not a matter of market. With Korea's production capability coupled with Japan's capital, the neighboring countries push forward to share the structure of financing and distribution, which is expected to lay a new market infrastructure.

The future of the Asian market depends on the growth of the film industry in mainland China. Mainland China will serve as a vision and a yardstick to fathom the future of the Asian film industry. And the mainland Chinese market has an enormous potential to compete with the North American market, beyond the European market. In this sense, what is important is how the Korean film industry, as a hub of the Asian film industry, can hold a consistent comparativeness and hegemony.

The future of the Chinese film industry is easily anticipated by looking back the last fifteen years of the Korean film industry. As the Seoul Olympics in 1988 served as a cornerstone for Korea, the Beijing Olympics in 2008 is expected to provide a new turning point for China.

Although presently all the film productions and distributions are controlled under the Chinese government, around the Beijing Olympics in 2008, it is expected that a lot of businesses will be transferred to the private sector, and that the screen quota system against importing foreign movies will be changed dramatically. In addition, a shift in generations in the film industry will take place, followed by quality changes and growth in Chinese movies. Naturally, the market infrastructure will be built up and, even limitedly, a distribution system and marketing will grow drastically.

If the Korean film industry starts to make efforts to advance into the Chinese market, it can be a leader of the Asian film industry because Korea has competitive advantages culturally and geographically over Europe and North America. But the problem is, the future is a long-term market where at least more than seven to eight years should be invested.

2) The characteristics and art films of the European market

The only way for Korean movies to approach to the European market is through film festivals. The Korean film industry should create brands of authorism directors through European film festivals, and then, based on brand marketing, advance into the European market. The most successful example is Director Kim Ki-duk.

His shoestring budget movie, Spring, Summer, Fall, Winter… and Spring, was sold overseas at US$9 million, the dearest in a single movie in Korean movie history, and succeeded in box-office. The European market should be used as a market for low budget art films for variety in Korean movie spectrum. Now, the strategic alternative for the survival of Korean authorism movies is only to open up the European art film market.

3) Opening up of the North American market and global strategies

In real meaning, whether Korean movies succeed in opening up overseas markets depends on the North American market. In general, the term 'global market' means the North American market. The only possible way to step into the global market is via Hollywood. The North American market is the largest in size and the most powerful in the world distribution. So far, no Korean commercial movie has succeeded in advancing into the North American market in a normal way. Only Old Boy and Spring, Summer, Fall, Winter… and Spring were released in New York and some cities. There are four strategies for Korean movies to open up the North American market as follows.

The first strategy is to produce movies using the vernacular rather than English for art films and genre movies. Art films like the two movies mentioned before can advance through overseas film festivals. Genre movies like martial arts, action and horror movies, all of which are relatively less restricted by language, provides an easy way. As for genre movies, martial arts films of China and horror movies of Japan have recently succeeded. Korea, however, has never heard of glad tidings.

The second way is to couple Asian and European infrastructures and to export them into the North American market. For instance, a movie can be directed by Director Chen Kaige, with Jang Dong-gun, Maggie Cheung and Vincent Cassel starring. Within the budget of US$20 million, a movie can be produced by a financing structure with Asian-European infrastructures coupled. Take the success of Crouching Tiger, Hidden Dragon and develop its strategies further, and a way to advance into the market will be found.

The third strategy is to re-make Korean movies. So far, the copyright to re-make Korean movies in the USA has been passively sold. Now, Korean movies refrains from simply selling the copyright, but take an initiative to co-produce them with American productions to enter into the market. A good example can be found in The Grudge, a Japanese movie. The scenario of it was translated into English, and Caucasian actors/actresses took the place of Japanese ones.
The fourth strategy is to produce a movie in English instead of the vernacular. It is a way none has ever taken before.

But it should be taken sooner or later. Without going beyond the language barrier, there is no future in globalization. The point is, taking good advantage of creativities of the Korean film industry, how to develop and produce Korean movies which can communicate with American audience. As for this strategy, a cross-culture concept is a good starting point. To this end, among Korea's historical and cultural items, one which can communicate with westerners should be selected. Here is a good example of Julia project.

The real model, Julia, is a common American woman who was married with Lee Kyu, the last Crown Prince of the Joseon Dynasty, and spent her up-and-down life in Nakseonjae Palace. Lee Kyu passed away in last July when Julia was interviewed for the project. The project is underway, with an American production participated in co-producing and with a US$20 million budget. In order to produce such movies, what is important is to create directors' brands whose credit is acceptable in America. Korea should generate worldly-renown directors, who start with low budget art films and command independent and commercial movies, like Ang Lee, a Taiwanese director.

The above four strategies can be realized for two grounds. First, the Korean film industry has accumulated the creative know-how. There are no differences between Korea and American in the fundamental principle. Second, apart from other countries whose domestic film industry is vulnerable, Korea has its own market and the financial foundation. Based on such strongholds, if Korean movies dart aggressively at the American market, they will be shown in the world market before long.

4. The Strategies and Vision of the Pusan International Film Festival

Ten years of the Pusan International Film Festival(hereafter the PIFF) go in company with the growth of Korean movies. One hand, the PIFF has become a driving force for the growth of Korean movies at home and abroad, on the other hand, without the development of Korean movies, the PIFF could not succeed. The function between the film festival platform and the film industry serves as a touchstone for how they should go together for the next ten years.

There are four standards to grade film festivals: The number of world premieres, the market size, the name-value of guests and the number of audience. The PIFF believes that it ranks tenth in the international film festivals because of its capacity to mobilize guests and audience. It had Class-A guests from all over the world visited, and no other international film festivals beat it in the passion and the number of audience during the event.

But the number of world premieres was so small that the market did not start. There are two reasons why the Cannes Film Festival enjoys a world authority. Marking the tenth anniversary this year, the PIFF faces the same challenges as the number of world premieres and a film market for the next ten years. To this end, the PIFF should grow along with the Asian film industry. That is because the future of the PIFF depends on the growth not only of the Korean film industry, but also of the Asian film industry.

A standard should be set that people have to come to Pusan in order to watch world premieres produced in Asia. Only so, the Pusan International Film Festival can secure a stable authority as one of important international film festivals. In addition, there should be a market in the PIFF where people have to visit to buy or sell movies produced in Asia. The PIFF would stand out as one of big five international film festivals, provided a film market starting next year succeeds in the next ten years.

To this end, any movies produced in Korea should have world premieres in the PIFF, and so do any Asian movies. Producers and directors have to share the strategies, and the PIFF has to develop itself as the grounds where the strategies can be guaranteed. As the driving force to secure the strategies, the Asian film industry should grow together with the PIFF. And Korean movies should be at the central axis of the growth of Asian movies. Thus, film festivals and the film industry are in the same boat.

5. Conclusion

Korean movies are a novice who has just made a debut as a professional. Having gone through all odds as an amateur, it set foot in the splendid professional world. The first round of recent five years was successful for a fledgling pro. Now, however, higher barriers are ahead waiting for the fledgling. The window platform of the Korean film industry has fundamental limitations. In addition, rivals are not limited into Asia.

The aim of the Korean film industry is to take the world championship. But the empty cry for 'globalization' does not guarantee the rosy future of Korean movies. As for globalization in real meaning, the actual issue that should be dealt with is how much market share Korean movies can occupy in the global market. Korean movies have to go beyond Asia and Europe to North America. At least they should set the goal at 30 percent of the Asian market, and at 3-5 percent of the North American market. In the European market, Korean movies should reveal its artistic achievement by producing writers and directors ceaselessly.

Since the 1990s, the first generation of the Korean film industry has seemed to wane. The Korean film industry the first generation has been devoted to is left to the next generation on how to maintain and expand it. The future of the Korean film industry depends on how the next generation opens up the global market.