Netflix earned over W1tr from Korea — and sent 81% of it abroad

"Teach You a Lesson," one of Netflix's biggest hits in Korea this year [Netflix]

Netflix posted more than 1 trillion won ($742 million) in South Korean sales last year for the first time, but remitted 81 percent of that revenue to its US parent company. Its local subsidiary was left with an operating profit of just 20.3 billion won — a margin critics say was engineered to minimize its tax burden.

The figures come from an analysis of Netflix Services Korea's audit report by Han Jun-ho, a Democratic Party of Korea lawmaker on the National Assembly's Science, Technology, Information, Broadcasting and Communications Committee. According to Han's analysis, Netflix's domestic sales last year totaled 1.05 trillion won.

It marks the first time Netflix has surpassed the 1 trillion won threshold in annual domestic sales since entering the Korean market in 2016 — roughly 1.7 times the 631.7 billion won it recorded in 2021.

Of that revenue, 853.9 billion won — 81 percent — flowed to the US headquarters, classified as payments for "subscription membership purchases." The arrangement reflects costs incurred when the local subsidiary purchases streaming subscription services from the parent company to resell to Korean users.

The local subsidiary's operating profit came to 20.3 billion won, yielding an operating margin of just 1.9 percent — meaning less than two won of every 100 won in sales remained with the Korean entity.

The pattern holds over a longer horizon. Netflix's cumulative domestic sales from 2021 through last year reached 4.18 trillion won, of which 81.6 percent — or 3.41 trillion won — was paid to its overseas parent and affiliates. The local subsidiary's total operating profit over the same period amounted to just 81.1 billion won.

While Netflix maintained profitability on domestic sales exceeding 1 trillion won, homegrown streaming platforms continued to bleed red ink. Tving posted sales of 406 billion won last year but recorded an operating loss of 69.8 billion won. Wavve also logged an operating loss of 12.2 billion won over the same period.

Critics argue that Netflix has been funneling the bulk of its Korean earnings overseas, shrinking its domestic profit and, with it, its tax liability. Han said K-content was what made Netflix the No. 1 streaming service in Korea, yet the production companies that create it receive margins of only 3 to 10 percent of production costs regardless of a show's performance. "Responsibility commensurate with that influence must follow, including additional compensation tied to commercial success," he said.

Netflix logo [Getty Images]

Critics also note that while Netflix has expanded its market dominance through K-content, the domestic production companies behind that content see little of the financial upside. Producers are typically paid a fixed fee — production costs plus a set margin — meaning that even a globally successful title rarely translates into additional revenue for the studio under the terms of their contracts.

Netflix is also locked in a corporate tax dispute with South Korean tax authorities. The National Tax Service in 2021 classified fees that Netflix's Korean subsidiary had paid to its overseas affiliates as royalties and levied an additional tax assessment of about 80 billion won. Netflix challenged the ruling, arguing the fees constituted payment for content streaming services rather than royalties.

A court sided with Netflix in April, ruling that the fees could not be classified as royalties and ordering the cancellation of approximately 68.7 billion won in corporate tax assessments, though it upheld a portion of the levy. Both sides appealed, and the appellate hearing is scheduled for December.

chami@heraldcorp.com