[Open Forum] The Growing Subscription Economy: Regulation Is Premature

Starting with digital content subscription services such as Netflix, a subscription economy boom is emerging across a wide range of industries, including groceries and pharmaceuticals. As the scope of industries participating in the subscription economy continues to expand, there are growing concerns that regulation may hinder market development.

One reason subscription services have gained such attention is COVID-19. In the post-COVID era, the subscription economy rose as the sharing economy slowed. It is well suited to an age dominated by non-face-to-face services, and from a business standpoint it is also stable because it creates a “lock-in effect.” The lock-in effect means that even when economic conditions change, subscriptions help secure a certain consumer base. For example, although the home shopping and live streaming industries faltered in the wake of the endemic transition, only OTT services such as TVING and Netflix survived.

Korea’s subscription economy ecosystem is also becoming more active, but compared with other advanced countries it is still in the early stages of development. The key to subscription services is reflecting consumer preferences. Accordingly, continued corporate innovation is essential for further growth. However, inappropriate government regulation is holding the market back.

A representative example is the Specialized Credit Finance Business Act. It was amended with the stated aim of protecting consumers by requiring businesses to notify users one week before a free subscription period ends and converts to a paid service. However, the problem is that payment gateway companies (PGs) have effectively been made responsible for overseeing and supervising business practices. Rules regarding notice of conversion to paid service and refund eligibility concern the legal relationship between companies and users, yet third-party PGs have been made to intervene in these matters.

Subscription services can vary depending on many factors, including the characteristics of the goods, geographic scope, consumer segment, and delivery platform. A uniform law that subjects all subscription industries to PG oversight does not suit the characteristics of the market. On the contrary, it could weaken corporate management and hinder growth.

Nor is the Specialized Credit Finance Business Act the only issue. Multiple ministries have introduced regulation-centered bills, including amendments to the Telecommunications Business Act and the Framework Act on the Promotion of Motion Pictures and Video Products, as well as the Fair Transactions in Franchise Business Act and the Act on the Consumer Protection in Electronic Commerce. At a time when subscription services have become an essential marketing strategy, such legislation can be seen as running counter to the times.

Nor is it desirable to imitate regulations in the United States or Japan, which are a step ahead of us. Regulating a market of sufficient scale and regulating a market that is only just beginning to grow are clearly different matters. Even in terms of global competitiveness, the priority should be to allow Korean companies greater room to pursue innovation actively.

Nor can individual regulations be justified on the grounds that uniform regulation is inappropriate. Individual regulation brings side effects of its own. That is because in a market where everyone is launching subscription services, competition has already begun across industries rather than remaining within them. A recent example is the fact that deregulation by the Ministry of Land, Infrastructure and Transport has made automobile battery subscription services possible. The competitive scope of an automaker offering battery subscriptions is no longer limited to the automobile industry alone. Consumers must choose what to subscribe to within limited time and capital. Rather than organizing regulation by industry, the government should lower entry barriers by easing regulation across all industries.

If the goal is to foster globally competitive subscription economy companies, the market must be expanded by guaranteeing free competition among firms. Uniform regulation such as the Specialized Credit Finance Business Act discourages business management, while industry-specific regulation throws away opportunities for mutual development among a wide range of firms. At the current stage of growth, the focus should be placed not on regulation but on free competition among businesses and scaling up the market.

Jisu Han, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 성장하는 구독 경제, 규제는 시기상조

Author: Ji-su Han

Date: 2022-12-05

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=7&idx=25110