Recently, there has been a surge in discussions about the Korean television industry, focusing particularly on the rising production costs of scripted dramas. A key area drawing media attention is the economics of talent compensation, especially for A-list talent at the very top of every casting list.

In order to better understand the economics of talent compensation, let us turn to the Korean film industry.

For the past two decades, the Korean film industry has thrived on the success of its domestic theatrical market. Since 2004, 19 domestic films have surpassed the 10 million admissions barrier. Selling 10 million tickets in a country with a population of roughly 50 million is an impressive feat, equating to one in five people. (The high water mark is a film that has sold over 17 million tickets!) And although Korean films are released in foreign markets, those contribute only a small portion to a film’s overall financial performance.

For those who are inclined to view specific numbers, I would like to point you to the Kofic Kobis website where you can access data on a film’s performance. From historical data to daily tickets sold and real-time presale ticket data, the level of publicly shared data is impressive as it is thorough.

This level of financial transparency allows all participants -- talent management, financiers, producers and exhibitors -- to accurately assess a film’s financial performance. An important benefit of this transparency is that it enables producers to keep production costs down by aligning their financial interests with those of their top talent. Instead of allowing talent costs to rise uncontrollably, producers have negotiated deals where top talent share in the film’s profits, creating a win-win situation. This alignment of interests is only made possible by the trust established through the current accounting system. As a result, producers can deliver films within fiscally responsible budgets, while talent can benefit from the substantial upside of the film’s success.

It’s important to note that the financial structure of Korean TV dramas is vastly different from their theatrical counterparts. Foreign profits for dramas can constitute 40-70 percent of their total revenue, making these projects highly dependent on international markets. With numerous companies involved across different countries, a TV drama’s profit and loss statement is far more complicated than that of a domestic film.

Additionally, since Korean TV dramas are often pre-sold before any footage is shot, their financial success heavily relies on the attractiveness of the talent package. A drama featuring a star writer and an A-list talent commands a large premium, resulting in intense competition for top talent. When the financial success of a show hinges on securing A-list stars, producers are compelled to offer aggressive compensation to ensure their project’s success.

The solution to the issues facing the TV drama industry isn’t as simple as implementing a transparent accounting system. Fundamental differences exist between the financial models of films and television shows. However, one common truth is that uncontrolled rising production costs are detrimental to the long-term success and sustainability of both sectors.

With the escalation of TV production costs, the number of dramas produced this year will be less than half of what was produced in 2022. At this rate, producing TV shows will become so expensive that it will create a disincentive for the industry.

The rapid growth and global popularity of Korean dramas have brought both opportunities and challenges, requiring careful consideration and strategic planning. This is a pivotal moment for the industry to reflect honestly on the systemic reforms needed to ensure its continued growth and influence over the next two decades.

Thomas Suh is the founder and managing director of Systeme D Entertainment, a filmed media and entertainment company that specializes in content acquisition, management and production for film and television. "Room Tone," the title of Suh's column series, refers to the ambient sound of a space in which filming takes place. Thomas Suh can be reached at tommysuh@me.com -- Ed.