Korea tightens rules on Netflix, Spotify subscription billing

South Korea’s antitrust body is slated to tighten the leash on subscription businesses of streaming service providers such as Netflix Inc. and Spotify Technology S.A. as consumers find it difficult to cancel their subscriptions without having to pay for the remainder of their subscription terms. 

The Korea Fair Trade Commission (FTC) sent examination reports to three over-the-top (OTT) video platforms – Netflix’s Korean affiliate, Wavve and Watcha Inc. – and two music streaming services providers – Spotify’s Korean unit and NHN Bugs Corp. – on Aug. 21 as they are accused of breaking the country’s e-commerce law for consumer protection, tech industry insiders said on Thursday.

FTC said in the report that the five firms have neglected consumers as they hadn’t fully provided functions allowing users to terminate subscriptions in the middle of a billing cycle or they hadn’t fully notified consumers of their rights to do so.

If a consumer subscribes to a service for a month and cancels it before the period ends, the company should reimburse the customer for the remaining period and properly notify the consumer of their refund rights and details of how they will be done, the FTC added.

The antitrust body is investigating Korea’s internet giant Naver Corp., e-commerce behemoth Coupang Inc. and online grocery shopping platform Kurly Inc. over similar allegations.

FTC sees subscriptions to streaming services as “recurring transactions” under Act On Door-To-Door Sales, which can be terminated in the middle of the billing cycle like the cancellation of fitness center memberships.

If a company doesn’t give consumers a refund for the remaining subscription period, this restricts consumers’ rights guaranteed by the sales law, the regulatory body noted.

Meanwhile, streaming services providers argue that it is unfair to force them to facilitate consumer cancellations in the middle of a subscription period. The companies insist that consumers can abuse the law by binge-watching content for a day or two and then terminating the subscriptions.

If authorities mandate companies to allow termination of subscriptions in the middle of a billing cycle, the firms may raise subscription fees, thereby hurting consumers, a tech industry source said.

The FTC regulation on the matter is forecast to become stricter than the one enacted years ago.

In 2021, the antitrust body ruled that consumers should be able to receive a refund if they cancel within seven days after a billing date if the consumer doesn’t use the service or there is a reason for cancellation attributable to the service operator.

Write to Sul-Gi Lee at surugi@hankyung.com

Jihyun Kim edited this article.