PROMISING INVESTMENT OPPORTUNITIES

Cultural Contents Overview of Korea s Industries 2012 Parts and Materials Auto Parts Displays Semiconductors Tourism and Leisure Aerospace Medical / Bio Finance ICT Industry Fine Chemicals Logistics and Distribution Cultural Contents New and Renewable Energy PROMISING INVESTMENT OPPORTUNITIES 02_ Industry Overview and Prospects 08_ Business Trends 09_ Promising Regions and Sectors for Foreign Investment 11_ Current Status and Successful Cases of Foreign Investment in Cultural Contents 12_ Incentives for Foreign-Invested Cultural Contents Companies 13_ Relevant Organizations

Cultural Contents 02 03 1. Industry Overview and Prospects 1. Industry Overview and Prospects Global Cultural Contents Market Current Status and Prospects by Region In 2010, the global cultural contents industry amounted to USD 1.42 trillion, up 12.1% compared to 2006. It is expected to grow to USD 1.87 trillion by 2015, jumping 31.8% from 2010. The world s largest cultural contents market is North America, at USD 481 billion, followed by Europe, the Middle East and Africa at USD 477 billion, Asia at USD 395 billion, and South America at USD 66 billion. Cultural Contents Market Size by Region Growth Rate and Shares of Global Cultural Contents Market 2006 2010 2015 2006~2010 2010~2015 (USD billion) Share in 2010 total North America 489 481 607-0.4% 4.7% 33.9% Europe, Middle East, Africa 422 477 614 3.1% 5.2% 33.6% Asia 310 395 541 6.2% 6.5% 27.8% South America 45 66 109 10.1% 10.5% 4.7% Total 1,266 1,420 1,871 2.9% 5.7% 100% Status and Prospects of Major Countries The market size of the top 12 countries combined stood at USD 113.9 billion as of 2010, accounting for 80.3% of the global market. The United States is the largest cultural contents market in the world, accounting for 31.2% of the global market, followed by Japan (12.3%), Germany (6.1%), China (6.0%), and the United Kingdom (5.4%). Korea s cultural contents market (USD 33 billion) ranks 9 th in the world in terms of size, accounting for 2.4% of the global market. Size of Major Countries Cultural Contents Market Size of market Size Market share Ranking Global market 1,419 100% - (USD billion) The global cultural contents market has grown, on annual average, by 2.9% from 2006 to 2010, and is expected to record an average annual growth rate of 5.7% between 2010 and 2015. From 2010 to 2015, the greatest growth in the cultural contents market is expected to take place in South America (10.5%) and Asia (6.5%). In particular, Asia is seeing a higher growth rate than advanced markets, and as of 2010, its market accounted for as much as 27.8% of the global market. USA 443 31.2% 1 Japan 174 12.3% 2 Germany 87 6.1% 3 China 85 6.0% 4 UK 76 5.4% 5 France 66 4.7% 6 Italy 42 3.0 % 7 Canada 38 2.7 % 8 Korea 33 2.4 % 9 Brazil 33 2.3 % 10 Australia 32 2.3 % 11 Spain 26 1.9 % 12 Top 12 countries combined 1,139 80.3 % - * The PWC market size is measured by the size of the domestic market, and survey subjects are different from those of the Ministry of Culture, Sports and Tourism.

Cultural Contents 04 05 1. Industry Overview and Prospects Status and Prospects by Sector As of 2010, publishing (consumer magazines, newspapers, consumer books, educational books, B2B publishing) accounted for the largest part of the global market, at 34.5%, followed by television (television licensing and subscription, advertising) at 26.3% and the internet (internet connection, online advertising) at 24.0%. Other major sectors include films (6.1%), games (3.9%), outdoor advertising (1.8%), and music (1.7%). Global Cultural Contents Market Size by Sector (Wired/wireless) Internet access 2006 2010 2015 2006~2010 2010~2015 (USD billion) Share in 2010 total 167 270 408 12.7% 8.6% 19.0% Online advertising 37 71 130 16.8% 13.0% 5.0% TV license and subscription 154 203 285 7.1% 7.0% 14.3% TV advertising 158 170 233 1.8% 6.5% 12.0% Music (performance) 33 23 22-8.5% -1.2% 1.7% Films 81 86 115 1.5% 5.9% 6.1% Games 34 56 82 13.0% 8.2% 3.9% Consumer magazines 81 73 82-2.8% 2.4% 5.1% Newspapers 186 160 176-3.7% 1.9% 11.3% Radio 47 45 53-1.1% 3.5% 3.2% Outdoor advertising 28 26 34-1.6% 5.6% 1.8% Consumer books and educational books 104 109 119 1.1% 1.9% 7.7% B2B publishing 162 147 175-2.4% 3.5% 10.4% Total 1,266 1,420 1,871 2.9% 5.7% 100% Domestic Cultural Contents Market Status and Prospects by Sector As of 2010, the domestic market stood at KRW 72.12 trillion, increasing by 9.1% compared to the previous year. It grew by 4.7% every year on average since 2005. The Korean cultural contents market consists of publishing (KRW 21.24 trillion, 29.5%), broadcasting (KRW 11.18 trillion, 15.6%), games (KRW 7.43 trillion, 10.3%), knowledge information (KRW 6.2 trillion, 8.6%), characters (KRW 5.9 trillion, 8.2%), films (KRW 3.43 trillion, 4.8%), and music (KRW 2.96 trillion, 4.1%). The industries that have recorded double-digit annual growth rate between 2005 and 2010 are characters (23.2%), animation (17.1%), knowledge information (15.3%), contents solutions (11.5%), comics (11.2%), and music (10.6%). The rapid growth of the contents solution market (authoring tools, mobile solutions, CMS, CDN), which is the foundation of the distribution of digital contents, is expected to result in the growth of not only the digital contents market but also the entire cultural contents market. Size of the Domestic Cultural Contents Market by Sector 2005 2006 2007 2008 2009 2010 share 2010 YOY Growth (KRW billion) Films 3,282 3,623 3,183 2,886 3,307 3,433 4.8% 3.8% 0.9% Animation 234 289 311 405 419 514 0.7% 22.9% 17.1% Music 1,790 2,401 2,358 2,602 2,741 2,959 4.1% 8.0% 10.6% Games 8,680 7,449 5,144 5,605 6,581 7,431 10.3% 12.9% -3.1% Characters 2,076 4,551 5,116 5,099 5,358 5,897 8.2% 10.1% 23.2% Comics 436 730 762 723 739 742 1.0% 0.4% 11.2% Publishing 19,392 19,879 21,596 21,053 20,609 21,244 29.5% 3.1% 1.8% Broadcasting Independent production 8,635 9,720 10,534 9,355 9,885 11,176 15.6% 13.1 5.3% - - - 727 796 737 1.0-7.4 - Advertising 8,418 9,118 9,435 9,312 9,187 10,323 14.3% 12.4% 4.2% Knowledge information 3,041 3,468 4,297 4,777 5,255 6,204 8.6% 18.1% 15.3% Contents solutions 1,275 1,542 1,680 1,866 2,036 2,196 3.0% 7.9% 11.5% Total 57,259 62,769 64,415 63,682 66,116 72,120 100% 9.1% 4.7% Source: Ministry of Culture, Sports and Tourism, 2011 statistics on the contents industry, 2012.

Cultural Contents 06 07 1. Industry Overview and Prospects Exports and Imports of Cultural Contents Trends in Exports and Imports of Cultural Contents by Region Exports and Imports of Cultural Contents by Year Exports of cultural contents in 2010 were USD 3.2 billion, rising by 23.9% compared to the previous year, while imports recorded USD 1.7 billion, down 4.1%. Until 2007, imports exceeded exports, but since 2008, exports have exceeded imports. Exports and Imports of Cultural Contents by Year Source: Ministry of Culture, Sports and Tourism, 2011 Statistics on the contents industry, 2012. Source: Ministry of Culture, Sports and Tourism, 2011 statistics on the contents industry, 2012. Exports and Imports of Cultural Contents by Region As of 2010, Korea s largest export market for cultural contents was Japan (26.2%), followed by China (24.5%) and Southeast Asia (22.0%). Japan has remained the largest export market since 2008, and exports to China are increasing drastically, exceeding exports to Southeast Asia since 2009. The export volume of cultural contents to North America accounted for 19.1% of Korea s total cultural contents exports in 2008, ranking 3 rd. However, in 2010, it ranked 4 th, at 13.2%, while Europe ranked 5 th, at 8.8%.

Cultural Contents 08 09 2. Business Trends 3. Promising Regions and Sectors for Foreign Investment 2. Business Trends Major Global Companies and Investors Sony: Active global cultural contents business supporting entire group Sony s cultural contents business recorded JPY 1.54 trillion in sales and JPY 67.5 billion in operating profit in 2011, while its electronics business posted JPY 4.53 trillion in sales and JPY 219 billion in operating profits. Resource: Sony Annual Report 2012 Through aggressive mergers and acquisitions of overseas cultural contents companies, Sony is expanding its business to diverse sectors including films, music, broadcasting, and games. Sony s Major Cultural Contents Business Music Films Broadcasting Games Major Subsidiaries Sony Music Entertainment (World s top 4 record company) Sony Pictures (top 4 film company in Hollywood) AXN, So-net (cable/ satellite stations) Gaikai (top 2 cloud game company in the U.S.) Remarks Acquired music business unit of BMG Music and music publishing of EMI Acquired Columbia Pictures of the U.S. 3. Promising Regions and Sectors for Foreign Investment Promising Regions Priorities for Foreign Investment Promotion The government prioritized target countries for investment promotion activities among 11 countries with a cultural contents market of larger than USD 25 billion as of 2010, based on the share of the cultural contents market in GDP (2010), growth expectation of the cultural contents market (2011-2015), and export volume of Korea s cultural contents to the country (2010). As a result, the United States and Japan have been selected as top priorities, and Australia, the United Kingdom, France, and Germany have also been chosen to be prior targets, as they have mature cultural contents markets even though the current export volumes of Korean contents to those countries are not large. Countries with rapidly growing cultural contents markets including China, Canada, Brazil, and Spain are also considered promising sources of foreign investment, despite the relatively small size of the markets compared to their GDP. In particular, China and Canada, which ranked 2 nd and 4 th in terms of export volume of Korean Wave contents, respectively, in 2010, have great potential to become prospective sources of foreign investment; special attention and efforts are needed. Source: Sony Annual Report 2012, Wall Street Journal, Korea Economic Daily. Sony s investment in Korea: Foundation of AXN Korea (cable broadcasting channel), acquisition of shares of Chorokbaem Media (independent producer) and Pledis Entertainment (entertainment agency) by its subsidiary So-net. Promising Targets of Foreign Investment Promotion Goldman Sachs: High interest in cultural contents investment Global investment bank Goldman Sachs has constantly invested in cultural contents and is expected to continue investing. Investment in Cultural Contents by Goldman Sachs Country Major Companies Acquired Remarks USA Loews Cineplex (multiplex cinema) Canada Alliance Atlantis (film company) Major works: The King s Speech (film), CSI (television series) Japan Universal Studios Japan Source: Financial Times, LA Times, Bloomberg. Goldman Sachs investment in Korea: Acquisition of shares of C&M, the largest multiple system operator in the Seoul metropolitan area. * Size of hexagons: Size of Korea s cultural contents exports to the country. Ministry of Culture, Sports and Tourism, 2011 Statistics on the contents industry, 2012.

Cultural Contents 10 11 3. Promising Regions and Sectors for Foreign Investment 4. Current Status and Successful Cases of Foreign Investment in Cultural Contents 4. Current Status and Successful Cases of Foreign Investment in Cultural Contents Priorities of Foreign Investment Promotion by Sector The government came up with priorities for foreign investment by sector, based on the size of the domestic market (2010), growth rate (average between 2005 and 2010), and export volumes (2010). As a result, games, knowledge information (online portals/communities, e-learning) and broadcasting (including independent production) have been selected as top priorities, and publishing (books, newspapers, magazines) and advertising have also been chosen to be the prior focus of foreign investment promotion. Characters, animation, contents solutions (authoring tools, mobile solutions, CMS, CDN), and comics that have relatively small but rapidly growing domestic markets have also been selected as promising sectors. In particular, foreign investment is expected to expand in characters and animation, which have recorded the highest growth rate among the cultural contents sectors, and music, which is leading the new Korean Wave. Current Status of Foreign Investment Recent Trends of Foreign Investment Promotion FDI in cultural contents in 2011 recorded USD 157 million from 22 investment projects. The amount increased by more than 400% while the number of projects decreased compared to 2008. Given that the span of investment projects is mostly 1-2 years, the inflow of FDI in cultural contents seems to have really begun in 2011 after being fueled by the popularity of Korean pop music in the late 2000s. Investment Promotion in Cultural Contents Promising Sectors to Promote Foreign Investment Current Status of Foreign Investment Promotion Source: Ministry of Knowledge Economy Since 2011, foreign investment destinations have been diversified to games, knowledge information, broadcasting, and music, and investment in original contents producers including independent producers and entertainment agencies has also been expanded. The increase is attributable to foreign investor confidence in Korean producers capability to design and produce contents, which was proven by the new Korean Wave. Foreign Investment in Cultural Contents (1 st Half of 2012) Games, knowledge information Name of Foreign-Invested Companies Kakao Gamania Korea Inplay Interactive Gamepot Korea Name of Investor Country Tencent Holding Limited (China) Gamania Digital Entertainment Co., LTD. (Taiwan) Warner Bros. Entertainment INC. (USA) Gamepot INC. (Japan) * Size of hexagons: Size of the industry s exports. Ministry of Culture, Sports and Tourism, 2011 Statistics on the contents industry, 2012. Chorokbaem Media So-net Entertainment Corporation (Japan) Broadcasting AXN Korea Axn Investment, INC. (USA) Music Pledis So-net Entertainment Corporation (Japan) Source: KOTRA

13 Cultural Contents 12 4. Current Status and Successful Cases of Foreign Investment in Cultural Contents 5. Incentives for Foreign-Invested Cultural Contents Companies 6. Relevant Organizations Incheon FEZ (Free Economic Zone) Successful Cases of Foreign Investment Incentives Remarks Goldman Sachs Investment in C&M Global investment bank Goldman Sachs invested in C&M, Korea s multiple-system operator, in 2004, and its return on investment amounted to 600% in three years. The company rightly predicted the growth of Korea s cable broadcasting market, which was still in its infancy, and the insight has led to a high return. Overview of Goldman Sachs Investment in C&M Foundation: 2000 Current status of C&M Business area: MSO> Multiple System Operator Sales (2010): KRW 505.5 billion Operating profit (2010): KRW 101.6 billion Source: KOTRA, C&M website Investment of Goldman Sachs Time of investment: 2004 Invested amount: USD 14 million (share ownership 30%) Time of investment return: 2007 Returned amount: USD 84 million Tax Incentives Land Acquisition Support Tariff 100% for 5 years. Imported capital goods National Tax Local Tax Rent Exemption or Reduction of Rental Fees - 100% for 3 years. - 50% for 2 years. - Acquisition tax: 100% for 15 years. - Property tax: 100% for 10 years, 50% for 3 years. - Rent of state-owned or public land for 50 years. - Rental fee: 10/1,000 of the land value. [Exemption] - Projects accompanying advanced technologies with over USD 1 million of foreign investment. - Over USD 20 million of foreign investment. - Over 300 employees on daily average. - Over 50% of production is exported, using 100% of locally produced parts and materials. - 100% of production is exported. [75% Reduction] - USD 10-20 million of foreign investment. - 200-300 employees on daily average. - Over 50% of production is exported, and 75-100% of parts and materials are locally produced. - 75-100% of production is exported. [50% Reduction] - USD 5-10 million of foreign investment. - 100-200 employees on daily average. - Over 50% of production is exported, and 50-75% of parts and materials are locally produced. - 50-75% of production is exported. Over USD 20 million of investment (information, creative arts, service industries). 5. Incentives for Foreign-Invested Cultural Contents Companies Major Incentives of Incheon DMC and Sangam FEZ Sangam DMC (Digital Media City) Disposal Source: Incheon FEZ website ( Investment Incentives ) (state-owned or public land) Disposal at cost, private contract if needed. 6. Relevant Organizations Name Ministry of Culture, Sports and Tourism Website www.mcst.go.kr Incentives Remarks Cultural Contents Korea Creative Contents Agency www.kocca.kr Tax Incentives Land Acquisition Support National Tax Local Tax Rent Purchase Reduction of corporate tax and income tax of 100% for 5 years and 50% for 2 years. Reduction of acquisition tax and registration tax, etc. of 100% for 10 years and 50% for 5 years. Land preferentially available at lower prices. - Purchase at cost after negotiation. - Payment in installments for up to 20 years. - Payment in installments with 4% interest rate. - Application of lower rate of land designation than local companies. Projects with advanced technologies, industrial support services. Korea Tourism Organization www.visitkorea.or.kr Films Korean Film Council www.kofic.or.kr Music Korea Music Copyright Association www.komca.or.kr Entertainment Agencies Korea Entertainment Producers Association www.kepa.net Independent Producers Corea Drama Production Association www.codatv.or.kr Games Korea Association of Game Industry www.gamek.or.kr Animation Korea Animation Producers Association www.koreaanimation.or.kr Characters Korea Culture Contents Licensing Association www.kocla.org Source: Sangam DMC website ( Investment Information ) Broadcasting and Communications Korea Communications Commission www.kcc.go.kr

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