Korea’s unlikely internet star

Son Joo-eun is a star in South Korea. Not a rock star or a film star but a uniquely Korean celebrity – a teaching star.

He has combined fame as a social studies lecturer with Korea’s advanced technology and its obsession with education to create Megastudy, an online hagwon (cramming school) that has revolutionised the way Korean teenagers learn and has become a darling of the Korean stock market.

“Megastudy means students can learn anywhere, any time,” says Mr Son, founder and chief executive. “If they find a subject difficult they can listen over and over again until they understand. And if they know it well they can just fast-forward through it. It gives students a flexibility they can’t get offline.”

Education is important in South Korea. Because it is the leading indicator of social status, Korean parents push their children to study round the clock, hoping they will get into the best school, the best university, meet the best spouse and land the best job.

This means a lot of study. From about 10 years old, Korean students attend hagwon after their normal school hours, often cramming until midnight. In 2005 Koreans spent the most in the developed world on education – 8.2 per cent of gross domestic product, 3.4 per cent of which was on private schooling.

The hagwon industry, worth about $15bn a year, had been centred on bricks-and-mortar schools. But this changed in 2000 when Mr Son cobbled together Won300m ($320,000) to set up Megastudy, a website where students can watch tutorials on the internet. They can buy only the topics they want and watch when they like. “I used to be a social studies lecturer so I was especially interested in the social climate and how society is changing,” Mr Son, 45, says from his office in Seoul.

“One day I was thinking about the home shopping channels on TV and internet shopping, and I thought education would soon move online as well,” he says.

In a country where the compulsion to study is matched only by an addiction to the internet, the concept took off.

Min Chang-hwan, 17, says: “There are no good hagwon around my house and anyway I don’t like being bound by going to school every day.” He spends about Won750,000 a month on Megastudy classes as he prepares for the national university entrance exam. “The best thing about online classes is I can take them whenever I want but the difficult thing is I have to be strict with myself or I easily get distracted,” he says.

While the best hagwon charge up to Won1m a month per subject, a Mega-study package of 10 to 20 lectures costs about Won50,000. Students can also sign up for a “Freepass” allowing un-limited access for certain periods.

With 1.5m customers having studied with 250 teachers, Megastudy offers more than 2,000 courses online. They include “Escape Third Rate in 30 Days” – 20 lectures for students who find that however much they study their grades are not first rate – and “How to Crack Modern Poems in 10 Days”. Classes can be watched on a PC or downloaded to portable media players.

But the key to Mega­study’s success has been its ability to hire famous teachers who, with denim shirts and elaborately gelled hair, look more entertainment than education industry.

“One of the reasons for our success is that we were able to attract ‘star lecturers’ and provide their services through an online delivery channel,” the sombrely dressed Mr Son says.

Students are also attracted to teachers renowned for imparting essential information as quickly as possible.

Megastudy gives its teachers a 23 per cent cut of subscriptions to their lectures, which can mean big money as the number of potential students is unlimited. Mega­study’s most popular teacher, a charismatic English-language instructor, earned more than $2m last year.

Megastudy’s development has not been without trials. After growing by about 100 per cent a year in its first three years, trouble arose in 2004. EBS, the state-run educational broadcasting channel, decided it wanted a part of Korea’s “e-learning” industry, which grew by 10 per cent between 2005 and 2006 to Won1,600bn last year.

When EBS started offering its respected TV broadcasts on the internet free of charge, as EBSi, students changed allegiance and Megastudy’s revenues took a dive.

But Megastudy rejigged its packages and bounced back. Last year it controlled 19.5 per cent of the middle and high school internet education market, according to Rankey.com, an education listing, only just below EBSi, which had 21 per cent.

Since Megastudy listed on the Kosdaq technology market in December 2004, its share price has risen 430 per cent, and 43 per cent in the past six months, giving it a market capitalisation of Won826bn and making it one of Korea’s hottest stocks.

It is now trading at 20.8 times its estimated 2007 earnings based on the market consensus, and 16.8 times 2008 estimates.

Mr Son has a 20 per cent stake in Megastudy and the rest of the management team holds a combined 6 per cent, while Cornerstone Equity Partners, a new $100m fund that closed in August, chose a 10 per cent stake in Megastudy as its first investment.

In spite of the particularly Korean nature of the company, foreign investors now account for 44 per cent of shareholders.

Megastudy wants to ex-pand both domestically and abroad. “We’re looking at vertical integration in terms of age groups,” Mr Son says. Last year the company took over Mbest, an online hagwon for junior high school students, and expects sales and profits to double in each of the next two years.

It is now considering offering courses for elementary school and kindergarten children, as well as moving into adult education.

But expansion abroad will be much trickier. Whether the Megastudy model can be applied overseas – even to its closest neighbours – remains unclear. “In the longer term we need to think about how to leverage the company’s e-learning capability and its accumulated knowledge so that we can expand overseas,” Mr Son says.

Although Japan has a similar educational system and culture, the teacher turned entrepreneur says there are many barriers to entry. “Japan has a very strong offline institutional model, and cramming schools just put their star lecturers in a helicopter and fly them into schools to deliver lectures to reach more students,” he says. “It will be very difficult to break into that market.”

Meanwhile, China’s social organisation is too different. “China is an untapped market but the policies, systems, culture – they’re very different and it would be difficult to make our model work there. There is a strong socialist legacy,” he says.

How to fend off a ‘free’ rival

Selling a product that a rival offers free is tricky. But Son Joo-eun says Megastudy’s succinct teachers and broadcasting flexibility give it an edge over EBSi. “The most important thing for students is time, so the quality of educational services is critical – they have to learn as much as possible in a short space of time,” he says.

But there is also a difference in the businesses’ set-up. Because EBSi tutorials are filmed for television programming slots, they follow a more rigid format, Mr Son says, whereas Megastudy can be more flexible, offering longer or shorter classes as the subject dictates.

Kim Ji-hyun, a strategic planner at Daum Communications, one of Korea’s leading portals, says Megastudy has a more appealing approach.

“Megastudy’s strength can be found in the more friendly and realistic atmosphere of the video lectures because they are recorded from real lectures,” Mr Kim wrote in a recent online column. “Students are seen to naturally ask questions, get advice and also joke about things outside of the subject matter, which make the lectures approachable.”

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