why is the thai entertainment industry so small?

idk if it is small, mostly because we know few celebs from thai

I will give a speculative answer - could be entirely wrong.

I think this is an incorrect impression, which excludes traditional arts and thinks only movies/pop-culture kind of entertainment is "industry"

The countries of Indo-China sphere tend to place high value on traditional arts, which are often intrinsically tied to the religion and not a separate activity. Which means space for a free-floating popular entertainment is limited.

That dynamic is different with Korea for few reasons.

Unlike India/SEA, which was colonized by Europeans- Korea was colonized by Japanese and Whites (US) seen as liberators, so Koreans took to Western entertainment faster and quicker, whereas others did not. Japanese presence in SEA was short, however brutal.

Thailand particularly was never colonized, but kind of maintained as buffer between English and French. So the retention of traditional content is very high. Thailand also does not figure high on trade, so there is relatively less cultural impact.

Of course things are changing everywhere with global connectivity, but from an outsider perspective, Thais might actually be better off than being dominated yet another version of Westernized content, as entertainment.