Kakao Stake in SM Entertainment Approved by Korean Regulators — Subject to Some Key Conditions

Kakao Stake SM Entertainment
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Kakao Stake SM Entertainment
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Photo Credit: Kakao

Korean regulators have approved Kakao’s acquisition of a 39.86% stake in SM Entertainment, contingent upon some key ‘corrective measures.’

The Korean Fair Trade Commission (FTC) said today that it has imposed two forms of corrective measures to address concerns that the merger of tech company Kakao and K-pop agency SM Entertainment could pose a threat to competition in the digital streaming market.

Notably, Kakao, a major Korean IT company, owns music streaming service Melon, which occupies 43.6% of the domestic music streaming platform market, according to data from the FTC. Kakao may be able to dominate the market should it refuse to supply music from its subsidiary labels, including SM Entertainment, to competing platforms. Further, the FTC also contends that Kakao could negatively impact competition by choosing to expose music from its own labels over others.

To address this, Kakao is prohibited from “unreasonably refusing, suspending, or delaying music supply” to Melon’s competitors upon their request. The antitrust agency has also mandated Kakao to establish an independent body comprised of at least five external members to regularly monitor Kakao’s potential favoritism of its subsidiaries.

Kakao will be required to submit reports regarding music streaming views and rankings, as well as Melon’s screen layout, to the independent body every six months, which will also be filed to the FTC. The oversight body, should it determine any preferential treatment, will demand corrective actions; Kakao will then have 30 days to submit its compliance plan.

Further, Kakao must comply with these corrective measures for three years, but may seek cancellation or modification of some or all of the measures should significant changes occur in market conditions.

The approval comes 14 months after Kakao acquired its 39.86% stake in SM Entertainment, with the FTC launching a review of the acquisition a month later. Through the acquisition approval, Kakao became the top operator in the digital music planning and production market in the region, having secured SM Entertainment’s increasingly popular music sources.

Kakao’s share of the local digital music market rose to 13.25% of the region’s music planning and production market. It scooped up around 43% of the music distribution market and 43.6% of the music platform market. The company has vowed to “faithfully fulfill” its duty for approval conditions, adding that it would enhance the global competitiveness of the “K-culture industry” by creating a fair ecosystem combining its IT and IP capabilities.