Kakao Acquires 9.05% Stake in SM Entertainment
Adding Super IP to Platform for Global Market Expansion
Competing with Naver, HYBE, and YG Entertainment Alliance
[Asia Economy Reporter Yuri Choi] Kakao has invested over 200 billion KRW in SM Entertainment, becoming its second-largest shareholder. Following its subsidiary Kakao Entertainment's recent investment of 1.2 trillion KRW last month, Kakao has secured SM Entertainment's popular intellectual property (IP), accelerating its expansion in the entertainment business. This move also signals fierce competition with Naver, which had earlier formed alliances with major entertainment companies, over the global content market.
Kakao Secures 9.05% Stake in SM Entertainment
On the 7th, Kakao announced that it has acquired a 9.05% stake in SM Entertainment. This was achieved by purchasing 1.23 million new shares issued through a third-party allotment and securing 1.14 million shares via convertible bonds. With a total investment of 217.1 billion KRW, Kakao becomes the second-largest shareholder of SM Entertainment, following Chief Producer Lee Soo-man.
Along with this investment, Kakao, Kakao Entertainment, and SM Entertainment signed a tripartite business agreement. They aim to collaborate in the content business to target the global market.
The expected benefits are clear. Kakao's 'platform', Kakao Entertainment's 'IP business capabilities', and SM Entertainment's 'IP' can create synergy. In particular, Kakao will secure powerful content necessary for overseas expansion.
Kakao Entertainment has subsidiaries including drama and film production companies, entertainment agencies, music production companies, performance planning companies, and platforms for webtoons, web novels, and music. This structure allows SM Entertainment's IP to be developed into various content forms. Although Kakao was considered relatively weak in the K-pop sector, this can be complemented through collaboration with SM Entertainment.
Specifically, Kakao Entertainment and SM Entertainment plan to cooperate to strengthen IP competitiveness. They will jointly promote global management businesses and co-plan K-pop artists through global auditions. Collaboration will extend to various areas including global album and music production and distribution.
Synergy between Kakao and SM Entertainment is also anticipated. The two companies can link their platforms and collaborate in artificial intelligence (AI) and metaverse (extended virtual world) businesses. SM Entertainment's fandom platform 'DearU' is expected to be enhanced, and SM Entertainment's content will be utilized in Kakao's metaverse projects. Last year, SM Entertainment established the studio 'Gwangya' and is producing metaverse content. Additionally, they will jointly promote performance businesses utilizing 'Seoul Arena', a complex cultural facility in which Kakao participated in establishing.
Competition with Naver-HYBE-YG Entertainment Alliance
Kakao has now established a front to counter the alliance of Naver, HYBE, and YG Entertainment. Although Kakao Entertainment owns multiple entertainment companies such as Loen Entertainment and Antenna, it was often considered less capable compared to Naver. However, by securing shares in SM Entertainment, Kakao can integrate the IP of affiliated stars like aespa, NCT, EXO, and Red Velvet into its platform.
In 2021, Naver acquired a 49% stake in BNX, a subsidiary of HYBE (Big Hit), the agency of BTS, investing a total of 411 billion KRW to become the second-largest shareholder. The plan was to combine Naver's video platform 'V Live' and HYBE's fandom platform 'Weverse' to target the global entertainment market. HYBE expanded the alliance by investing 70 billion KRW in BNX and YG Plus, YG Entertainment's music distribution subsidiary. Naver became the second-largest shareholder of YG Entertainment in 2017 by investing 100 billion KRW.
Competition between Naver and Kakao in the global content market is expected to intensify. Following their acquisitions of local platforms 'Wattpad' and 'Tapas' in the North American webtoon market, fierce competition is also anticipated in the global K-pop market. Kakao Entertainment secured funding of 1.2 trillion KRW from overseas sovereign wealth funds last month, providing substantial capital.
Jae-hyun Bae, Co-Head of Kakao's Community Investment Division, said, "Through this investment and cooperation, we expect to jointly respond to the fierce competition in the global content market and gain significant momentum in targeting the global mainstream market." He added, "We will contribute to expanding the global influence of K-culture through multifaceted cooperation going forward."
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