Nakao Riding the Entertainment Wave, Could They Become Allies Instead of Content Rivals?

Kakao Embracing SM Discusses Platform Collaboration with HYBE
Possibility of Joining Hands with Naver, Sharing a Boat with HYBE

Kakao's acquisition of SM Entertainment (SM) is expected to cause a seismic shift in the alliance landscape between the IT and entertainment industries. The biggest point of interest is whether content rivals Naver and Kakao will form an alliance. Analysts suggest that since Kakao decided to collaborate with HYBE instead of acquiring SM, the possibility of joining hands with Naver, which is already allied with HYBE, has increased.

Currently, Kakao and HYBE are discussing platform collaboration plans. A HYBE official stated, "We have agreed on collaboration in broad terms, and once a new board is formed after SM's general shareholders' meeting, more concrete details will emerge."

The most likely cooperation plan is to have SM artists acquired by Kakao join HYBE's fan platform, 'Weverse.' In this case, SM artists such as aespa and NCT would use Weverse for live concert streaming, community services, and merchandise sales. After HYBE partnered with Naver, SM stopped supplying content to HYBE. However, there is analysis that SM might resume supplying intellectual property (IP) after Kakao's acquisition.

Naver is one of the leading companies driving the K-pop alliance. The K-pop alliance was formed through equity investments in each company's fan platforms. SM and JYP Entertainment joined forces, while HYBE allied with Naver and YG Entertainment. On the other hand, Kakao, which had a minimal presence in K-pop, was excluded from this entertainment alliance. One of the reasons Kakao acquired SM was to create a front to counter Naver.

Then, with Kakao deciding to collaborate with HYBE, the rivalry dynamics changed. If HYBE utilizes SM's IP through Kakao, Naver could also benefit. In 2021, Naver transferred its internet broadcasting platform 'V Live' to HYBE and integrated it with Weverse. Additionally, Naver invested 411.8 billion KRW to acquire a 49% stake in Weverse. However, the connection with SM was severed because SM stopped supplying content, citing that V Live was sold to competitor HYBE without their consent.

If Kakao teams up with HYBE, it can accelerate the expansion of its global fan platform. Combining SM's fan platform 'Dear U Bubble' with HYBE's Weverse would create the world's largest fandom platform. Weverse has a high market share with 8.4 million monthly active users (MAU), and Dear U Bubble has established a stable revenue model through subscriptions, making the synergy clear. Over 70% of users on both platforms are overseas, which could serve as a channel to promote various Kakao services internationally. Kim Hajung, a researcher at Daol Investment & Securities, said, "Even adding fan platform functions within KakaoTalk could significantly increase the number of KakaoTalk users globally. If the platform gains global scalability, it will create strong synergy not only with Kakao's existing content business but also with its Talk Biz (advertising) business."

The variable is the long-standing rivalry between Naver and Kakao. Naver and Kakao have repeatedly clashed as rivals in the same business areas and overseas markets, including webtoons, web novels, and music platforms. If Kakao aims to secure a definitive victory in the content sector through the SM acquisition, the scope of collaboration centered on HYBE could narrow. For example, Kakao might build a separate fan platform and choose not to provide SM IP to the HYBE-Naver front.

Whether HYBE remains the second-largest shareholder of SM is also a variable. Currently, HYBE is reportedly considering both transferring its 15.78% stake in SM to Kakao and remaining as the second-largest shareholder. If HYBE stays as the second-largest shareholder, it could strengthen its voice in a direction favorable to HYBE and Naver. Kim Hyunyong, a researcher at Hyundai Motor Securities, predicted, "If HYBE remains the second-largest shareholder, it can exert some influence over SM's decision-making. The medium- to long-term effects will vary depending on whether HYBE ultimately retains its stake in SM."