Kakao's SM Entertainment stake acquisition approved by antitrust regulator

Korea’s antitrust regulator has approved Kakao’s acquisition of a 39.86 percent stake in K-pop agency SM Entertainment, contingent upon the implementation of corrective measures.

Kakao's headquarters at Pangyo, Gyeonggi [YONHAP]

Korea’s antitrust regulator has approved Kakao’s acquisition of a 39.86 percent stake in K-pop agency SM Entertainment, contingent upon the implementation of corrective measures.

The Fair Trade Commission (FTC) said on Thursday that it has imposed two forms of corrective measures to address concerns that the merger of Kakao, a major IT company that owns the music streaming service Melon, and SM Entertainment, may pose a threat to competition in the digital streaming market.

Kakao Entertainment’s Melon occupies 43.6 percent of the domestic music streaming platform market, according to FTC data. Kakao may be able to dominate the market if it refuses to supply music from its subsidiary labels, including SM Entertainment, to other competing platforms. The antitrust agency also contends that Kakao Entertainment could stifle competition by choosing to expose music from its own subsidiary labels over others.

Firstly, Kakao is prohibited from unreasonably refusing, suspending or delaying music supply to Melon’s competitors upon their request. Secondly, the agency has mandated Kakao to establish an independent body comprising at least five external members to regularly monitor Kakao’s potential favoritism of its labels.

The company is 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, upon determining any preferential treatment, will demand corrective actions, with Kakao Entertainment having to submit its compliance plan within 30 days.

Kakao is required to comply with these corrective measures for three years. However, it may seek the cancellation or modification of some or all of the measures if significant changes occur in market conditions.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]