Kakao may use SM Entertainment as springboard to the world

As Kakao is on track to become the largest shareholder of SM Entertainment through a tender offer, analysts believe that the tie-up with the showbiz agency could help improve its overseas presence, piggybacking off of the fame of SM Entertainment...

Kakao's office building in Pangyo, Gyeonggi [NEWS1]

As Kakao is on track to become the largest shareholder of SM Entertainment through a tender offer, analysts believe that the tie-up with the showbiz agency could help improve its overseas presence, piggybacking off of the fame of SM Entertainment artists.

HYBE gave up on its takeover of SM Entertainment and is cooperating with Kakao, it announced on Sunday. The company has not decided what it will do with the 14.8 percent stake it currently owns.

The tables have now favorably turned toward Kakao, which is currently attempting to acquire 39.9 percent of SM Entertainment in the tender, where it is offering 150,000 won apiece. The offer will be valid until March 26.

If it succeeds, the tech company will become the largest shareholder of the K-pop agency that created NCT and aespa.

The SM Entertainment acquisition could help in Kakao Entertainment's IPO.

"Kakao and Kakao Entertainment need to acquire a company with intellectual property in order to expand globally," said analyst Ji In-hae from Shinhan Securities. "The synergy created from KakaoTalk and Dear U Bubble, a fan community service operated by SM Entertainment, is expected help overseas expansion."

KakaoTalk’s domestic monthly active users (MAU) was 47.78 million based on 2022’s fourth quarter. In contrast, overseas MAU was 5.7 million.

“The fan platform is an excellent solution to Kakao’s current situation,” said analyst Kim Ha-jeong of Daol Investment & Securities. “The entertainment business is an industry with the highest possibility for overseas expansion."

Weverse, HYBE’s fan community service, has an MAU of 8.4 million in 2022’s fourth quarter, while for Dear U Bubble, 70 percent of the revenue is generated from overseas.

"Let’s say that KakaoTalk creates a new tab on its app for the fan platform. SM Entertainment's global fandom will transition to KakaoTalk to communicate with their artists. The inflow of new global users can create high synergy with Kakao’s content business as well as its key business, BizBoard," the analyst added.

“Kakao Entertainment’s IPO, which has been spotlighted since its acquisition of SM Entertainment, is only deemed as tip of the iceberg as to what the company can achieve.”

The immediate effect of the SM Entertainment acquisition is predicted to be seen in webtoon and web novel businesses.

“HYBE partnered with Naver to create series of webtoon and web novels based on its artists, such as BTS, Enhypen and Tomorrow X Together. BTS’s webtoon ‘7Fates: Chakho’ was simultaneously released worldwide in 10 languages, becoming more popular overseas than domestically and recording over 15 million views in merely two days since its release.

“Story collaboration with SM Entertainment can have a promoting effect for Kakao in countries, such as the United States and regions Southeast Asia, where it’s still a newcomer.”

Sources said that SM acquisition can provide grounds for Kakao to collaborate with HYBE as well. Neither Kakao nor HYBE clarified the areas in which they will cooperate.

Kakao and Kakao Entertainment already own 4.9 percent of SM Entertainment.

Last month, Kakao and SM Entertainment announced their desire to work together on the development of “SM 3.0,” which involves liberating the business from the influence of the founder Lee Soo-man.

Kakao emphasized that it will guarantee independent operation of the agency with respect to artists and fans and speed up global growth.

Under the deal, Kakao receives extensive distribution rights for SM Entertainment artists.

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