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Kakao’s office building in Pangyo, south of Seoul. (Yonhap)

With Kakao and Hybe having settled their battle over the acquisition of SM Entertainment in an agreement to have Kakao take managerial control while Hybe will collaborate on platform issues, all eyes are on what the conclusion means for each company and Korea’s entertainment industry as a whole.

Hybe announced on Sunday that it was suspending its acquisition process of SM Entertainment and stated that it and Kakao had “agreed to cooperate on matters related to their platforms.” Hybe declined to comment on the specifics, only revealing that it was “preparing for a substantial collaboration.” The entertainment industry is keeping a sharp eye on Weverse, the global fandom life platform that Hybe has been at work on in hopes of turning it into a new growth engine.

K-pop fans can watch their favorite artist’s performances and live broadcasts, as well as buy merchandise on Weverse. Currently, artists from Hybe and YG Entertainment, such as BTS and Blackpink, are active on Weverse. If the platform cooperation process goes smoothly, artists from SM Entertainment are forecast to join as well.

However, some expect that platform cooperation will not be easy. This is because SM is also investing heavily in the fan platform Bubble, operated by its subsidiary Dear U. When Dear U acquired the NCSoft-operated fan platform Universe earlier this year, it signed contracts with Kakao artists who were active on Universe.

Some have pointed out that cooperation on fan platforms could prove difficult considering that Bubble’s competitiveness may take a hit if SM Entertainment’s artists flock to Weverse. For this reason, the direction the two companies’ cooperation of platforms takes is shaping up to be a game of wait-and-see.

With Kakao stating its reason for the acquisition as a desire to combine SM Entertainment’s intellectual property (IP) and Kakao’s information technology (IT), many are reading it as a sign that it will increase synergy in the global K-pop scene.

SM Entertainment’s office building in Seongdong District, Seoul, on March 12. (Yonhap)

Kakao does have K-pop artists such as IU and Ive signed through its subsidiaries, but it has been criticized for lacking global IP power compared to Hybe, which has contracts with artists such as BTS and NewJeans.

During a debate co-hosted by the Seoul National University Asia Center and activist group Cultural Action on March 3, Cho Young-shin, head of the growth strategy department at SK Broadband, stated, “Kakao has a lot of artists, but it is undervalued compared to Hybe and other entertainment companies because it doesn’t have many superstar IPs.”

Cho went on to state that “the acquisition of SM Entertainment is a merger that works very much in the favor of Kakao.”

Ahn Ji-na, an analyst at eBest Investment & Securities, stated, “Kakao has strengths in K-content, which include media content, webtoons, and web novels. If Kakao acquires SM Entertainment, it will make up for its lack of entertainment content.”

With its ally, Kakao, gaining managerial power, SM Entertainment is expected to accelerate its new vision, “SM 3.0,” that is being advocated by its current management. The new vision is based on forsaking the existing system of one executive producer — namely, Lee Soo-man — for the independent production of content by the company’s production center and internal and external labels.

It also aims to debut new groups based in the US by establishing a North American production center based on a joint venture with Kakao. This opens the way for IP to expand into webtoons, web novels, and character merchandise businesses that can be synergized with Kakao.

The spark of Kakao’s acquisition of SM Entertainment is also spreading to Naver. Naver now must face Kakao, which now has SM Entertainment on its side, as a competitor in the K-pop scene. Until now, Naver has had a strategic partnership with Hybe. Naver secured a 49% stake in Weverse in exchange for its fan platform, V Live. Naver and Hybe have also joined hands in the webtoon and web novel business.

However, there are concerns that the platform cooperation between Hybe and Kakao could lead to an “uncomfortable roommate” situation, as Kakao is also aggressively pursuing webtoons and web novels.

By Jung Hyuk-june, staff reporter

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