Kakao-SM combination creates a ‘K-pop dinosaur company’… Fair Trade Commission, conditional approval

2024-05-02 12:07:01

Jeong Hee-eun, Director of the Corporate Transaction Combination Review Bureau of the Fair Trade Commission, is announcing the results of the review of the business combination in which Kakao and Kakao Entertainment acquired 39.87% of SM Entertainment’s shares at the Sejong Government Complex in Sejong City on the 2nd. 2024.5.2 News 1

The Fair Trade Commission finally approved Kakao’s acquisition of SM Entertainment, creating a K-pop dinosaur company that dominates the music market. However, the Fair Trade Commission decided to intensively monitor whether Melon, a music platform company owned by Kakao, only promotes singers belonging to SM Entertainment.

On the 2nd, the Fair Trade Commission announced that it would conditionally approve the business combination of Kakao and Kakao Entertainment acquiring 39.87% of SM stocks. SM is a company that produces digital music for singers such as Aespa and NCT, and is the No. 1 business in the music planning and production market. Kakao operates the popular music platform Melon and is also in the business of purchasing and distributing music from entertainment companies. Kakao is also number one in the music distribution market.

If SM and Kakao, which each have dominant positions in music production and distribution, merge, there is a risk of abusing their monopoly power. Kakao does not provide Espa’s new song on platforms other than Melon. There are also concerns that Melon will expose SM’s music to its advantage. With the business combination of the two companies, Kakao’s share in the music planning and production market will increase to 13.25%. It also accounts for 43.0% and 43.6% of the music distribution market and platform market, respectively.

Accordingly, the Fair Trade Commission decided to approve the business combination but attached several conditions. First, if Melon’s competing platform requests Kakao to supply music, it cannot be refused or postponed without justifiable reason. In addition, Kakao established an independent inspection organization to check whether Melon gives preferential treatment to SM’s music sources.

Kakao must comply with these corrective measures for three years. Failure to do so will result in sanctions, including prosecution. However, if concerns about competition restrictions are significantly reduced, the Fair Trade Commission may request cancellation or change of corrective measures.

The Fair Trade Commission explained, “Unfair acts that limit competition are subject to sanctions even after the corrective action period has ended.”

Sejong = Reporter Song Hye-mi [e-mail]

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2024-05-02 12:07:01