KAKAO BUY SM ENTERTAINMENT SHARE, WIN OVER HYBE AND NAVER

According to the investment banking industry on June 1, Lee Soo-man, founder and the largest shareholder of the top Korean entertainment agency, has been tapping the M&A market to sell his 18.73% stake in line with efforts to improve SM’s corporate value.

According to multiple sources from the investment bank industry on Wednesday, Naver and Kakao’s entertainment arm Kakao Entertainment Corp. are in separate talks with SM Entertainment to acquire some or entire 19.21 percent stake from Lee Soo-man, founder and the largest shareholder of SM Entertainment.

Naver is the corporation behind web drama production company Naver TV, mobile communications company LINE, photo filter app SNOW, a many more services K-Pop fans are familiar with. Over the past few years, Naver has also partnered heavily with K-Pop agencies, including: HYBE, YG and JYP.

Kakao, meanwhile, is the owner of instant messenger KakaoTalk, music streaming service Melon, and several other subsidiaries in entertainment, finance, transport, gaming, and more. On the K-Pop front, subsidiary Kakao Entertainment owns: 70% starship, pLAY M, Edam, Ker, etc.

Both negotiations have been concluded without any tangible results, but industry watchers say Naver and Kakao have good reason to continue to pursue the stake acquisition. Once they obtain shares, it will be possible to collaborate with various popular SM artists such as EXO, NCT, SHINee, Super Junior, Red Velvet, and aespa. Recently, SM Entertainment's NCT Dream had topped various music charts, including the Japanese Oricon Weekly chart with their first full-length album, 'Hot Sauce.'

In addition, the SM rookie girl group aespa also ranked 97th on the U.S. Billboard Global 200 chart with their new song "Next Level." Just as HYBE’s CEO Bang Si Hyuk recently talked about expanding their growth through IP (intellectual property) like TinyTAN and BT21, Naver and Kakao Entertainment need to secure major IPs (in this case, SM Entertainment artists) to quickly enhance their content growth. Owning the artists’ IP gives Naver and Kakao the opportunity to create licensed content (from games to books to merchandise) that already has a passionate consumer base ready and eager to buy.

This past May, reports revealed Kakao Entertainment and Naver are competing to acquire K-content assets, including webtoons, web novels, and music companies, and it looks like Kakao is moving forward to buying a portion of SM Entertainment. This would mean Kakao and SM are joining efforts against their biggest competition in the K-pop market, Naver, HYBE, and YG Entertainment.

The insider added, "Lee Soo Man is still likely to be involved in the production of new songs by SM Entertainment artists."