The Korea Fair Trade Commission (KFTC) has conditionally approved the merger of Kakao and Kakao Entertainment with SM Entertainment. The KFTC directed SM Entertainment to adhere to corrective measures for three years, including prohibiting the preferential supply of SM artists’ latest songs to Kakao’s streaming platform, Melon, and establishing an inspection mechanism to monitor such practices.
On May. 2, the KFTC announced its decision to approve the merger, in which Kakao acquired 39.87% of SM’s shares, contingent upon imposing corrective measures. The commission stated that it perceives the merger as substantially restricting competition in the domestic popular music digital music market.
The merger constitutes a “vertical business combination” in which Kakao, Korea’s leading provider in the digital music distribution and platform market, merges with SM, the primary provider in the digital music planning and production market. Kakao represents artists such as IU, IVE, and STAYC and operates the digital music platform Melon, while SM manages artists like NCT, Aespa, and Red Velvet.
Initially, the KFTC assessed that these companies were involved in various businesses, including fan platforms and ticket sales. By defining the relevant product markets, 11 combinations—horizontal, vertical, and mixed—were identified. However, the KFTC concluded that only the vertical combination between the ‘popular music digital music planning, production, music distribution, and music platform’ markets was likely to restrict competition.
Before the merger, Kakao was vertically integrated across the entire value chain of the digital music ‘planning, production, distribution, and platform market.’ This merger is poised to strengthen this vertical integration further. Following the merger, their market share in the music planning and production market has risen to 13.25%, the music distribution market to 43%, and the music platform market to 43.6%.
