Market Insight

Kakao boosts domestic position with Loen Entertainment acquisition

January 15, 2016


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Kakao buys Loen Entertainment to boost Korean content line-up

Kakao Corp, the owner of South Korean chat app KakaoTalk has acquired 76.4% of Loen Entertainment for KRW 1.87 trillion (USD 1.55bn). Loen Entertainment is a leading Korean record label and also operates MelOn, a music download and streaming platform in South Korea.

The addition of the MelOn music service continues Kakao’s effort to provide a wide mobile content platform, which includes commerce and payments, online-to-offline (O2O), games and communication. Kakao hopes to leverage its various mobile platforms and Loen’s extensive music content to create new content platform and expand to international markets.

 

Our Analysis:

Kakao will hope new music addition will drive revenues as well as engagement

Kakao first launched its own music service in 2013, but it has had little impact on its overall revenues – which have been dominated by advertising, in-game purchases, and a growing commerce and payments segment. Loen’s long track record of running music services across multiple platforms and business models mean music should now become a significant source of revenues for the company. Kakao is need of new sources of revenues. Its games business, once the main driver of growth, has been struggling in recent months. Games revenues fell 23% year-on-year in Q3 2015.

Acquisitions and consolidation are a now a central part of Kakao’s growth strategy

Kakao merged with leading Korean internet portal Daum in 2014 which gave the company a strong advertising business. Kakao also acquired the communications and social networking assets of US-based app Path in 2015, a move which gave it greater international expertise and access to a user-base outside Korea. Path had gained a small audience in the US and also some traction in Indonesia, a target market for Kakao. The acquisition of Loen points to growing consolidation in the Korean mobile content industry and also underscores the central role that messaging apps can take as entry points in the content and services market.

Loen will boost Kakao’s domestic position, but international challenges remain

Kakao reported 38m domestic monthly active users in Q3 2015 almost 80% penetration, but it has struggled to grow its international business. Kakao ended Q3 2015 with 9.2m international users down from 11.2m in the same period in 2014 and well below its 14m 2013 peak. Kakao has said it aims to use Loen to boost its international prospects. Loen’s Korean music focus means Kakao will need to do more to boost international revenues. The Korean online and mobile music market has some unique characteristics that may limit Kakao’s international ambitions. South Korean online and mobile music services have achieved high adoption, but these are often low priced compared to international counterparts and bundled with mobile operator subscriptions. Many of the leading international music services Apple Music and Spotify are also not available in South Korea.

 

Geography
South Korea
Organization
Dakum Kakao DaumKakao
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