Naver to invest in S.M. Entertainment to create new market overseas

By Kim Jae-heun

The country's largest portal site operator Naver is said to be set to make a massive investment in S.M. Entertainment that could possibly make it the second-largest shareholder of the agency after its founder Lee Soo-man.

According to a local media report, the two firms are discussing the capital increase through third-party allocation for Naver to acquire S.M. Entertainment's share. It has not been revealed exactly how much the IT company will pay, but the report predicted a little over 100 billion won ($83.48 million). In 2017, when Naver invested in YG Entertainment's share, it paid the same amount.

One of the major reasons the portal site operator wants to invest in the entertainment company is because it wants to utilize the intellectual property of its K-pop acts.

Naver seeks to distribute not just K-pop content but also overall hallyu-related content through its platform and open up new markets overseas. Also, it hopes to host many more online K-pop concerts amid the current contactless events trend.

In April, Naver began holding its paid online concert series titled “Beyond Live” in collaboration with S.M. Entertainment. The concert series featured a different K-pop group each Sunday, including SuperM, WayV, NCT Dream, NCT 127, TVXQ and Super Junior.

The very first show with SuperM attracted 75,000 viewers worldwide, but the sixth and final event featuring Super Junior raised the bar to 123,000.

Ticket sales have also increased takings from about 2.5 billion won to 4 billion won.

However, this was still not a satisfying result for Naver when it compares to how much BTS' online concert on YouTube earned.

K-pop's most popular band gathered nearly 756,600 fans for its first paid online show with viewers in over 107 countries including the United States, England, Japan and China.

Considering that a BTS concert is held at a venue with an average capacity of 50,000 spectators, its online show was equivalent to 15 concerts. It is the world's largest paid concert ever held on the internet.

Most importantly, the concert made 22 billion won profit from ticket sales alone. Adding the profit that came from ads inserted in the video, Big Hit Entertainment reportedly made at least 25 billion won.

“This gave a big shock to Naver, which lost K-pop's most beloved band to YouTube,” an industry source said. “It should have felt the need to secure content from this case and this is why Naver is investing in S.M. Entertainment to form a stable relationship with it.”

S.M. Entertainment is part of the so-called “big three” K-pop-fueled businesses here along with YG Entertainment and JYP Entertainment. The talent agency owns many K-pop groups like EXO, Red Velvet, NCT and Girls Generation.

The two already signed a memorandum of understanding on their global business partnership three months ago. However, they are refusing to comment on Naver's acquisition of S.M. Entertainment's share.

“We cannot confirm any information about our investment in S.M. Entertainment,” a Naver official said.

S.M. Entertainment did not respond to any phone calls.

Kakao to launch video platform

As the K-pop market grows around the world, cooperation between platform operators and entertainment companies are becoming more important.

Domestic internet company Kakao, which operates the country's most used mobile instant messaging application Kakao Talk, acquired Loen Entertainment in 2016. Loen is a music label that has popular musicians like IU, NU'EST and EXID. It also operates the domestic market-leading online music streaming service Melon.

Kakao launched a combined media company in March 2018, calling it Kakao M. It currently owns seven talent agencies for actors and four music labels.

Within the second half of this year, it is also planning to start a video platform like Naver's VLive. Kakao will offer content featuring singers and actors it owns under the subsidiary.

“The COVID-19 pandemic has put an indefinite halt to many K-pop bands' concerts overseas, which led to plunging revenue and inevitable company restructuring. This will provide a chance for platform operators to seek partnerships with market-leading talent agencies that own popular content,” an industry source said.

The country's largest media company CJ ENM owns its own over-the-top service tving.com.

For its global business expansion, it signed a partnership deal with Netflix last November.

“We have been distributing Netflix series under a case-by-case deal. However, starting from March this year, we signed a long-term contract to create original Netflix content and export our content abroad through the platform,” a CJ ENM official said.

“We have our own platform and Netflix's overseas distribution network so we don't have any need for business partnerships with Naver or Kakao.”