Naver criticized for flip-flopping on content biz

By Jun Ji-hye

Naver has been hit for flip-flopping on its promises after retracting a plan to merge its Nstore unit in charge of content distribution with its subsidiary Naver Webtoon, just a day after the announcement.

Naver CEO Han Seong-sook

In response, the Korea Exchange gave notice that it will deliberate on whether to designate the company as an unfaithful disclosure corporation.

The nation's largest portal operator announced in a regulatory filing, which came with the announcement of its second-quarter earnings reports, Thursday, that the firm was going to spin off Nstore and merge it with Naver Webtoon. The firm said its board of directors approved the merger.

The decision was apparently made upon expectations that Nstore's video on demand (VOD) business would create synergy with the webtoon subsidiary.

But on Friday, the firm said, “We suspend the process to merge Nstore with Naver Webtoon in order to explore additional opportunities to create synergy and secure plans for more flexible organization integration.”

Instead, Naver is considering demerging several businesses of Nstore, except for the e-book business, and establishing an independent company in November. Then, Naver will consider merging the new company with other subsidiaries.

Market observers construed the abrupt decision as Naver leaving room for different possibilities by demerging Nstore first before the merger.

But the firm did not offer additional explanations for abruptly changing a decision approved by its board of directors.

As the company reversed the decision, the Korea Exchange gave notice Friday that it will deliberate on whether to designate the company as an unfaithful disclosure entity.

Naver can file an objection with the Korea Exchange until August 7 before a deliberate committee will make a final decision.

If Naver is designated as an unfaithful disclosure corporation, it will receive penalty points or be fined up to 1 billion won ($894,000).

Some observers correlated Naver's abrupt decision to the Fair Trade Commission's (FTC) on-site inspection, Thursday, over the suspicion of the portal operator's abuse of video market dominance.

A Naver official denied it, saying, “The latest decision was unrelated to the FTC's inspection.”

Meanwhile, Naver posted 1.36 trillion won in sales with 250.6 billion won in operating profit in the second quarter.

Its sales increased by 20.7 percent from a year ago and 4.2 percent from the previous quarter, but operating profit fell by 12.1 percent from a year ago and 2.5 percent from the previous quarter.

The firm's earnings have remained weak for the three consecutive quarters since it posted 312.1 billion won in the third quarter last year.

Naver attributed its declining operating profit to the slowdown of growth in its mobile services.