Korean ad agencies vying for bigger slice of virtual space

South Korean advertisement agencies, led by Innocean Worldwide Inc. and Cheil Worldwide Inc., are stepping up efforts to acquire digital technology companies as they are vying for a bigger presence in the virtual space such as the metaverse and the non-fungible token (NFT) market.   

They are targeting virtual and augmented reality technology companies to strengthen their digital capabilities and build a global presence.

More importantly, they are looking to expand into the digital content creation market to reduce their reliance on advertising and marketing services, which are sensitive to the economic cycle and struggling with a low growth rate. 

INNOCEAN WORLDWIDE

Innocean, part of Hyundai Motor Group, said on March 22 that it acquired a 47.5% stake in Studio Lennon Co., a domestic visual effects startup, for 29 billion won ($24 million).

"We are taking over Studio Lennon to secure high-efficiency, low-cost content creation capabilities through a specialized visual effect company so that we can bolster our status as a digital creative company," Innocean said in a regulatory filing.

Visual effects from virtual reality, augmented reality to the metaverse are used in a broad range of digital content production. 

"In the content creation market from OTT streaming to new media, technology becomes more important than before," said an Innocean official. "We will grow Studio Lennon as a specialized company in the areas of virtual human creation, NFT and metaverse."

Innocean is looking to make additional acquisitions of companies related to the metaverse and education technology.

"We will invest aggressively in visual effects companies and look for additional acquisitions, which can create synergy effects with Studio Lennon," its Chief Executive Lee Yong-woo was quoted as saying by the company.

Back in 2019, it acquired Australia's digital marketing company Wellcom Group.

CHEIL WORLDWIDE

Cheil Worldwide, in which Samsung Electronics is the top shareholder, is also scurrying to join the digital transformation trends.

Its CEO Yoo Jeong-Keun told its annual general meeting last week that this year the company will boost its capabilities for metaverse-related content creation and combine data and technology for integrated services across all areas of its business.

Cheil is now in the process of recruiting NFT and blockchain software developers.

Heungkuk Securities analyst Hwang Sung-jin said that metaverse-related business could become Cheil's new growth engine.

The advertising arm of Samsung Electronics is ramping up three dimensional or metaverse business for the technology giant, which created its digital space called MyHouse on the metaverse platform Zepeto. 

Between 2008 and 2020, Cheil had taken over nine companies, including digital marketing and social big data firms in Rumania, China and India. In 2021, it bought a stake in HiveLab Co., a Korean digital marketing agency.

Last year, digital services exceeded half of Cheil's gross sales profits, or total sales after costs of goods sold, for the first time in its history. 

For Innocean, its acquisition in 2021 of a domestic digital marketing startup D-Purple Inc. boosted its digital advertising revenue by 70% on-year.

Industry insiders said advertising companies already have competitive advantages for digital services, given their sensitivity to trends and big data accumulated on consumer behavior, as well as content creation capabilities. 

Their share prices, lagging the broader market, are pushing both Innocean and Cheil to look beyond their traditional businesses, despite posting their largest-ever revenue in 2021. 

The share price of Cheil have been stuck in the range of 20,000 won for a decade. Innocean shares have been trading below 50,000 won for the third consecutive week, compared to their previous peak of 77,000 won hit in 2020.

"Since the COVID-19 began, business diversification becomes a matter of survival more than ever before," said an advertising company official.

Write to Roh Yoo-Chung at yjroh@hankyung.com
Yeonhee Kim edited this article