Naver, Kakao to hold off M&As to pursue profits

Naver Corp. and Kakao Corp., South Korea’s two leading online platforms, will put on hold acquisition-oriented growth strategies and instead pursue the profitability of their global services.

This year, both companies will focus on shoring up the bottom line of their money-losing overseas webtoon and webnovel platforms amid fears of an economic recession, company officials said on Jan. 2

In recent years, Naver and Kakao have aggressively expanded their global footholds through acquisitions and partnerships with leading companies. But their overseas services have not yet paid off.

Despite a 20% profit margin of its webtoon service at home, Naver’s web-based content services reported a 292.1 billion won ($230 million) loss in the first nine months of 2022 as a whole. The division posted sales of 1 trillion won during the period.

Naver CEO Choi Soo-yeon said at a second-quarter earnings call of last year that its web-based publications abroad would be able to achieve similar levels of operating profit margins within the next couple of years.

In particular, Naver stressed a steady growth in its paying subscriber number both in Japan and the US, where users have spent more to read a diverse library of its fiction than Korea subscribers.

Naver Webtoon Ltd., a digital comics and novel platform, ranks first in North America’s web manga scene. In the US, its monthly user number reached 12.5 million as of end-April, 2022, according to Naver on Jan. 2.

Its global growth was attributed in large part to the popularity of Lore Olympus. The romance webcomic series published on Naver has swept global awards for manga offerings.

Naver accelerates overseas expansion through M&As

Launch of a serialized fiction paid app Yonder in October 2022

Purchase of the world’s largest web novel platform Wattpad Corp. in 2020

Line Digital Frontier Co., Naver’s Japanese subsidiary for instant communications service, purchased eBOOK Initiative Japan in 2022

Launch of webtoon producer studio Studio TooN in partnership with Japanese broadcaster TBS in 2022

Launch of a drama production joint venture with CJ ENM's Studio Dragon in 2022

Kakao, South Korea’s top mobile platform, is scrambling to turn its overseas services into a profitable one as well.

Kakao had spent a combined 1.1 trillion won to buy Tapas Media Inc. and Radish Fiction Inc. in 2021. It merged with the two webtoon and mobile novel platforms based in North America to launch Tapas Entertainment last year.

The merged entity boasts plenty of intellectual property rights ranging from digital comics to web novels and dramas

In addition, Kakao expects growing interest in Korean content such as drama series would help the entertainment arm make a profit.

Korean webtoons take up less than 1% of Tapas' content offerings. But the Korean publications account for as much as 70% of its transaction value. 

To further boost its global presence, Tapas updated the “Wait Until Free” feature in the fourth quarter of 2022. The updated service allows its users to enjoy Tapas’ top episodes every three hours for free.

Previously, Kakao introduced a similar free service, in which its users were able to access Kakao’s hit titles after 12 hours or three days of their publication.

Kakao Entertainment now bets on some 10,000 intellectual property rights of top series it had secured for about 2 trillion won in its early business years, a company official said.

About one-third of them have been offered to global readers so far.

Going forward, Kakao Entertainment plans to expand its presence in Europe, taking advantage of its original contents and the management know-how of the Japanese unit Piccoma.

Piccoma is Japan’s No. 1 webtoon subscription service. Kakao established Piccoma’s Europe office in France in 2021.

Write to Sang-eun Lucia Lee at selee@hankyung.com
Yeonhee Kim edited this article