Messaging firm Kakao buys majority stake in MelOn

Chat app operator Kakao Corp 035720.KQ said on Monday it will buy control of South Korea’s top music streaming service provider Loen Entertainment Inc 016170.KS for 1.9 trillion won (£1.08 billion), in another push to find new revenue streams.

“By combining Kakao’s various platforms and content services and Loen’s leading music content, we expect tremendous synergy that could establish a strong foundation for global expansion”, he added, noting his vision that this new partnership with MelOn would forge the needed momentum for Kakao’s global debut.

The acquisition boosts the company’s ability to expand into global markets by leveraging Kakao’s mobile platforms and Loen’s extensive K-pop catalogue.

LOEN Entertainment also holds various top-name stars under its wing, including singer-songwriter IU.

Kakao, operator of South Korea’s dominant chat app KakaoTalk, is seeking to diversify its business model and reduce reliance on traditional businesses including revenue from mobile games, sale of emoticons and search revenue from its web portal Daum.

It has expanded into new services such as a premium taxi service and mobile payments.

Kakao has focused on the contents platform business, considering as a growth engine in the mobile generation. Loen also has its own in-house record label, Loen Tree. With the acquisition of MelOn, Kakao looks to get the jump on Spotify, the popular music streaming service, which has yet to launch in South Korea.

Both Kakao and Bugs said after the announcement of the MelOn acquisition they would maintain the service, but industry insiders remain skeptical. Loen was put under SK Planet, SK Telecom’s content platform subsidiary, in the aftermath of a corporate restructuring in 2011. KakaoMusic focuses on sharing music on social network platforms.

Kakao said on Monday it’s offering to buy 19.3 million shares, or a 76 percent stake, for 97,000 won apiece.