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Kakao Touts Storytelling Skills at APOS as Korean Legislators Seek Crimp on Tech Market Dominance

Kakao Friends
Kakao Inc.

Korean entertainment-tech giant Kakao took to the stage of media conference APOS on Tuesday to tout the firm’s growing story-telling skills and particular strength in webtoons. The following day, the company’s shares plunged by 8%, as politicians from the ruling party called for regulations that would halt the dominance of platform economy leaders Kakao Inc. and Naver Corp.

Kakao, which runs South Korea’s biggest messaging and social media services, saw its shares down by more than 11%, before recovering to an 8% decrease. Naver, which operates search and the Line messaging app, fell by 8% before closing down nearly 6%.

Naver has a growing entertainment portfolio that was recently boosted by the acquisition of Wattpad and the purchase of a stake in BTS backer Hybe.

Kakao should not ignore fair competition in the pursuit of profit, ruling Democratic Party chief Song Young-gil told a Tuesday forum hosted by fellow lawmakers, according to the Yonhap news agency. The forum was called “Expansion of Behemoth Kakao: Discussion on Countermeasures to Eliminate Unfair Trade by Platform Conglomerates” Other speakers from the same party said they were concerned about Kakao “abusing its position and attempting to raise service prices.”

At APOS, Chang Kim, CEO and founder of Tapas Media, explained that Tapas has more than 63,000 creators regularly publishing content and over 3.5 million monthly active consumers. Specialized in developing serialized webtoons, it utilizes user comments on creators’ profile pages, to see what users like and shape stories. Readers provide instant input and allows them to support their favorite authors using a virtual currency called ‘Ink.’

“This is the golden age of storytelling. Everyone is looking for new stories, and the desire for this is stronger than ever,” said Chang. Kakao paid $510 million earlier this year to acquire Tapas. It says it has plans to expand it into the North American market.

Kakao’s Radish unit operates a TV writers’ room model for fiction writing and can deliver results with great speed. It has writers who make initial story pitches, followed by prose writers and editors who develop them. The process can take as few as 4-6 weeks from concept format to testing and serialization.

“We bake audience data into the first five chapters of a story, utilizing comments to develop the story from there,” said Lee Seung-yoon, Radish CEO. “But after chapter 5, the creators are in the drivers’ seat. We don’t always follow what readers want because going against their wishes can often make the story more real and captivating.”

Kakao Inc.’s Kakao Entertainment unit claims to have invested approximately $1.25 billion (KRW 1.5 trillion) to secure 8,500 original web literature IPs, enabling it to build the biggest IP library in Korea. Kakao Entertainment now stretches from original IP development to TV and movie production, talent management, and music streaming.

Lawmakers appear to fear that platform companies could become a new form of chaebol, the name for the often family-owned conglomerates that have dominated large parts of the Korean economy and have frequently interfered with government.

Whether or not the analogy holds good – and some argue that the new digital giants are in fact weakening the power of the old conglomerates – Korean legislators have clearly become more wary of tech.

In August, Korea’s Personal Information Protection Commission fined Facebook and Netflix for data privacy violations.

Facebook ordered to pay KRW6.46 billion ($5.4 million) having created and stored facial recognition templates of 200,000 Korean users without their consent, in 2018 and 2019.

Netflix was fined KRW220 million ($186,000) for collecting the personal information of 5 million people without their consent, even before their service registration process was completed, and for storing personal data outside the country.

In June, Netflix lost another round in its legal battle against broadband provider SK Global, part of the SK petroleum, semiconductors and telecoms group that is Korea’s third largest corporation. Korean ISPs claim that tech companies should pay them a usage fee. Netflix, which would potentially have to pay tens of millions of dollars in fees, has resisted the charge in arbitration panels and in the courts.

Legislators and regulators in countries including Australia, China, the E.U. and U.S. are this year accelerating their efforts to rein in companies that they see as becoming too powerful.

But, curbing abuse while encouraging growth of strong companies, some of which may be national champions on the international stage, is a difficult balancing act.

On Tuesday, Korea’s Ministry of Science and ICT held its first CEO-level AI strategy talks with the heads of companies including Naver, Kakao, SK Telecom, KT Corp. LG UPlus and Samsung Electronics.

“AI will largely determine a country’s competitiveness in the areas of economy and national security. South Korea, which lacks the amount of data and computing infrastructure compared to China and the US, must concentrate all resources under a strategic public-private alliance,” said the Ministry of Science and ICT’s head of AI policy bureau Song Kyung-hee, according to a report by the Korea Economic Daily.