– Confirmed that failure to disclose ownership of channels or sponsorship constitutes a violation –
– First case of regulating deceptive advertising in the popular music sector –
The Korea Fair Trade Commission (KFTC, Chairman Han Ki-jeong) has decided to issue a corrective order and impose a fine of 390 million KRW on Kakao Entertainment Corp. (hereinafter “Kakao Entertainment”) for deceptively advertising music and albums it planned and distributed through social media (SNS) and online communities.
As the leading player in Korea’s music and album distribution market, Kakao Entertainment benefits from increased distribution fees as the sales and consumption of its distributed music and albums grow. For artists affiliated with Kakao, such increases directly lead to higher music and album sales revenue.
Kakao Entertainment supplies music and albums from both its own and third-party artists to music platforms and on/offline record stores, holding a 43% share of the music distribution market as of April 2023.
To boost the sales and consumption of music and albums it distributes, Kakao Entertainment engaged in deceptive advertising through SNS and online communities using the following three methods:
- Undisclosed Ownership of SNS Channels: Kakao acquired or launched popular SNS channels and posted promotional content for music and albums without disclosing that these channels were owned and operated by Kakao Entertainment, thereby making it difficult for consumers to recognize the content as commercial advertising.
- Undisclosed Employee Posts in Online Communities: Kakao employees posted promotional content about music and albums in major online communities without identifying themselves as company staff, making it hard for consumers to discern the posts as paid advertisements.
- Undisclosed Sponsored Content via Agencies: Kakao paid advertising agencies to promote music and albums on SNS without clearly disclosing the financial relationship, misleading consumers into thinking the content was organic and unbiased.
Due to these concealments and omissions, ordinary consumers viewing these posts were likely unable to recognize them as planned advertisements by Kakao Entertainment. Instead, they were likely to perceive them as sincere recommendations or reviews by regular users.
The KFTC concluded that whether the author of such posts is a consumer with no financial interest or a distributor/seller with a commercial stake significantly affects the trustworthiness of the post and the consumer’s decision-making process. Kakao Entertainment’s concealment of these facts was thus deemed a deceptive advertising practice.
Notably, the SNS channels used by Kakao to advertise its distributed music and albums had a total of 4.11 million followers, and some online communities involved had up to 1.5 million members, indicating substantial influence over music consumers.
Furthermore, Kakao Entertainment had internally recognized through legal reviews that failing to disclose financial relationships could constitute unfair advertising and that such relationships should be disclosed post hoc. Nonetheless, the company continued the violations, leading the KFTC to determine the infractions as serious and to impose a fine.
This case marks the first time deceptive advertising has been sanctioned in the popular music sector. It highlights that in fields such as popular music—where consumer decisions are heavily influenced by others’ preferences and recommendations—advertisers must clearly disclose any financial interest when using SNS for promotional purposes.
The KFTC stated that it will continue monitoring unfair labeling and advertising in the cultural industry to ensure consumers are provided with accurate information that supports rational purchasing decisions, thereby fostering a trustworthy consumer environment.