Kakao Entertainment, the leading domestic distributor of music and albums, was caught by the Fair Trade Commission for disguising its promotional posts as consumer reviews after acquiring a social media (SNS) channel.
The Fair Trade Commission announced on the 24th that it imposed a corrective order along with a total penalty surcharge of 390 million won on Kakao Entertainment for violating the Act on Fair Labeling and Advertising.
According to the Fair Trade Commission, Kakao Entertainment opened or acquired 15 SNS music channels related to its business from October 2016 to February 2023, posting a total of 2,353 messages while failing to disclose its relationship with them. The total number of followers for these channels reached 4.11 million.
'MuseMon,' 'Idol Research Institute,' 'Are you listening to the song?' and 'HIP-ZIP' were all confirmed as disguised promotional outlets operated or funded by Kakao Entertainment. They used phrases like 'Songs that appeared in my algorithm today' and 'An artist I stumbled upon and fell for' to masquerade as consumer reviews.
Additionally, from May 2021 to December 2023, Kakao Entertainment continued similar promotional activities in major online communities such as TheQoo, Ppomppu, Instiz, MLB Park, and Clien. The Fair Trade Commission's investigation revealed that, during this period, staff were instructed to write a total of 37 advertising posts without revealing the identity of the publishers. These posts were framed as reviews, featuring phrases like 'Honestly good song selection' and 'Videos I want to recommend.'
Moreover, from July 2016 to December 2023, a total of 860 million won was spent on 35 advertising agencies to produce and post 427 pieces of SNS content, without indicating that the posts were advertisements.
The Fair Trade Commission determined that Kakao Entertainment could expect substantial benefits, such as increased distribution fees and artist revenue, as the sales of distributed music and albums rose. However, the company’s concealment of the advertising nature from consumers was considered a serious act of deception. It was also pointed out that the company did not cease these actions even after concerns about legal violations were raised during internal legal reviews.
An official from the Fair Trade Commission stated, 'The consumption of popular music is significantly influenced by the bandwagon effect, the word-of-mouth effect, and fandom effect,' adding that whether the publisher is an ordinary consumer or has a vested interest in the advertiser has a significant impact on consumer choice. The official continued, 'This action is the first case of sanctioning deceptive advertising in the popular music field, and we will continue to respond firmly to deceptive practices in the cultural industry.'