FTC issues fine and corrective order against Kakao Entertainment for operating deceptive social media accounts for viral marketing

It has been revealed that Kakao Entertainment has been conducting deceptive advertising for the past 8 years. They have been using accounts with millions of followers to advertise their own music and albums in a misleading way.

On March 24, the Fair Trade Commission (FTC) issued a corrective order for Kakao Enter’s deceptive advertising practices and decided to impose a fine of 390 million KRW (approximately 266,000 USD).

Kakao Entertainment is the market leader in the domestic music and album distribution market. As of April 2023, it holds a 43% market share in the music distribution sector. As the consumption of the music and albums it distributes increases, so does its revenue. To increase music and album sales, Kakao Entertainment conducted viral marketing. The FTC summarized Kakao Entertainment’s methods into three categories:

First, Kakao Entertainment purchased or created popular social media channels without disclosing their ownership. A total of 15 channels were used to carry out deceptive advertising.

Examples include 'Idol Research Lab' (Facebook), 'Do You Listen to Music?' (Facebook, YouTube, Instagram, TikTok), which posted a total of 2,353 posts from October 2016 to February 2024.

Second, Kakao Entertainment disguised itself as a regular internet user and posted promotional content on major online communities. Again, they did not mention that these posts were written by Kakao Entertainment employees.

They posted on 11 different online communities, such as TheQoo, PPOMPPU, MLB Park, Instiz, and Dmitory, with 37 posts between May 2021 and December 2023.

Third, Kakao Enter paid advertising agencies to promote their music and albums through social media without clearly revealing their economic interest, making it hard for consumers to recognize it as advertising.

A total of 35 agencies were used, and about 860 million KRW (approximately 586,000 USD) was paid for 427 posts using platforms like TheFan (Idol Issue, You Might Like This Issue) and Banana Marketing (Time Flies by Page).

The FTC stated, "Due to Kakao Entertainment's concealment and omission, consumers likely couldn’t recognize these as ads, and instead accepted them as genuine recommendations or introductions from regular users."

According to the FTC’s findings, the total number of followers on the social media channels that Kakao Entertainment used totaled 4.11 million, and the number of members in the online communities reached up to 1.5 million.

The FTC further stated, "Kakao Entertainment continued violating laws even after realizing the issues through internal legal reviews. Considering the severity of the violations, a fine has been imposed."