Kakao Games’ controlling shareholder will shift to the side of Japan’s LY Corp. Kakao is shedding a loss-making affiliate to focus on its AI and KakaoTalk businesses, while Line Yahoo has secured Kakao Games — which already has a release lineup — at a relatively low price instead of Line Games, which is in a state of complete capital impairment. Analysis is gaining ground that the deal reflects aligned interests on both sides.
Kakao Games office. / Kakao Games
Kakao will transfer part of its stake in Kakao Games to LAAA Investment and remain the second-largest shareholder. Once LAAA Investment, funded by LY Corp., completes a 240 billion won third-party allotment capital increase and a 60 billion won convertible bond acquisition, it will become the controlling shareholder of Kakao Games. Kakao Games presented the deal as a move to strengthen global expansion and growth engines.
Expectations for Line-related synergies from LAAA Investment’s acquisition of Kakao Games stem from Line’s status as a dominant messenger platform in Japan and Southeast Asia. Kakao Games plans to launch new titles including Odin Q and ArcheAge Chronicles in Korea, Taiwan and Japan in the second half of this year. The expectation is that Kakao Games could use KakaoTalk in Korea and Line in markets such as Japan and Taiwan.
The issue is that messenger platforms have only a limited effect on a game’s box office success. The model of putting “for Kakao” after a game title and expanding users through KakaoTalk friend invitation messages was a trend from more than a decade ago. Line went through a similar process. In a 2014 update, Line added a function allowing users to block invitation messages from LINE GAME titles they had never installed. At the time, Line said the feature was for users who found game invitation messages inconvenient.
Under LY Corp. is Line Games, an affiliate responsible for its game business. Line Games is in a state of complete capital impairment after a string of underperforming releases, including The War of Genesis Mobile. According to its 2024 consolidated audit report, Line Games posted total equity of negative 184 billion won. If Line Yahoo wanted to strengthen its game business, it could first consider injecting more capital into Line Games. The market, however, sees it as having chosen instead to secure an outside company.
Kakao Games is not exactly a high-growth stock either. It has a flagship title in Odin, developed by subsidiary Lionheart Studio, but its performance has not remained consistent. Kakao Games recorded 465 billion won in consolidated annual revenue last year, down 26% from a year earlier. It also swung to an annual operating loss of 39.6 billion won. It is also hard to say Kakao Games has publishing capabilities strong enough to reshape the market.
From LY Corp.’s perspective, the assessment is that securing Kakao Games — which is already operating Odin and has a release lineup for the second half — is more realistic than injecting more capital into Line Games and waiting for new titles to deliver results. Kakao, meanwhile, has little reason to keep holding on to Kakao Games. Kakao plans to push its business around AI and KakaoTalk. It is seen as having intended to secure investment capacity by shedding a loss-making affiliate.
Multiple experts said, “For LY Corp., acquiring Kakao Games, which has an established portfolio, would likely have been more efficient than directly injecting funds into Line Games,” adding, “Since Kakao also had little reason to continue holding a loss-making affiliate, the deal appears to be one in which both sides’ interests aligned.”
One expert, who requested anonymity, said, “Gaming is an industry in which large-scale pre-launch marketing and distribution strategies that build anticipation for new titles are important,” adding, “Just because LAAA Investment has become the controlling shareholder, it is difficult to expect synergies between the Line messenger platform and the game business.”
An industry official said, “LY Corp. could raise Kakao Games’ corporate value and then sell it to another company such as Tencent,” adding, “In 2016, Tencent acquired Supercell, the developer of Clash Royale, from SoftBank, a major shareholder of LY Corp., for around 10 trillion won.”
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