Kakao Entertainment Fined 390 Million Won for Deceptive Advertising Using Fake Fan Accounts – First Case in Popular Music Industry

Kakao Entertainment was issued a corrective order along with a fine of 390 million won by the Fair Trade Commission for engaging in deceptive advertising practices that misled consumers. This marks the first time such penalties have been imposed in the popular music sector. The commission determined that Kakao Entertainment made misleading promotions for its own music tracks and albums through social media platforms and online communities. From October 2016 to February of last year, over a period of approximately eight years, the company secretly operated 15 social media channels with a total of 4.11 million followers. Posts totaling 2,353 were uploaded to channels such as “Idol Research Institute” (Facebook) and “Do You Even Listen to Songs?” (Facebook, YouTube, Instagram, TikTok), without disclosing that Kakao Entertainment owned and operated them. As the leading player in South Korea’s music distribution market, Kakao Entertainment held a 43% market share as of April 2023. Its business model relies on increased sales and consumption of music tracks and albums, which in turn boosts revenue from distribution fees, while its affiliated artists benefit from expanded sales of their own music. Kakao Entertainment’s deceptive advertising tactics followed three methods. First, it acquired well-known social media channels or created new ones to post promotional content for its own products, failing to reveal that these channels were under its control. Ordinary consumers who encountered these posts were likely to assume they were written by fans voluntarily. Second, the company used its employees to post advertisements in major online communities. Between May 2021 and December 2023, a total of 37 ads were posted on 11 communities, including TheQoo, PPomppu, MLB Park, Instiz, and Dmino, which collectively had up to 1.5 million members. Third, it employed advertising agencies to carry out disguised promotions. From July 2016 to December 2023, it paid a total of 860 million won to 35 advertising agencies to post 427 social media posts, without clearly disclosing its financial interest in those campaigns. The Fair Trade Commission particularly emphasized that Kakao Entertainment continued to violate regulations despite being aware of the severity of its illegal actions. This was because the company, through internal legal reviews, recognized the necessity of disclosing its financial interests even retrospectively but still persisted in its violations. A commission official explained that “in popular music, effects such as bandwagon effect, word-of-mouth effect, and fandom effect are highly pronounced, making viral marketing through social media particularly attractive.” The official added that “determining whether a post was created by an ordinary consumer or an advertiser significantly influences consumers’ choices of music tracks and albums, and hiding or omitting this information constitutes deceptive advertising.” In a statement, Kakao Entertainment said it would humbly accept the Fair Trade Commission’s decision and continue to comply with laws and work toward establishing a fair market order. The commission hoped that this action would serve as a first step in creating a trustworthy environment within the cultural industry that helps consumers make informed purchasing decisions.