Naver CEO Undecided on Japan's Pressure to Reduce Line Stake

Naver Corp.'s CEO Choi Soo-yeon expresses uncertainty about the company's stance on Japan's administrative guidance, which aims to exclude Naver from joint management of the Line mobile messenger app with SoftBank. During a conference call on first-quarter earnings, Choi describes the guidance as "very unusual" and states that the company is still pondering its response.

The dispute between Naver and Japan's government has significant implications for the future of data privacy and cybersecurity in the region, which will also impact the balance of power in the tech industry. The outcome of this situation could set a precedent for how governments regulate and interact with foreign tech companies operating within their borders. The outcome of this situation could set a precedent for how governments regulate and interact with foreign tech companies operating within their borders.

Japan's Ministry of Internal Affairs and Communication issued administrative guidance in March, asking LY Corp., the Tokyo-headquartered operator of Line, to reconsider its financial reliance on Naver. This move follows a massive leak of Line users' personal information last November via Naver's cloud server.

Choi emphasizes the exceptional nature of the guidance, saying, "It is very unusual for an administrative guidance to ask for readjustments to a shareholding structure. "She stresses that the decision will be made according to Naver's mid-to-long-term business strategy and that the company is in talks with theKorean governmentregarding the matter.

The Korean government, including the ICT and foreign ministries and the presidential office, expresses support for Naver in coping with Japan's guidance. Choi appreciates the government's support, saying, "We would like to appreciate the government supporting us."

Choi acknowledges that the guidance will lead to changes in Naver's revenue from its infrastructure business, since the networks of Naver and Line will be separated. However, she states that the company will clarify its stance once it finalizes itsplan.

Both the ruling and opposition parties in Korea denounce Japan's guidance as unreasonable and excessive. Rep. Yoon Sang-hyun of the ruling People Power Party says, "Unlike companies of enemy states, Naver did not use Japanese users' information for an unlawful purpose, so it is unreasonable for Japan to take such an excessive measure." The main opposition Democratic Party of Korea accuses Japan of discriminating against Naver in favor of Japanese firms involved in leaks of personal information.

SoftBank reportedly starts talks with Naver to acquire part of the Korean IT firm's 50% stake in A Holdings, their joint venture which owns 64.5% of LY Corp. This development raises concerns about a potential merger deal between Line and Yahoo! Japan.

Why this matters: Naver developed and launched Line in 2011, which has since become Japan's top messaging app with 198 million users globally as of March 2023. LY Corp also operates Yahoo Japan, the country's most popular web portal. The Japanese government began taking a closer look at the venture after a cybersecurity breach of Naver's cloud service in 2023, which managed user information for Line.

Despite the pressure from Japan, Naver achieves a record-high operating profit of 439.3 billion won ($322.2 million) in the first quarter of 2024, up 32.9% on-year. The company's sales post a record 2.52 trillion won, increasing 10.8% compared to the first quarter of last year.

The situation remains uncertain as Naver's CEO is undecided on the company's stance and the Korean government supports Naver in its response to Japan's administrative guidance. The potential merger between Line and Yahoo! Japan adds another layer of complexity to the issue. Naver continues to review its options, and the future of its stake in Line and the impact on its business remain to be seen.

Key Takeaways

• Naver's CEO uncertain about Japan's guidance to exclude Naver from Line management.
• Japan's move follows massive Line user data leak via Naver's cloud server in 2023.
• Korean government supports Naver, denouncing Japan's guidance as "unreasonable" and "excessive".
• SoftBank in talks with Naver to acquire part of its 50% stake in A Holdings, Line's parent company.
• Naver achieves record-high operating profit despite Japan's pressure, reviewing its options.