Naver, SoftBank to discuss Japan JV’s ownership change

South Korea’s top online portal Naver Corp. and Japan’s SoftBank Corp. will kick off talks this week, during which they are expected to discuss cutting Naver’s share in their 50:50 joint venture holding a majority stake in the operator of Line and Yahoo Japan, according to sources with knowledge of the situation on Monday.

A Holdings, the JV between Naver and SoftBank established in 2021, holds a 64.5% stake in LY Corp., which runs Japan's most popular messaging app Line and online portal Yahoo Japan.

Their meeting comes one month after Japan’s Ministry of Internal Affairs and Communications asked LY Corp., listed on the Tokyo Stock Exchange, to reduce its reliance on Naver and to review its relationship with South Korea's No. 1 online platform, according to a Nikkei Asia report.

The comments were part of the ministry’s administrative guidance against LY Corp. following a series of personal information leaks online, including an incident last November where LY Corp.’s servers were hacked and Line app user information may have been leaked.

According to the report, the Japanese ministry cited strong dependence on Naver in terms of systems and network configurations among the causes of the incident.

Given the significance of the topic, Naver Chief Executive Choi Soo-yeon -- who happens to be an ex-M&A lawyer -- will be sitting at the negotiating table.

PROTECTIONISM

The Japanese ministry’s guidance reflects growing protectionism in the era of generative artificial intelligence, where cybersecurity has emerged as one of the biggest threats and risks facing the global economy and businesses.

It also comes as Japan is seeking to introduce a law aimed at regulating foreign Big Tech firms in four areas -- operating software, app stores, internet browsers and search engines -- during the current parliamentary session that runs until late June, according to a report from NHK released last week.

Under a proposed bill, Japan’s Fair Trade Commission will impose a surcharge of up to 20% of their sales in Japan if tech giants such as Apple Inc. and Google do not comply with their requirements, including opening up smartphone app stores to other companies.

Such a legislative move could put the brakes on Naver’s expansion in Japan, where it has diversified into the AI, content, e-commerce and financial services markets.

Amid the lack of globally renowned homegrown AI companies, Japan has been aggressive in nurturing AI platforms.

Japan’s Ministry of Economy, Trade and Industry announced last year that it would provide a subsidy of 5.3 billion yen ($34 million) for SoftBank to develop generative AI models.

The ministry also plans to offer tax incentives for both domestic and foreign companies to set up research and development centers in Japan.

The tax break, called the “innovation box,” is designed to foster advanced technologies such as AI software, including pharmaceuticals, semiconductors and electric vehicles in Japan.

Korean IT professionals have expressed unease over Japan's aggressive moves to nurture homegrown AI companies.

“There are growing concerns that the Japanese government's policy efforts to prioritize its own companies could reverse the status of Korea and Japan (in the global AI industry)," said a Korean IT company official.

European countries are also implementing measures aimed at protecting their IT companies from the threat of US Big Tech firms and reinforcing cybersecurity.

To counter China’s rise in the AI industry, US President Joe Biden last week signed into law a requirement that ByteDance, the China-based owner of TikTok either sell the popular app within 12 months or face a US ban.

China is tightening its grip on AI technologies and data protection. In October last year, it issued security guidelines for companies providing generative AI services.

Meanwhile, South Korea appears to be bucking the trend. The Korea Fair Trade Commission is seeking to introduce a fair competition law for the platform industry, which industry observers said will target big Korean online platforms.

Write to Seung-Woo Lee at leeswoo@hankyung.com
Yeonhee Kim edited this article.