South Korea’s music streaming service firm Loen Entertainment Inc. proved to be a sure bet for its parent company and the country’s largest mobile platform operator Kakao Corp.

Outlook for its music sales remains rosy as more synergy effects between the music streaming service provider and the chat app operator are expected, market analysts said.

Loen Entertainment recently reported its highest quarterly operating profit of 26.2 billion won in the April to June period, up 27.3 percent from a year earlier. Its operating profit accounted for 58.7 percent of Kakao’s operating profit of 44.6 billion won. During the same period, Loen’s sales grew 22.2 percent to 134.9 billion won. Kakao has become Loen Entertainment’s parent company after it purchased a 76 percent stake in Loen at 1.87 trillion won ($1.7 billion) in January 2016.

The biggest driver for the robust performance of Loen Entertainment is its music streaming label Melon, accounting for 82.89 percent of Loen Entertainment’s total sales as of the second quarter. Music streaming service allows its subscribers to listen to all the registered music through its mobile app or Internet site at a fixed monthly rate. Unlike the traditional way of paying for each song or album, it is possible to listen to various songs at lower costs, making the service popular throughout the world.

As of May, Melon music streaming users amounted to 5.49 million, commanding the largest share in the Korean music streaming industry and widening the gap with the second runner Genie Music’s 1.7 million. In particular, it has earned new 250,000 subscribers during the first half of this year, and total 500,000 subscribers are expected to be added by the end of this year, which would make up nearly 10 percent of existing subscribers.

Market analysts attributed the rapid increase in Melon service subscribers to various Kakao services and promotions that have become available for Melon users following Kakao’s acquisition of Loen Entertainment. Korea’s eBest Investment & Securities Co. expected more synergy effects would be created once Kakao begins to offer combining services of Kakao Bank and Melon.

In addition, Melon music streaming is expected to benefit from Korea’s new government’s move to raise the rate of music contents by next year. Higher prices of music contents would further increase sales of music streaming service providers including Melon.

But to sustain the growth, market analysts recommended Loen to diversify its business portfolio, which is currently relying heavily on Melon music contents sales. Under the current business structure, Loen could be easily swung by any small negative factors on its music streaming service business, they warned. To reduce such a risk, Loen is seeking new growth engines including drama and video production, said an official from the company.

As of 2:45 p.m. Thursday, share of Loen Entertainment were 3.07 percent down at 82,100 won from the previous session.

By Yoo Tae-yang

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]