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South Korea gaming groups struggle to fend off China
Once dominant producer fails to produce any big hits for mobile platform
AUGUST 28, 2016
by: Song Jung-a in Seoul
South Korea’s computer games industry is facing a crisis as online software makers struggle to compete with fast-growing Chinese rivals in the rapid transition to mobile gaming.
The country’s online game makers have long dominated the global market for massively multiplayer online role-playing games (MMORPG) but have lost their edge as gamers have increasingly embraced playing on their smartphones.
So far, Korean game makers have failed to produce any big hits for mobile platforms, which is a problem for an industry that has long been a source of local pride as well as a favourite national pastime.
South Korea is the world’s second-largest online games market after China. Its PC-based online games account for a fifth of revenue in the global market — but that is down from 28.6 per cent in 2012, according to the Korea Creative Content Agency (Kocca).
Kocca estimates that sales of Korean games abroad grew about 7 per cent to $3.2bn last year, slowing sharply from the double-digit pace between 2007-12 when South Korean companies including NCSoft and Tokyo-listed Nexon developed the global online game market.
Much of their success came from pioneering the “freemium” business model — which is now being successfully utilised in mobile gaming — featuring games that are free to play but charge for virtual items that give players advantages.
Local game companies have been outsmarted by western and Chinese rivals in the shift to fast-growing mobile games, which are quicker and cheaper to develop.
As Korean developers have slashed investment in online games to try to focus on mobile, their online dominance has been eroded by overseas-made games such as Riot Games’ League of Legends and Blizzard Entertainment’s Overwatch. Those two US-developed games now command more than half of the South Korean market.
“Korean developers . . . have diverted too much resources to mobile games to spare investment in the development of [new trendy online games],” says Chenyu Cui, games analyst at IHS Markit.
Analysts say South Korean companies have focused too much on graphics-heavy role-playing online battle games that are now losing their appeal among gamers, overshadowed by simpler, more speedily paced offerings: Overwatch is a shooter title, and League of Legends is a strategy game.
Park Young-ho, president of mobile game maker Four Thirty Three, says: “We are no longer the leaders as we enter the mobile era. Our strength in hardcore MMORPGs based on advanced networks has actually become a barrier against our globalisation.”
NCSoft, the country’s biggest online game maker, has not produced a big new online title since Blade & Soul in June 2012, while new games such as MapleStory 2 and Sudden Attack 2 from Nexon, Korea’s biggest game company, have failed to gain popularity.
Piers Harding-Rolls, head of games research at IHS Markit: “The heyday of South Korean games exports due to development and monetisation expertise is now over — China has a mature domestic industry and western games companies now produce very popular freemium PC games.”
While Korean mobile game makers have yet to crack the Chinese market, many of their Chinese rivals are doing well in Korea. Mu Origin, a Chinese-developed version of a Korean online game, is one of the top five mobile games in Korea.
Eric Cha, analyst at Credit Suisse, says: “Just five years ago, things like this were unimaginable. The Chinese market used to be dominated by Korean online games, but many of their mobile games are nowadays actually better than Korean games. Speed is important with trendy mobile games. China is better than Korea in terms of time to market.”
The decline of the local gaming industry has led to sharp downsizing. The number of local game developers fell 30 per cent to 14,000 between 2009 and 2014, according to Korea Economic Research Institute, while midsized lossmaking companies have slashed their workforces.
Profits are shrinking at many of the larger groups while some, including NHN Entertainment and Neowiz Games, fell into a loss last year. In the first half of this year, Nexon’s net profit dropped 37.5 per cent.
Share prices have also come under pressure, spooking some companies that had been considering public listings. Netmarble Games, the country’s biggest mobile game company, gave up the idea of a Nasdaq float and now aims to raise about Won2tn ($1.7bn) later this year or early next via an initial public offering in Korea, where it is better known.
To broaden their customer base abroad, South Korean game makers need to diversify, says Namgoong Hoon, head of Kakao Games. “They should develop games that anyone can play on any platform if they are serious about overseas expansion.”
Yet differentiation is also vital, says Mr Cha at Credit Suisse, referring to the huge popularity of Pokémon Go and noting that South Korean game makers have yet to roll out any major games using augmented or virtual reality.
“It is not that difficult technology-wise. The thing is how to integrate such technology with globally well-known content,” he says. “They need something fresh and different that sets their games apart from their competitors’ in order to crack the global market.”
South Korea gaming groups struggle to fend off China
Once dominant producer fails to produce any big hits for mobile platform
AUGUST 28, 2016
by: Song Jung-a in Seoul
South Korea’s computer games industry is facing a crisis as online software makers struggle to compete with fast-growing Chinese rivals in the rapid transition to mobile gaming.
The country’s online game makers have long dominated the global market for massively multiplayer online role-playing games (MMORPG) but have lost their edge as gamers have increasingly embraced playing on their smartphones.
So far, Korean game makers have failed to produce any big hits for mobile platforms, which is a problem for an industry that has long been a source of local pride as well as a favourite national pastime.
South Korea is the world’s second-largest online games market after China. Its PC-based online games account for a fifth of revenue in the global market — but that is down from 28.6 per cent in 2012, according to the Korea Creative Content Agency (Kocca).
Kocca estimates that sales of Korean games abroad grew about 7 per cent to $3.2bn last year, slowing sharply from the double-digit pace between 2007-12 when South Korean companies including NCSoft and Tokyo-listed Nexon developed the global online game market.
Much of their success came from pioneering the “freemium” business model — which is now being successfully utilised in mobile gaming — featuring games that are free to play but charge for virtual items that give players advantages.
Local game companies have been outsmarted by western and Chinese rivals in the shift to fast-growing mobile games, which are quicker and cheaper to develop.
As Korean developers have slashed investment in online games to try to focus on mobile, their online dominance has been eroded by overseas-made games such as Riot Games’ League of Legends and Blizzard Entertainment’s Overwatch. Those two US-developed games now command more than half of the South Korean market.
“Korean developers . . . have diverted too much resources to mobile games to spare investment in the development of [new trendy online games],” says Chenyu Cui, games analyst at IHS Markit.
Analysts say South Korean companies have focused too much on graphics-heavy role-playing online battle games that are now losing their appeal among gamers, overshadowed by simpler, more speedily paced offerings: Overwatch is a shooter title, and League of Legends is a strategy game.
Park Young-ho, president of mobile game maker Four Thirty Three, says: “We are no longer the leaders as we enter the mobile era. Our strength in hardcore MMORPGs based on advanced networks has actually become a barrier against our globalisation.”
NCSoft, the country’s biggest online game maker, has not produced a big new online title since Blade & Soul in June 2012, while new games such as MapleStory 2 and Sudden Attack 2 from Nexon, Korea’s biggest game company, have failed to gain popularity.
Piers Harding-Rolls, head of games research at IHS Markit: “The heyday of South Korean games exports due to development and monetisation expertise is now over — China has a mature domestic industry and western games companies now produce very popular freemium PC games.”
While Korean mobile game makers have yet to crack the Chinese market, many of their Chinese rivals are doing well in Korea. Mu Origin, a Chinese-developed version of a Korean online game, is one of the top five mobile games in Korea.
Eric Cha, analyst at Credit Suisse, says: “Just five years ago, things like this were unimaginable. The Chinese market used to be dominated by Korean online games, but many of their mobile games are nowadays actually better than Korean games. Speed is important with trendy mobile games. China is better than Korea in terms of time to market.”
The decline of the local gaming industry has led to sharp downsizing. The number of local game developers fell 30 per cent to 14,000 between 2009 and 2014, according to Korea Economic Research Institute, while midsized lossmaking companies have slashed their workforces.
Profits are shrinking at many of the larger groups while some, including NHN Entertainment and Neowiz Games, fell into a loss last year. In the first half of this year, Nexon’s net profit dropped 37.5 per cent.
Share prices have also come under pressure, spooking some companies that had been considering public listings. Netmarble Games, the country’s biggest mobile game company, gave up the idea of a Nasdaq float and now aims to raise about Won2tn ($1.7bn) later this year or early next via an initial public offering in Korea, where it is better known.
To broaden their customer base abroad, South Korean game makers need to diversify, says Namgoong Hoon, head of Kakao Games. “They should develop games that anyone can play on any platform if they are serious about overseas expansion.”
Yet differentiation is also vital, says Mr Cha at Credit Suisse, referring to the huge popularity of Pokémon Go and noting that South Korean game makers have yet to roll out any major games using augmented or virtual reality.
“It is not that difficult technology-wise. The thing is how to integrate such technology with globally well-known content,” he says. “They need something fresh and different that sets their games apart from their competitors’ in order to crack the global market.”
