By Cho Jin-seo
Staff Reporter
Lack of fresh, creative ideas are costing big game companies dearly, raising questions whether they will be able to continue their stellar growth.
Regulatory risk on gambling games and failure to produce global hit products are raising worries among investors in game companies. The online PC game industry has been the most energetic entertainment sector, exporting some 1 trillion won ($1 billion) of goods and services as well as another 1 trillion won in domestic sales. Games accounted for almost a half of Korea's export of cultural and entertainment goods and services in 2006.
NCsoft, a major online game company, reported that its net income fell by 22 percent in the first quarter of this year from the previous quarter, while sales slid by 1 percent. Its operating profit rose by 63 percent, but this increase is mostly thanks to the reduced marketing expenses and downsizing of its organization, the firm said.
``It was a kind of earnings surprise, but it was mainly because we didn't spend much, especially in marketing and other expenses,'' said Lee Jae-ho, the chief financial officer, in a conference call with investors on Thursday.
The company has operations in America and Europe, but it was domestic sales of ``Lineage,'' a decade-old classic game, that has supported the firm in the first quarter, Lee said. Sales in most of its overseas branches have declined.
Lacklustre results of its recent games such as ``Tabula Rasa'' and ``Auto Assault,'' which were produced in its U.S. studio, have forced the firm to fire some of its U.S. staff this year. The company said it won't increase its workforce rapidly this year in order to control its labor cost.
Meanwhile, NHN, the operator of Naver portal and Hangame online game site, is having a hard time of its own, too. The Internet giant's shares fell by 13 percent since May 6, when it admitted that about 90 percent of its online game sales came from gambling games, such as poker and blackjack, which are called Web board games.
``More than half of NHN's operating income was made from Web board games. We think the quality of growth at NHN has deteriorated in general,'' said CJ Investment & Securities analyst Shim Jun-bo in his report.
These Web board games are played with cyber currency, which can easily be cashed out via online black markets. NGOs asked police to charge NHN, saying it is deliberately overlooking and fostering such illegal activities. Many analysts too expect that those games can face regulatory actions from the government at any time soon.
Raising an alarm bell to NHN, the Ministry of Culture, Sports and Tourism announced Thursday that it will strengthen its efforts to monitor and stop illicit online gambling games and the cyber money exchange business. The police will cooporate by deploying some 4,300 officers on this matter, the ministry said. NHN shares fell about 1 percent after the announcement.