Party’s over for game industry
By Kim Tae-jong
The online game industry is losing its vigor after a decade of rapid growth.
Rivals from the United States, China and other countries have duplicated the strength of Korean games firms in their own fantasy role-playing adventures and casual games such as car racing.
Even NCsoft, the creator of popular role-playing games Lineage, Guild Wars and Aion, is not being spared from this paradigm change.
The country’s second-largest game company posted an operating loss of 7.6 billion won in the second quarter, affected by expenses incurring from significant workforce restructuring. The company reported a net loss of 7.3 billion won in the April-June period, compared to a profit of 41.4 billion won in the same period last year.
About 500 employees left NCsoft recently after the company offered voluntary retirement packages and 300 more could be leaving. The company had 2,400 workers at the start of the year.
Rival Nexon recently acquired nearly 15 percent of NCsoft for around $688 million, taking 3.21 million shares previously held by founder and CEO Kim Taek-jin. This caused speculation that NCsoft, once the world’s leading publisher of online games, will essentially be reduced to a game-development studio for Nexon.
``We just wanted to slim down to focus more on what we can do best,” an official. “We will downsize other businesses such as music streaming services. With new games being released, we expect to return to profit in the third quarter.’’
Investors don’t appear to be sold on the idea that things will get better soon. NCsoft’s stocks hit an all-time high of 386,000 won per share in October last year, but now trades at around 220,000 won.
The company’s share transfer to Nexon surprised markets because the deal was executed less than two weeks before it was expected to launch its much-anticipated new action game, Blade & Soul. NCsoft is expecting to launch Guild Wars 2 in North America and Europe later this month.
Another big game company, Neowiz, has also laid off many executives amid allegations that it will be sold to rivals in either China or the U.S.
The company initiated restructuring in May, despite posting record sales of 197.2 billion won with an operating profit of 35.8 billion won in the first quarter. It has suspended many of its new projects and games.
Neowiz’s business future had depended on extending the rights to publish Crossfire and FIFA Online 2, two titles that generate 55 percent of its revenue. Smile Gate, the developer of Crossfire, is now taking the game to a Chinese partner, while EA Sports, the developer of FIFA Online 2, has a new Korean partner in Nexon.
Market watchers believe that major online games developers have difficulties because they rely too much on the high-risk genre of role playing games, which require a significant amount of time and money to develop.
Experts also point out that the industry has obviously passed the quick growth period and arrived at the beginning of maturity so that they now need to prepare for more internal stability rather than external growth.
“It was true that their earnings were dramatically shifting to losses from profit,” Sung Jong-hwa, analyst at E-Trade Securities, said. “But now the industry itself will not show tremendous growth as it did in the beginning even if a few developers launch mega hit games.”
He suggested that each company should take a more aggressive stance to survive in the market. “It is now obvious that traditional lame investment strategies will not guarantee success. Game companies should come up with more aggressive and differentiated tactics to be successful.”