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NCsoft CEO Kim Taek-jin |
By Cho Jin-seo
Staff Reporter
NCsoft is facing similar challenges as Samsung Electronics in some aspects: They are top players in their respective fields _ Samsung in memory chips and NCsoft in online PC games _ but their businesses are stagnating and profits are falling. Also, their stock prices have lost momentum and their managers are struggling to find new cash cows.
The situation is more urgent at NCsoft. Its operating profit has rapidly diminished over the past three years. One reason for such lethargy is the lack of diversity in its portfolio. Another is the murky outlook for its future games.
The firm's sales heavily depend on two PC games, ``Lineage'' and ``Lineage II.'' Both have earned the company more than 1.5 trillion won since 1997, but are gradually losing subscribers. In the second quarter alone, the revenue from ``Lineage'' fell by 16 percent.
``NCsoft's games have a shallow consumer basis. The gaming population in South Korea is around 25 million in my estimation, but the firm targets only the people who play games everyday. The number of such hardcore gamers is limited,'' said Jeong Woo-cheol, an analyst at Mirae Asset Securities. ``Also, each of its games takes years to develop. So if a game doesn't work well in the market, it will be a big blow.''
His remark may be a warning signal for investors as Mirae Asset itself is the third largest shareholder of NCsoft with an 8-percent equity stake. He said the current stock price of NCsoft (81,800 won) is higher than his own evaluation (81,000 won), thus giving a ``neutral'' opinion on it.
With the ``Lineage'' series apparently losing its charm after 10 years in play, NCsoft Chief Executive Kim Taek-jin is betting big on two upcoming games, ``Tabula Rasa'' in the United States and Europe, and ``Aion'' in South Korea. ``Tabula Rasa'' is especially drawing attention from the gaming industry, since celebrity game developer Richard Garriott, hired by NCsoft in 2001, created it.
There is no official information on how much NCsoft spent on the ``Tabula Rasa'' project. But sources say it could have cost the firm around $100 million in total over six years _ a considerable burden for a firm with $240 million in annual sales.
Other than the financial overload, the ``Tabula Rasa'' project was one of the big reasons many employees of NCsoft lost their confidence in CEO Kim. He hired Richard Garriott and his brother Robert Garriott in 2001 by allegedly paying 16 billion won ($17 million) in cash and 1.5 million shares in stock options, worth 50 billion won. But the brothers failed to deliver the product as promised, and the project has been protracted for six years.
``One of our annual events is to listen to Kim saying: `This year, we will finally release Tabula Rasa in the market,' in his New Year speech. I heard it four times since 2004,'' said a company insider last week. ``The only person in the company who have trust in the Garriotts is the CEO,'' another said in 2006.
While the CEO was spending a great amount of the company's budget and resources on the project, many other talented Korean employees deserted him. In fact, the average service length of NCsoft employees is only two years, according to its annual financial report.
Song Jae-kyung (Jake Song), a legendary game developer who fathered ``Lineage,'' was one of Ncsoft's big losses. He abruptly quit the firm in 2004 after allegedly having conflicts with Kim over several issues, including the hiring of the Garriott brothers.
Most recently, some 90 employees who were making ``Lineage III'' left the firm at the same time after having trouble with management. The project was scrapped and Kim said he will start it anew next year with new programmers.
By the nature of its games, NCsoft cannot escape bad publicity for some degree.
The firm specializes in making and operating the so-called massive multiplayer online role-playing games (MMORPGs). In these types of games, there is no need for extraordinary skills or brilliance as gamers spend time and effort in generating their characters. Several people were reported to have died playing ``Lineage,'' having played continuously for days without resting. Many more were caught committing petty crimes to raise money to play the game.
An information leak was another big blow to the firm. A group of some 8,000 people sued the firm last year, insisting that other people playing Lineage stole their private information and NCsoft should bear responsibility for the mismanagement of personal information. The company won the case in a lower court, but the plaintiffs took it to the appeals court.
The private life of CEO Kim didn't help to improve matters either. Usually a reclusive figure, he appeared on the front page of tabloid papers in 2005 when he handed over 3.84 percent of NCsoft stocks to his ex-wife for agreeing to a divorce.
 This summer, he was again caught in a scandal. The Chosun Ilbo, the newspaper with the largest circulation, reported that Kim was getting married to Yoon Song-yee, a 31-year-old executive of SK Telecom.
The two denied the report. But soon other papers pointed out that Yoon was an outside director on the NCsoft executive board, and was paid 100 million won a year _ the highest salary for a outside director at a major Korean company listed on the stock market.
NCsoft is to release ``Tabula Rasa'' on Oct. 19, which will be a critical test for its long-term survival. A failure could be too much for the firm and its CEO Kim, considering the amount of investment and resources the project has devoured.
The initial responses from employees and foreign reporters who have played it or watched its demonstration are fine. ``When I finally played the demo version this month, I found it very attractive and fun to play,'' a company insider said.
Still, he was unsure about whether it will be able to bring a fortune to the firm. One reason is the ``Tabula Rasa'' is a PC-based game whereas the American game market is centered in video game consoles such as PlayStation and Xbox. Another is that ``The competition in the online game market is too fierce to allow one blockbuster to sweep it,'' he said.
jhan@koreatimes.co.kr
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