Baek Byung-yeul is a journalist at The Korea Times focused on cultural content, including films and cultural events in South Korea. You can contact him at baekby@koreatimes.co.kr to share your insights.
Tencent poses growing threat to Korean game industry
By Baek Byung-yeul
By Baek Byung-yeul
Tencent will likely exert greater influence over Korea's game industry as the Chinese game giant is said to be ahead of other bidders in the acquisition war for Nexon, analysts said Friday.
The takeover battle surrounding Korea's largest game developer is heating up as local game firm Netmarble became the latest to bid for the company Thursday, a day after internet firm Kakao expressed strong interest.
Many market observers say Tencent will lead the bidding race as the world's largest game publisher holds funds of up to $100 billion.
Given the Chinese firm is also the second largest shareholder of Kakao at 6.7 percent and the third largest of Netmarble at 17.7 percent, industry officials said Tencent is expected to have a bigger influence.
While potential bidders reportedly include private equity firms TPG Capital, Kohlberg Kravis Roberts, Carlyle and MBK Partners, the officials also expressed concern over this growing influence, saying it could kill the local game industry.
Nexon founder Kim Jung-ju recently put his entire stake in NXC, the holding company of Nexon, up for sale. Kim, his wife and his private company Wisekids owns a 98.64 percent stake in NXC that holds 47.98 percent of Nexon.
Netmarble, one of the major players in the country's game industry, officially announced the firm has joined the race to take over control of Nexon, saying it has been a month since the firm decided to do so. The company added it plans to form a consortium utilizing domestic capital.
“Netmarble reviewed the acquisition of Nexon two months ago and made a final decision a month ago,” said a Netmarble official.
The company said it threw its hat to the ring to protect the local game industry and ecosystem. “We believe that the tangible and intangible values of Nexon are a very important asset for the country. If Nexon is sold to an overseas firm, the Korean game industry and ecosystem could be damaged and its competitiveness weakened,” the firm said.
Both Kakao and Nexon are considering forming a consortium with local investors given their cashable assets are estimated at about 1 trillion won ($900 million) and 2 trillion won. The 98.64 percent stake in NXC is estimated to be worth 10 trillion won.
An analyst said whoever purchase Nexon, it will be Tencent who will benefit from the megadeal. “Whether it is Kakao or Netmarble, Tencent can indirectly take control of Nexon,” Ahn Jae-min, an analyst from NH Investment & Securities, said.
Hwang Sung-ik, president of the Korea Mobile Game Association, said the growing influence of Tencent could have a negative impact on the industry.
“I cannot speak conclusively as nothing has been decided yet but it is reported that Tencent is likely to have bigger influence in the industry. The move could damage the local game industry as there could be serious issues such as labor restructuring,” Hwang said.
“If the talk becomes a reality, Korean game firms may be pressured to import more games produced by Chinese firms or other overseas firms. Then, companies will consequently downsize their workforce, which is a move that can spoil the industry,” he added.
A game industry official, who declined to identify himself, said, the country's game industry could conceivably fall under the umbrella of Tencent.
“Things are totally changed compared to 10 years ago when Tencent officials had to wait for long hours to meet with officials from Korean game firms to sign a publishing contract for the games,” the official said. “Nowadays, Korean game firms' officials said it becomes too difficult to get a meeting with the Chinese firm.”
“While the local game industry has been heavily relying on Chinese game market and Chinese game firms, Tencent is possibly posing a threat to the industry,” the official added.