Game companies bet on deregulation of play-to-earn business model

Seen is an image of Natris' mobile game, “Infinite Breakthrough Three Kingdoms Reverse.” The game was Korea's first play-to-earn blockchain game, but the game service was suspended in December, 2021, as the government cancelled the rating classification. Screenshot from Natris' webpage

By Baek Byung-yeul

Nexon, NCSOFT, Netmarble and other Korean game companies are focusing on play-to-earn (P2E) games as their next growth engine. P2E allows gamers to earn real money from playing games and performing other services in the virtual environment using cryptocurrency, in what is becoming a new trend in the global gaming market, according to industry analysts Monday.

Whether it is a large company or a small one, P2E games are being developed or targeting overseas markets, but Korean companies are not able to use these products in Korea due to government regulations that have been put in place because these types of games are not easy to control, due to various problematic side effects.

Company officials and analysts said that the government should lift the regulations so that P2E games can also be provided domestically in order for the companies to establish themselves while the global market, is still in its infancy.

“As many executives of local game firms have said, the trend of technology and the market is changing toward P2E games. If serving these kinds of games is the trend of the global market, I think it is a reasonable choice to respond accordingly,” an official of the local game company said on condition of anonymity.

Local game companies are taking P2E games as a breakthrough to solve stagnant growth momentum due to China's continued refusal to allow the sale of Korean games, and the inability of the companies to operate as much as they did before due to the legal introduction of the 52-hour workweek system, as well as the COVID-19 pandemic.

At this time, when their business momentum has been stalling for years, Daishin Securities analyst Lee Ji-eun also said in a recent report that “it is important to establish [the field] quickly as there are many users left who will flow into P2E and non-fungible token (NFT) games,” adding that “the number of blockchain game users is only 1 percent of all game users, but the market can grow rapidly.”

While the United States and China are adopting negative regulations ― which define what is legally prohibited and allow everything else ― that allow most business activities with a few exceptions, enabling companies to achieve faster growth, Korea has been using a positive regulation system, controlling most business activities but allowing some.

In line with the system, the country has been prohibiting game companies to release P2E games, as these games can produce side effects such as getting teenagers into gambling, and there are concerns about the game companies controlling the supply and demand of the virtual assets used in the games.

In December, the Game Rating and Administration Committee (GRAC) decided to cancel the rating classification of “Infinite Breakthrough Three Kingdoms Reverse,” a mobile game developed by Natris. This news saw an explosive response from users, garnering around 170,000 daily active users. By playing the game, users are given virtual coins, which can be exchanged for KLAY cryptocurrency, which is listed on Bithumb.

However, company officials urged the government to allow them to provide their P2E games first and then regulate the side effects that occur. They claimed that Korean companies should have the opportunity to get onboard with regards to the emergence of this new technology trend in the global marketplace.

"Game companies here and around the world are preparing to launch blockchain-based games, and it is quite unfortunate that they are not able to launch the games in Korea," Bang Jun-hyuk, the chairman of Netmarble, said during a press conference held in January.

Experts expect that the issue of regulating P2E games will be concluded by the next government, as the presidential candidates have been dealing with the issue as part of their pledges ahead of the March 9 election.

Lee Jae-myung, the candidate of the ruling Democratic Party of Korea, revealed his opinion during an interview with a YouTuber specialized in the gaming industry in December about P2E games saying, “We don't need to look at them as being bad.”

“As they are already an active business abroad, it's like we're closing the country if we ban them unconditionally,” Lee added. The candidate's camp also launched a special team dealing with gaming and the metaverse in January, vowing to grow these businesses as one of the country's next growth engines.

Yoon Suk-yeol, the candidate of the main opposition People Power Party, didn't reveal a detailed pledge on the issue, but his camp announced that Yoon would approach P2E games to protect consumers' rights and interests, while Ahn Cheol-soo, the presidential candidate of the minor opposition People's Party, said, “It will not be too late to look into and judge how other countries handle P2E for about a year.”