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Two Koreans Grow, One Shrinks

Richard Aihoshi Posted:
Columns The Free Zone 0

Nexon keeps getting bigger 

While I'm like most others in regarding Nexon as Korean, there's a technicality. It's actually headquartered in Japan. Among other things, this means its financial reports are denominated in yen. A couple of weeks ago, the company released numbers for both the last quarter of 2012 and the entire year. As usual, some of them piqued my interest.

The first of these was the big one, annual revenue. Depending on the exchange rate we apply, it was somewhere in the range between $1.2 and $1.4 billion. This entire range is an enormous amount, and it seems safe to assume the vast majority came from micro-transactions. In yen, this represented a very substantial 24% increase over 2011. There's little if any reason to believe this won't be enough to let Nexon retain its position as the leading Korean-based publisher.

Two other notable figures that caught my attention were operating income of approximately $525 million and net income of around $300 million. Is it any wonder that the company is hot on the acquisition trail? The main question I have is whether it's seriously considering any significant moves in either North America or Western Europe.

For those who still harbor any doubt about the huge importance of the Asian MMOG markets, there was yet another piece of evidence to consider. This one took the form of revenue by region during the final three months of last year. Japan led the way, accounting for 34.8%, six-tenths ahead of China. Korea was also solidly in double digits at 22%. Europe was aggregated with the rest of the world, coming in at 5.3%. Our market was the smallest at a mere 3.6%.

It's no longer even a small surprise to see that a company can rank among the top handful of global MMOG publishers without deriving a large portion of its business from the western hemisphere. In Nexon's case, one thing I find interesting is wondering about the company's chances of catching Activision - in the MMO space, not overall - and how long it might take. Two factors add further intrigue to this situation. One is that Dungeon Fighter represents a very large and thus potentially vulnerable proportion of its business. The other is the possibility that continued growth by Chinese giant Tencent might mean they're “only” contending for second place.

GW2 boosts NCsoft sales, but net income declines

The Q4 financials that NCsoft released earlier this month also gave me cause to think and speculate. Of course, I was keen to see the impact of Guild Wars 2, which shipped near the end of August. As expected, it was substantial. In the last three months of 2012 - which presumably doesn't include pre-orders or other launch-related purchases - ArenaNet's offering accounted for 44.6% of total game sales.

It may surprise some readers to learn that Lineage was next. It's a very meaningful factor in its home market, witness the 24.3%  it accounted for during this period. What's more, given that GW2's ongoing revenue stream is far more dependent on retail sales, it seems natural to wonder if it will continue to bring in enough money to stay ahead. The rest of the list comprised Blade & Soul (10.1%), Aion (9.4%), Lineage II (6.2%) and others (5.3%). 

For the full year, NCsoft reported total revenue of approximately $694 million. Part of this came from royalties et al; game sales were about $635 million. In just four months, GW2 generated 23.9% of the latter figure ($151.8 million).  This seems like a reasonable fit with the statement by an ArenaNet staffer last month that sales had reached the three million unit mark. 

Sales by region for 2012 showed Korea at 56% with North America at 15% (up from 4% in 2011) and Europe at 10%. What piques my curiosity here is that the sum of the latter two numbers barely exceeds the 23.9% above. The comparison isn't necessarily apples to apples, but even allowing for this, it raises questions as to the popularity of Aion et al in this hemisphere.

In addition, NCsoft's stated net income for last year was about $63.3 million. While this isn't exactly chump change, it's 61% lower than 2011. The company's 2012 performance may see it move up one spot to number 2, but it's a long way from regaining the top rank it held for a long time.

Will Neowiz be overtaken?

If NCsoft does move up, it will be at the expense of Neowiz. which seems likely to fall back, primarily due to two issues. The more significant of these is CrossFire, which may have generated over $1 billion in China last year for its operator there, the aforementioned Tencent. This license was in dispute. I'm unaware of any final resolution; the licensor's share that hangs in the balance is worth hundreds of millions of dollars.

The other game is the FIFA Online property. The upcoming third iteration is being developed by EA Seoul, with Nexon as publisher. This means Neowiz has lost a significant chunk of its business. In light of both these factors, it's not surprising that I've been seeing reports of very sizable layoffs. It's definitely looking like 2013 will be a year for retrenching. 

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Richard Aihoshi

Richard Aihoshi / Richard Aihoshi has been writing about the MMOG industry since the mid-1990s, always with a global perspective. He has observed the emergence and growth of the free to play business model from its early days in both hemispheres.