Major South Korean game companies posted mixed report cards in the first quarter despite the traditional seasonal slowdown. Large companies with globally successful intellectual property (IP) repeatedly set record highs, while companies that faced a gap in new releases or weak early demand stayed in the red or saw profitability worsen sharply. The assessment is that polarisation between companies has deepened further rather than a broad-based recovery across the industry.

◆Proven IP carries companies through the slow season

On May 17, the industry said Nexon posted first-quarter revenue of 1.42 trillion won, operating profit of 542.6 billion won and net profit of 533.8 billion won. Revenue, operating profit and net profit were all quarterly records. Revenue rose 34 percent, operating profit climbed 40 percent and net profit jumped 118 percent from a year earlier.

Growth was driven by the MapleStory franchise and new title Arc Raiders. The MapleStory franchise grew 42 percent from a year earlier. MapleStory: Raising, which launched globally last year, exceeded forecasts across North America, Europe and all of Southeast Asia, while MapleStory World grew 79 percent on the back of an update during the Lunar New Year holiday in Taiwan. Arc Raiders sold an additional 4.6 million copies in the first quarter alone, taking cumulative sales past 16 million copies within six months of launch. Overseas revenue rose 59 percent from a year earlier to a quarterly record. North America and Europe jumped more than fourfold, while other regions such as Southeast Asia surged more than twofold.

Krafton posted first-quarter revenue of 1.37 trillion won and operating profit of 561.6 billion won, both quarterly records. Revenue rose 56.9 percent and operating profit increased 22.8 percent from a year earlier. Revenue from the PUBG: Battlegrounds franchise rose 24 percent and topped 1 trillion won for the first time on a quarterly basis. Bae Dong-geun (배동근), Krafton’s chief financial officer, said time spent, the number of paying users and the total number of users all increased, and that profit and loss was entirely organic and recurring. The second-quarter trend is also positive. Since a May 8 patch, the average daily peak concurrent users increased to 1 million from 800,000, and the newly launched Genopoint mode increased users without cannibalising existing battle royale traffic.

NCSoft posted first-quarter revenue of 557.4 billion won and operating profit of 113.3 billion won. Revenue rose 54.7 percent and operating profit surged 2,070.1 percent from a year earlier. The result reflected a full-quarter contribution from Aion 2, released in November last year, which generated revenue of 136.8 billion won, and the strong performance of Lineage Classic, launched in February this year, which brought in 83.5 billion won. Lineage Classic reached cumulative revenue of 192.4 billion won within 90 days of launch and has continued to set daily revenue records even after new servers opened in April. PC game revenue surged 210 percent from a year earlier to 318.4 billion won, a quarterly record, and the overseas revenue share expanded to 42 percent. Park Byung-moo (박병무), NCSoft co-chief executive, said there was a fairly high possibility of reaching the upper end of this year’s sales guidance of 2.5 trillion won.

Pearl Abyss posted first-quarter revenue of 328.5 billion won and operating profit of 212.1 billion won, both quarterly records, on the back of its new title Crimson Desert released in March. Revenue rose 419.8 percent and operating profit jumped 2,584.8 percent from a year earlier. Crimson Desert alone generated revenue of 266.5 billion won. Overseas revenue accounted for 94 percent, with North America and Europe making up 81 percent of that. A balanced multi-platform strategy also proved effective, with console and PC each accounting for 50 percent of revenue. The company’s background for joining the same tier as the four companies, despite the release being a new title, includes global operating experience accumulated through Black Desert service and its proprietary game engine technology.

What the top group had in common was repeatedly monetising proven IP or translating major new titles that can succeed globally into actual revenue. Results were determined by whether user adoption and revenue durability were proven rather than whether a new title was released.

In between, Netmarble, Com2uS and Wemade stayed profitable and confirmed their direction, but their results remain a work in progress. Netmarble posted first-quarter revenue of 651.7 billion won and operating profit of 53.1 billion won, up 4.5 percent and 6.8 percent, respectively, from a year earlier. With two major new titles released in a cluster at the end of the quarter, their first-quarter contribution was limited to about 3 percent each, and full performance will be reflected from the second quarter. Com2uS saw revenue fall 13.9 percent to 144.7 billion won, but posted operating profit of 5.1 billion won, up 206.9 percent. Growth in its KBO and MLB baseball game lineup and a 61.5 percent cut in marketing costs lifted profit. Wemade extended its operating profit streak to a third consecutive quarter, posting 8.5 billion won. Licensing revenue from the end of an IP dispute involving The Legend of Mir 2, higher blockchain revenue and lower costs all contributed, but sustainability depends on new titles in the second half and the outcome of its expansion into China.

◆Gaps in new releases, early weakness lead straight to losses

In contrast, companies that failed to offset a stabilising decline in revenue from existing IP with new titles, or whose early performance of new titles fell short of expectations, posted different results.

Kakao Games posted first-quarter revenue of 82.9 billion won and an operating loss of 25.5 billion won. Revenue fell 33 percent from a year earlier. Mobile game revenue dropped 43 percent to 55.0 billion won, and there were no new titles to offset it. As existing titles moved into a stabilising decline in revenue, Odin Q, seen as a rebound momentum, is set for a third-quarter release.

Devsisters released a new title but saw a different outcome. Early performance for Cookie Run: Oven Smash, launched at the end of March, was weak, and the impact of updates for the fifth anniversary of Cookie Run: Kingdom also fell short of expectations. The operating loss was 17.4 billion won. The variable was not the release itself but whether the market took hold. The company moved to an emergency management system, including a full return of compensation by executives including CEO Cho Gil-hyun (조길현), and launching a voluntary retirement programme for all employees.

Webzen posted revenue of 39.3 billion won and operating profit of 5.3 billion won, down 5.2 percent and 39.6 percent, respectively. The company said sluggish domestic results became a main factor behind the overall revenue decline as the South Korean game market contracted sharply. The overseas revenue share exceeded 51 percent for the first time, overtaking domestic revenue, but the operating profit decline outpaced the revenue decline because falling domestic sales had a larger impact on profitability in a situation of fixed-cost burden.

Ultimately, first-quarter results showed that the game industry does not deliver the same outcome even when it goes through the same slow season. Companies with IP that can generate recurring revenue in global markets and the ability to establish new titles raised their performance level, while those that did not confirmed both falling revenue and profitability pressure. The performance of major new titles, including NCSoft’s global release of Aion 2 in the second half, Kakao Games’ Odin Q and Nexon’s Dungeon & Fighter: Raising, is expected to be a variable that determines whether this gap narrows or widens further.

An industry official said, "Even during the slow season, the companies that do well kept doing well, and the companies that cannot do well even with new titles became more difficult." The official added, "In the end, whether they have an IP structure that can generate recurring revenue in global markets will determine medium- to long-term survival."