Game firms struggle to find breakthrough

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Game firms struggle to find breakthrough


Companies hit by license ban in China and WHO's move to codify game addiction as illness

By Baek Byung-yeul

Concerns are growing over Korea's game industry as Nexon, NCSOFT and other game companies struggle to keep their businesses afloat due to China's continued refusal to allow the sale of Korean games there, and the absence of new games, industry officials said Tuesday.

The World Health Organization's (WHO) move to designate game addiction as a mental disease could devastate the industry while most game firms suffered an earnings shock in the January-March period, they also said.

Major game companies posted lower-than-expected earnings in the first quarter. Nexon, one of the largest game firms here, posted an operating profit of 536.7 billion won ($452.3 million) in the first quarter, a 4 percent decrease year-on-year.

NCSOFT also saw its operating profit decrease by 61 percent to 79.5 billion won and Netmarble posted an operating profit of 33.9 billion won, a 54.3 percent decrease year-on-year. Com2uS, best known for mobile role-playing game "Summoners War," saw its operating profit decline by 23.5 percent while Pearl Abyss had an operating decline of 55.3 percent.

Industry officials said the game companies couldn't generate higher operating profits as they are blocked from exporting games to China and many of them didn't release new game titles in the market.

In China, game companies must obtain licenses from the government for new games. Korean firms have been blocked from exporting games to China since March 2017 when the Chinese government stopped issuing licenses as part of its protest against Korea's deployment of a U.S. Terminal High Altitude Area Defense system.

This China risk appears to have made it more difficult for Nexon founder Kim Jung-ju to sell his stakes in the firm. Kim has reportedly become tired of regulations and the negative perceptions toward the industry, in addition to the decline of overall growth potential compared to when he established the firm in 1994.

Kim has put up for sale a 98.64 percent stake in Nexon's holding company, NXC, owned by him, his wife and his private firm, but he has been struggling to find a suitable purchaser, according to sources in the investment field.

However, the worst factor that could kill the entire game industry here is the WHO's move to codify game addiction as a mental disorder, Hwang Sung-ik, president of the Korea Mobile Game Association (KMGA), said.

"The game industry here has been facing a series of challenges and it seems things can only get worse. Game companies are blocked from exporting their games to China and some of them failed to release new games. What is worse is the WHO may classify game addiction a mental disorder. If it is approved, the industry will lose trillions of won," Hwang told The Korea Times.

The game addiction issue will be decided during the WHO's assembly meeting, which will take place in Geneva, Switzerland from May 20 to 28. It will take effect in 2022, if approved, and experts here estimate the industry will lose more than 10 trillion won in three years from 2023. Hwang added the designation "could make small-sized game developers disappear from the industry."

The environment for doing game business is getting difficult as the adoption of the 52-hour maximum workweek, shortened from 68, has been impeding firms from meeting deadlines for new games and has burdened them with additional labor costs.

In addition, the growing movement to form labor unions has put greater pressure on the firms. The labor union of Nexon reached a deal with management in February to abolish the fixed overtime wage system beginning August and the move was followed by other game companies such as Netmarble and NCSOFT.



Companies hit by license ban in China and WHO's move to codify game addiction as illness

By Baek Byung-yeul

Concerns are growing over Korea's game industry as Nexon, NCSOFT and other game companies struggle to keep their businesses afloat due to China's continued refusal to allow the sale of Korean games there, and the absence of new games, industry officials said Tuesday.

The World Health Organization's (WHO) move to designate game addiction as a mental disease could devastate the industry while most game firms suffered an earnings shock in the January-March period, they also said.

Major game companies posted lower-than-expected earnings in the first quarter. Nexon, one of the largest game firms here, posted an operating profit of 536.7 billion won ($452.3 million) in the first quarter, a 4 percent decrease year-on-year.

NCSOFT also saw its operating profit decrease by 61 percent to 79.5 billion won and Netmarble posted an operating profit of 33.9 billion won, a 54.3 percent decrease year-on-year. Com2uS, best known for mobile role-playing game "Summoners War," saw its operating profit decline by 23.5 percent while Pearl Abyss had an operating decline of 55.3 percent.

Industry officials said the game companies couldn't generate higher operating profits as they are blocked from exporting games to China and many of them didn't release new game titles in the market.

In China, game companies must obtain licenses from the government for new games. Korean firms have been blocked from exporting games to China since March 2017 when the Chinese government stopped issuing licenses as part of its protest against Korea's deployment of a U.S. Terminal High Altitude Area Defense system.

This China risk appears to have made it more difficult for Nexon founder Kim Jung-ju to sell his stakes in the firm. Kim has reportedly become tired of regulations and the negative perceptions toward the industry, in addition to the decline of overall growth potential compared to when he established the firm in 1994.

Kim has put up for sale a 98.64 percent stake in Nexon's holding company, NXC, owned by him, his wife and his private firm, but he has been struggling to find a suitable purchaser, according to sources in the investment field.

However, the worst factor that could kill the entire game industry here is the WHO's move to codify game addiction as a mental disorder, Hwang Sung-ik, president of the Korea Mobile Game Association (KMGA), said.

"The game industry here has been facing a series of challenges and it seems things can only get worse. Game companies are blocked from exporting their games to China and some of them failed to release new games. What is worse is the WHO may classify game addiction a mental disorder. If it is approved, the industry will lose trillions of won," Hwang told The Korea Times.

The game addiction issue will be decided during the WHO's assembly meeting, which will take place in Geneva, Switzerland from May 20 to 28. It will take effect in 2022, if approved, and experts here estimate the industry will lose more than 10 trillion won in three years from 2023. Hwang added the designation "could make small-sized game developers disappear from the industry."

The environment for doing game business is getting difficult as the adoption of the 52-hour maximum workweek, shortened from 68, has been impeding firms from meeting deadlines for new games and has burdened them with additional labor costs.

In addition, the growing movement to form labor unions has put greater pressure on the firms. The labor union of Nexon reached a deal with management in February to abolish the fixed overtime wage system beginning August and the move was followed by other game companies such as Netmarble and NCSOFT.


Baek Byung-yeul baekby@koreatimes.co.kr


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