By Baek Byung-yeul
Netmarble, Nexon, NCSOFT and other game companies have failed to meet market expectations as they struggle to boost their bottom lines amid increasingly unfavorable business conditions, according to industry analysts Wednesday.
The game firms had previously been expected to post strong results in the second quarter on the back of the releases of new games, but the games failed to excite gamers. People also spent less money playing games due to the ongoing economic downturn and more gamers in their 30s and 40s are choosing to watch esports leagues instead, the analysts said.
The operating profits of the "big three" companies ― NCSOFT, Nexon and Netmarble ― all decreased in the second quarter from a year earlier.
NCSOFT reported sales of 410.8 billion won in the second quarter, a 5.9 percent decrease year-on-year and its operating profit declined by 18.9 percent to 129.4 billion won. Nexon's operating profit stood at 137.7 billion won, a 19 percent decline year-on-year and Netmarble also saw its operating profit decreased by 46.6 percent year-on-year to 33.2 billion won.
NCSOFT, which didn't release new titles in the first half, had shown high dependence on its role-playing game franchise "Lineage."
The company said its lower operating profit stemmed from the decreased loyalty it received from Taiwan.
"We have allowed a local company there to publish our "Lineage M" mobile game and received royalties from it. The game was released in Taiwan in December 2017 and has enjoyed explosive popularity there. As the sales growth of 'Lineage M' in Taiwan has stabilized downward, we have received reduced royalties," a company official said.
The official added the company is seeking a rebound with a new game title as it is scheduled to release "Lineage 2 M," a mobile role-playing game based on PC version of "Lineage 2."
Netmarble released a series of new titles in the first half of 2019, including "Yo-kai Watch," "The King of Fighters All-Star," "The Seven Deadly Sins: GRAND CROSS" and "BTS World," but the company failed to boost its profits due to the increased expenditure on marketing.
"The sales of Netmarble improved because of new titles but it logged a decreased operating profit as it spent too much on marketing," Sung Jong-hwan, an analyst at eBest Investment & Securities, said.
A Netmarble official said "the company is expected to see a rebound in the third quarter because highly popular games released in the second quarter will be reflected in our business results in the second half of 2019."
Nexon logged sales of 571.2 billion won maintaining consistent popularity of its steady-selling games such as "Dungeon Fighter Online," "Maple Story," "FIFA Online 4" and "KartRider," but its profitability worsened because new titles such as "Traha" were not enough to draw gamers' attention.
Owen Mahoney, CEO of Nexon, said in a recent conference call that the company "could deliver another great quarter, marking the highest second quarter revenue in our history and recorded a strong double-digit year-on-year growth in key territories."
But the CEO added its third quarter outlook may turn gloomy because "Dungeon Fighter Online" enjoyed extraordinary popularity in China in the same quarter of 2018 and it won't be easy to repeat that.
An official in the game industry said game companies are suffering from faltering profitability maybe because of the declining per capita expenditure of gamers in their 30s and 40s on mobile games.
According to data by the Korea Creative Content Agency, gamers in their 30s and 40s, who have been considered by the game companies to be the biggest consumers, spent less on games in the first half of 2019 compared to the same period last year.
Gamers in their 40s spent 28,579 won ($23.36) per month on average, a 28.5 percent decrease year-on-year, while people in their 30s also cut down their consumption spending 24,373 won per month, a 26.6 percent decline year-on-year.
"The mobile game business accounted for 50 percent of the entire game industry here and those in their 30s and 40s, who have enjoyed playing games when they were young, are spending less on purchasing cash items in mobile games," the official said.
"With higher economic power than those in their teens and 20s, the gamers in their 30s and 40s have been the bread and butter for the game companies. This may negatively affect growth as most of them are focusing on mobile games," he added.
Among the mid-sized companies, only Pearly Abyss logged an eye-opening earnings growth in the second quarter. The company, known for role-playing game "Black Desert," recorded sales of 152.3 billion won and an operating profit of 56.9 billion won, 35.1 percent and 3.8 percent increase year-on-year.
The improved performance stemmed from increased popularity of "Black Desert" in foreign countries. Also the number of users enjoying the role-playing games doubled here. While "Black Desert" has been provided through local publishers in foreign countries, the game was previously serviced by Kakao Games but the company itself decided to service the game beginning May.