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Nexon Seeks U.S. Deals for Free-to-Play Model as Consoles Fade

Nexon Co. (3659), the Japanese maker of online games MapleStory and Combat Arms, is hunting for more deals to boost U.S. revenue after taking stakes in four companies and acquiring a fifth this year.

The company is looking to capture market share as North American consumers shift from dedicated consoles with packaged titles to free, online games, Chief Financial Officer Owen Mahoney said in an Oct. 25 telephone interview. The Tokyo-based company is seeking developers to add titles for Western audiences to lure online users who pay to add in-game items.

Nexon has partnered with Tencent Holdings Ltd. (700), China’s largest Internet company, and is looking to boost North America sales that accounted for just 3.9 percent of its total in the second quarter. China generated 42 percent and Japan 26 percent of revenue in the same period.

“We’ve got a very active business development pipeline now” said Mahoney. “We are always on the lookout for smart, good developers, especially those in the West who have great art style, great physics and capability that is tuned and made for Western tastes.”

Last month, Nexon said it would make a cash equity investment in Shiver Entertainment founded by former Zynga Inc. (ZNGA) Chief Operating Officer John Schappert. In September Nexon said it would buy Thingsoft, an online game development studio based in Seoul, South Korea, that helped develop the FIFA Online 1 title.

Western Developers

Revenue from free mobile and computer games surpassed annual sales of packaged titles in 2012, when including follow-on spending for weapons and other in-game items, according to a December survey of U.S. gamers by Frank Magid Associates Inc.

“The industry is clearly shifting to free-to-play,” said Mahoney. About 10 percent of Nexon’s users purchase items within the games, said Mahoney, a former vice president at Electronic Arts Inc. (EA), the maker of Madden console games. “The remaining 90 percent are very important to us, they keep the game world very, very vibrant and fun to play in.”

In July Nexon announced strategic investments in Redwood City, California-based Rumble Entertainment Inc. and Baltimore, Maryland-based SecretNewCo.

Rumble Entertainment, which operates the Ballistic and KingsRoad games, is headed by Greg Richardson, a former vice president at EA Partners. The free-to-play game developer is also backed by Google Ventures and Khosla Ventures.

SecretNewCo, develops social and strategy games, and is headed by Brian Reynolds, the former chief game designer at Zynga. Reynolds helped develop titles such as Rise of Nations and Civilization II.

Fifty-eight percent of North American developers are planning their next games for handsets and tablets, based on a survey of 2,500 for the Game Developers Conference in San Francisco in March.

In February, Nexon acquired a stake in Robotoki Inc., led by Robert Bowling, former creative strategist of Activision Blizzard Inc. (ATVI)’s “Call of Duty” franchise for an undisclosed amount.

To contact the reporter on this story: Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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