Can Korea Be Kingpin Of Online Games?

It's making a huge export push that will eventually stretch to the U.S.

If NCsoft Corp. ever had a question about the popularity of its new online games beyond South Korea's shores, it got a resounding answer at the Taipei Game Show in February. There, tens of thousands of enthusiasts thronged the company's booth to get a glimpse on a giant screen of Lineage II, its latest Internet-based, three-dimensional, fantasy-role-playing game. Some 75,000 additional Taiwanese are now playing Lineage II -- a successor to a hugely successful online game of the same name -- in a test run. Given the reaction in Taiwan, NCsoft can stride confidently into other markets. "We think we are ready to go global," crows Kim Yong Kon, head of NCsoft's international business unit.

Indeed, NCsoft is in the vanguard of a bid by Korean companies to revolutionize digital games worldwide. The industry is now dominated by Japanese and U.S. giants such as Sony (SNE ), Microsoft (MSFT ), and Electronic Arts (ERTS ) that sell games played on proprietary consoles and disks. But the Koreans are betting that their network games, in which thousands of gamers compete in real time over the Net using personal computers at home or in Internet cafés, will become the industry standard once high-speed Internet becomes more widespread. "Online games have the potential to emerge as the most innovative brainchild Korea has ever produced," says John H. Wi, a business professor at Chung-Ang University. "This will create a whole new culture."

It's already happening in Korea, where online games are far more popular than the console variety, in part because three-quarters of all households have broadband access to the Net. The companies are projecting sales of $640 million this year -- nearly triple 2001 revenues of $233 million. The money comes in through monthly subscriptions of about $25 from game players. When a dragon called Antaris unexpectedly appeared in Lineage II in January to wreak havoc, "it was as important for the players as a political scandal rocking the country," says Wi.

Now, hundreds of thousands of players are logging on in China, Japan, and Thailand, as broadband access spreads in those countries. The state-funded Korea Game Development & Promotion Institute estimates the foreign revenue of Korean online-game companies -- mostly in the form of royalties -- will jump to $143 million this year, up from $15 million three years ago. That's becoming important to companies such as NASDAQ-listed Webzen (WZEN ) Inc., which earned $29 million on sales of $49.5 million in 2003 -- 15.5% of it from China and Taiwan.

TARGETING TAIWAN. NCsoft, Korea's biggest online game company, is leading the overseas push. In Lineage II games, players create 11th century characters representing themselves -- a concept that has proved highly exportable. This year, the company pro-jects that overseas revenue will jump 70%, to $41.5 million, and that overall sales will be up 52%, to $221 million.

In Taiwan last year, NCsoft earned $21 million in royalties from its local partner, Gamania Digital Entertainment Co. In China, Korean games currently account for well over 50% of the market. In Japan, NHN Corp. of Korea in mid-2003 overtook Yahoo! Japan Corp. as the country's largest game portal.

On Apr. 28, NCsoft will face its biggest test yet when it launches its Lineage II and City of Hero online games in English in the U.S. NCsoft has been building up to this ever since it recruited veteran American programmer Richard Garriott in 2001 and acquired Seattle game development studio ArenaNet for $16 million in 2002. "The challenge is to tailor games to the unique tastes and preferences of the West," says NCsoft's Kim. Look out, PlayStation and Xbox: Those Lineage dragons are out to singe your profits.

By Moon Ihlwan in Seoul

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