South Korea: Video Games' Crazed Capital
Electronic Arts' (ERTS) $105 million purchase this month of a major stake in Neowiz underscores the growing global clout of South Korean design houses in next-generation online gaming. Gadget-happy South Korea is one of the most wired societies on the planet currently, and its avid young gamers represent the perfect global laboratory to try out new game concepts that will drive future growth in the $28.5 billion global video game industry.
Traditional video game companies such as Electronics Arts need the gaming design smarts of companies like Neowiz that have created smash-hit games that can take full advantage of high-speed broadband networks and the wireless connectivity that new game consoles such as Sony's (SNE) PlayStation 3 and Nintendo's (NTDOY) Wii offer. Some observers see more global tie-ups ahead in the game software side of the business. "This is just the beginning," says Choi Seung Hoon, director at the Korea Association of Game Industry.
South Korean gaming software companies have become global leaders in so-called "massively multi-player online role-playing games" (or MMORPGs), where hundreds of thousands of players create their own characters and partake in blood-splattered adventure or historical fantasy games.
Game software that works with consoles and portable game players is still the industry's big revenue driver (Korean companies want a piece of that action, too). But in fast-growth Asia economies with blisteringly speedy broadband networks and big, tech-savvy gaming communities, these online entertainment games are a hot and growing market segment.
These days young Koreans spend hours at Internet cafés—known locally as PC Baang or PC salons—fixated on locally designed online role-playing games such as MapleStory and City of Heroes. (Indeed, game addiction is a hot topic in the local press.) Nearly 90% of 15.9 million households enjoy broadband Internet access, and virtually all adults and teenagers carry mobile phones, the bulk of them capable of surfing the Net and handling multimedia services. The World Cyber Games, the ultimate battle of wits in global gaming, was founded in South Korea.
This is a very fertile market for game designers worldwide, not only to sell their titles—but also to gain insights into what sort of game environments really click with gamers. "Global game publishers like EA (Electronics Arts) can save time to develop online versions of their popular console games while offering their Korean partners an easy access to mainstream gaming markets," says Choi.
Sports Games Online
Last year, the combined revenues of some 1,200 online gaming companies in Korea reached an estimated $1.94 billion, up from $1.54 billion in 2005, according to the state-funded Korea Game Development and Promotion Institute. The institute forecasts the industry's overall revenues will grow more than 20% to about $2.35 billion in 2007.
In fact, EA's Mar. 20 purchase of a 19% stake in Neowiz came after a very successful collaboration in South Korea. Neowiz developed an online version of EA's FIFA Soccer sports game last year, which became an instant hit locally. EA said last week it would jointly develop four additional online games with Neowiz. No further details were given, but industry analysts say they will probably be based on console sports games, the stronghold of EA. They will be adapted and redesigned for the popular online game genre.
Other big-name international players in the industry see Koreans as their potential partners. Vivendi Games, a unit of French media giant Vivendi, signed a contract last year with Korean developer JC Entertainment to market its online sports game called Freestyle Street Basketball in North America this year.
Freestyle, which allows players to customize the look and style of their characters by picking avatars and their clothes, has attracted 32 million registered users in Asia, including Taiwan and China, since it was first introduced in Korea toward the end of 2005.
Nuts Over KartRider
Neowiz and other leading Korean gaming companies such as NCsoft and Nexon already dominate in the MMORPG games, but they are also trying to muscle into the larger market for software that plays on game consoles. In recent years, they have been diversifying into more casual games such as racing, shooting, sports, and Web board games as well as card and chess games (see BusinessWeek.com, 3/26/07, "The New Avatar In Town").
Nexon's go-cart racing game, KartRider, for instance, has enjoyed a fanatical following in Korea since it made a debut in 2004. A third of Korea's population of 48 million has registered to play it at least once. It also has wild fans in China, where as many as 800,000 players log on at a given time to join the race (see BusinessWeek.com, 7/24/06, "China's Online Gaming Craze").
Of course, Korea is not giving up its MMORPG games. NCsoft, the largest Korean gaming company, is already a contender in wealthy Western markets with its role-playing games such as City of Heroes, City of Villains and Guild Wars Factions. Of NCsoft's revenues of $362 million in 2006, $97 million came from North America or Europe. "Korea represented almost two thirds of our revenues last year, but we expect some 70% of our sales to be generated from overseas markets by 2010," says NCsoft spokesman Kim Joo Young.
Great Western Potential
Korean companies are also banking on the cross-border success of World of Warcraft, known as WoW, a multiplayer online game by California-based Blizzard Entertainment, also a division of Vivendi. WoW's success has given U.S. companies a reason to take online games seriously. Another factor opening a new market for online game developers is the addition of networking features in the latest versions of Microsoft's Xbox and Sony's PlayStation game consoles.
"With console games trying to add networking functions, online games are bound to take on greater importance in the global gaming industry in years to come," says Kang Kyung Seog, senior researcher at the Korean game development institute. "Online games are still a relatively small segment of the Western video games market, but I believe they have the potential to be as big there as in Asia."
Research firm DFC Intelligence expects the global online market to grow to $13 billion in 2011 from $3.4 billion in 2005. North America, Europe, and Japan, where most gamers grew up playing on consoles, are expected to offer a significant growth and to account for $9 billion in online game revenue in 2011.