NCsoft at a crossroads

NCsoft CEO Kim Taek-jin                                                   Blade & Soul

Game developer in desperate need to find new growth model

NCsoft, Korea’s second largest game company, is facing a critical crossroad with difficulties piling up and its future uncertain. A growing number of investors are casting doubts on its expansion plan abroad, while its growth model has become obsolete.

Despite its online role-playing smash hit Blade & Soul remaining top in the ranking in its genre and blitzing the grand prize at the Korea Game Awards, the firm’s stock price has fallen to a third of what it was earlier in the year.

The decrease mostly stems from the recent selling of its stocks by CEO Kim Taek-jin to its rival and Korea’s largest game publisher and developer Nexon which became the majority shareholder in June.

Without proper explanation by the CEO, investor sentiment became depressed. “A major shareholder selling his stock is never good news for investors, and uncertainty contributed heavily to the drop,” said Choi Hoon, an analyst at KB Investment & Securities, over the phone.

Its price per share ended at 156,000 won as of Wednesday. The price, which hit an all-time high of 386,000 won in October last year, maintained 300,000 won throughout the first half of the year.

“The third quarter result was disappointing, and many are worried that NCsoft can’t guarantee the good results that it used to. Other revenue income from old titles has also eroded,” said the analyst.

“The company showed performances below expectations and that is why the stock price plummeted,” said Kim Chang-kwean, an analyst at KDB Daewoo Securities, over the phone. “To boost its price, NCsoft must show a new business model to guarantee better results.”

Blade & Soul boosted the firm’s operating profits by 32 billion won in the third quarter to 50.6 billion, 12.4 percent below the market consensus, according to analysts.

The company boss finally held a press conference last week and gave a long overdue explanation of why he sold the stock, saying it was for a major, collaborative global acquisition with Nexon. But his announcement only raised more questions as he refused to disclose which company the two were looking into.

Another major difficulty comes from its decade long focus on desktop-oriented massive role-playing games. Like other large companies that are powerhouses on the PC platform, the emergence of the mobile platform and new paying methods has cast doubt on the sustainability of its business model.

NCsoft spends a staggering amount of money on blockbuster titles that take years to develop _ Blade & Soul took five years and 50 billion won _ but “No one can predict whether such a huge bet will pay off, especially in the game industry. A games’ future is impossible to calculate until an actual commercial release,” said a professor specializing in content at a domestic university.

Maintaining huge-scaled role playing games is also no easy task: constant patches and updates are needed to keep subscribers interested. Korean consumers have one of the highest content consumption rates in the world while also being incredibly capricious as they change preferences really fast, according to the professor.

Mobile games are relatively cheap and the trend changes are more volatile and are yet to embrace online role-playing games that require heavy commitment, high-end gadgets and the wide spread of the cloud.

Online role-playing games still rely heavily on monthly subscription fees: the industry is adjusting to apply more of the free-to-play pay model, widely implemented by Nexon, which allows customers to play games for free and pay for additional in-game features.

According to NCsoft spokesmen, the firm has no immediate plan to turn into a mobile game-centered developer. The company has only limited mobile features that are focused on supporting the actual game played on PCs such as item purchases or coupons.

“It seems NCsoft is walking the same road as Nintendo or Sony which raises concerns with investors. Nintendo and Sony, which focused on video games, fell out of contention when online games began to take over. The biggest challenge for NCsoft will be to find a way to adapt to mobile platforms,” said Choi.

However, market analysts predict that if Guild War 2 remains popular and Blade & Soul is successfully launched in the second half of next year in China, the biggest market in the world for online-role playing games, the firm may find new momentum for growth. This quarter’s numbers will improve from the previous one.

But they add that its heydays are over and the chances are slim that it will control the market as it did in the early and mid 2000s. <The Korea Times/Cho Mu-hyun>