Korean games popular in China, Japan

Critics argue tough regulations curb growth potential

K-pop’s rise is fast and furious, representing the country’s booming cultural industry. Yet this doesn’t mean K-pop is the most profitable export item among cultural products.

Guess what the No.1 is?

Computer games.

According to the state-run Korea Finance Corporation, Korea’s games exports in 2012, the latest date, reached $2.6 billion, nearly more than half of the country’s cultural products exports. The figure was a whopping 11 times the $235 million in exports of K-pop content that year, the institution said Monday.

By sector, online games using fixed-line Internet were the biggest money-maker with $2.4 billion or 91.4 percent of the total export volume, including mobile games available on smartphones and arcade games. Mobile games came second with $169 million.

The export volume gap between online and mobile games was huge, but analysts say it is narrowing rapidly as more people use smartphones and high-speed mobile Internet links.

“The game industry can be linked with a number of other industries such as movies, animation, characters and design,” said Kim Hee-tae, a researcher at the corporation. “It can create huge added value.”

Growing demand in China

This announcement came only two weeks after Tencent Holdings, China’s largest Internet firm by market capitalization, unveiled its plan to buy a 28 percent stake in CJ Games for $500 million. The deal, if it proceeds smoothly, will make the Chinese firm the third largest shareholder in Korea’s largest game company.

Analysts said the deal reflects international recognition of Korean game makers’ competitiveness.

“We look forward to collaborating with CJ Games to bring higher quality and a more enjoyable mobile gaming experience to our user base,” Martin Lau, president of Tencent, was quoted as saying by the China Daily, an English-language newspaper published in the world’s second largest economy.

The daily said the deal will pave the way to combine CJ’s “unrivalled” game development skills and mobile game line-up with Tencent’s “strong” game publishing and operation capabilities in China.

The newspaper said online games contributed to nearly half of Tencent’s revenue of 16.97 billion yuan ($2.73 billion) in the fourth quarter of 2013, citing the company’s financial report.

China is the biggest consumer of Korean games, which spent $1.01 billion in 2012 to take in 38 percent of Korean games. It was followed by Japan ($703.3 million) and Southeast Asia ($496.3 million), according to the Korea Creative Content Agency. Names of Korean games popular overseas were not available.

The global games markets was estimated at $111.7 billion in 2012, equal to 10 percent of Korea’s gross domestic product of $1.19 trillion in 2013, according to the Ministry of Strategy and Finance. The United States took up 18.6 percent of the global market in 2012, trailed by Japan and China with 18.5 percent and 12.2 percent. Britain, Korea, France and Germany held comparable figures of 8 percent, 6.3 percent, 5.7 percent and 4.6 percent, respectively.

Increasing state support

Early this month, the Korean government said it will create a 200 billion won ($189 million) joint investment fund with its Chinese counterpart to make it easier for Korean cultural content producers, including game makers, to enter the Chinese market.

Under the plan drawn up by the Presidential Committee for Cultural Enrichment, Korea and China will raise 100 billion won each with money coming from government coffers and private firms. Products created with financing from the envisioned joint fund can bypass China’s strict import quotas as they will be recognized as co-products of the two countries, the committee said.

“China is one of the world’s largest content markets, but Korean firms are experiencing difficulties in advancing due to high trade barriers,” Cho Hyun-jae, first vice culture minister who is a member of the presidential committee, told reporters on April 4. “We expect this fund will help Korean content products advance in the Chinese market.”

This move has inspired the country’s major banks to expand financial support for the content and entertainment industry.

Last Sunday, the state-run Industrial Bank of Korea (IBK) said it plans to set aside 750 billion won to support the cultural content industry between 2014 and 2016.

“We have a long-term vision to nurture small- and medium-sized enterprises that produce excellent cultural content,” IBK said in a statement. “Our support will vary depending on the amount needed and the characteristics of the companies. We believe SMEs can grow into firms that are internationally competitive.”

Smaller makers of cultural content, including games, TV dramas and films, have had difficulties borrowing from banks because of uncertainty in profits and the general risks of the industry. The bank therefore set up a division to focus on lending to them.

It invested 541.7 billion won between 2011 and 2013 in a total of 3,040 cultural content productions and recorded a 2.2 percent return last year.

Korea EximBank plans to invest 220 billion won into the industry this year, up from 205.3 billion won in 2013.

“Companies in the content industry require a stable supply of capital and know-how in financing when they go abroad,” the bank said. “It’s because the industry is not yet mature and has high risks.”

KB Kookmin Bank has introduced an installment savings product for customers who are interested in movies. The accounts earn interest depending on how successful the films associated with the product are.

Stumbling blocks

All in all, things seem likely to move in a direction that will help the games industry. But industry insiders say it’s doubtful how effective the above-mentioned measures will be without removing what they called “stumbling blocks” curbing the industry’s growth.

“The biggest problem is that the government sees games as a major culprit behind many social troubles involving teenagers. In this vein, the government has introduced a variety of regulations against the industry,” said Kim Sung-kon, director at Korea International and Digital Entertainment Association. “I am not sure whether the industry can survive under this kind of regulatory environment.”

In 2010, the government introduced an online curfew blocking overnight access of those aged 18 or under to Internet-based games.

In November, a doctor-turned-lawmaker submitted a bill to the National Assembly, suggesting online games be subject to tight state supervision, along with other addictive social evils such as alcohol, drugs and gambling. Another pending bill says game makers should contribute up to 1 percent of their annual sales to a fund created to help cure addicted people.

In February, the government introduced new measures to limit the money and time spent on computer gambling games such as online poker, sharply reducing online traffic for such games. By Park Si-soo The korea times