Consumers: Gaming their way to growth - Part 3 of South Korea's Digital Dynasty
The South Korean technology agenda has turned online games into a national phenomenon, creating businesses for the future.
South Korea's digital dynasty
Consumers: Gaming their way to growth
By Michael Kanellos
Staff Writer, CNET News.com
June 25, 2004 4:00AM PT
SEOUL, South Korea--The next fashionable export from this country just might be evil.
Webzen and Gravity, two of the leading online gaming companies in Asia, are gearing up to bring their "Lord of the Rings"-type multiplayer games to a worldwide market.
About 80,000 U.S. gamers are already trying out Gravity's feudal fantasy "Ragnarok," according to the company, which has introduced the game in Brazil, Italy, Turkey and 13 other countries.
Not to be outdone, Webzen estimates that 40 million registrants hold temporary or recurring subscriptions for its online game "Mu" in China and South Korea, with an average of 500,000 people playing it at any given time.
"We will also try to acquire some U.S. companies," said Namju Kim, Webzen's CEO and founder, adding that game play will begin in the United States in a few months. The company's stock started trading on the Nasdaq last December and has a market value of more than $300 million today.
The industry's numbers are still relatively small, but they're growing quickly. Gravity pulled in $50 million in revenue with $13 million in net income for 2003. This year it expects its revenue to reach $70 million with earnings of $35 million. Webzen expects similar growth from 2003 to this year. It has predicted its revenue to increase from $48.7 million to $64 million and a rise in operating profits from $27.8 million to $36.3 million.
The seemingly overnight emergence of online gaming serves as a successful case study in South Korea's drive to strengthen its flagging economy with new technologies. An unprecedented program to build a national broadband network has provided the fast Internet connections required for online gaming to thrive. The digital pastime has, in turn, created new businesses looking to meet the demand for more products.
More than 28,000 gaming parlors operate throughout the country, according to various estimates--one for every 1,700 residents. Three cable TV channels are dedicated exclusively to covering tournaments and how-to shows on games like Blizzard Entertainment's "StarCraft," a real-time strategy game not unlike the Milton Bradley analog classic "Stratego."
Gravity Chairman Jeong-ryul Kim displays a map that marks his growing empire.
The gaming boom also shows how quickly a relatively new technology can inspire widespread cultural changes. In just a few years, online games have become serious competition to movies for mass entertainment in South Korea, despite the stereotypical images of game parlors as ill-lit rooms filled with cigarette smoke and budding criminals.
"PC baangs," as the parlors are known, are usually clean and wholesome places where teenagers often go for dates. Last year, Webzen invited gamers and their families to an event to help dissipate some of the negative reputations of online gaming in downtown Seoul. Around 30,000 people showed up.
Nearly 200 designers insert minor additions to Webzen's "Mu" each week.
Source: Webzen
Click to view larger image.
Canadian gamer Guillaume Patry learned of the Korean passion for online gaming firsthand when he traveled to Seoul for a "StarCraft" tournament in 1999. He was stunned to find 1,000 fans at his first match.
"People knew me. In Canada, I was just a teenager," he said. Crowds escalated after he won the "StarCraft" world championship. Although he has slipped in the rankings since, fans still stop his "managers"--foreigners hanging out with him in public--for a photo or an autograph.
A monthly subscription to a game costs around $25 a month in Korea, but because many players go to PC baangs, several people can get access to a game through a single subscription. In China, subscriptions cost around $7.
Lawmakers restrict online game in Asia
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The Dallas Morning News
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Asiaweek
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JoongAng Daily
The bandwidth capital of the world
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My avatar, my self
Technology Review (subscription site)
Different companies take different approaches in international expansion. Gravity licenses "Ragnarok" to independent operators which then pay the company royalties. Webzen licenses its game to publishers but also sets up server farms in international markets to sell subscriptions directly, a technique also used by NCsoft.
Webzen plans to bring "Mu"--in which players battle the malicious Kundun and his various agents--to the United States in three months and open an American office.
"The Kundun has the ability to manipulate humans and prevent them from working together," Kim explained, with a straight face. "We have to kill the Kundun to save the universe."
Webzen and Gravity see other opportunities in the United States, including the development of their PC games for video consoles such as Microsoft's Xbox. Announcements on console deals or new games may come at next year's E3 game industry convention in Los Angeles.
Still, few companies have succeeded in making a regional multiplayer game into an international hit. South Korea's NCsoft tried, without huge success, to market its medieval melodrama "Lineage" game in the West. Similarly, skeptics routinely cite Sony Online Entertainment and its EverQuest flop in Asia as a cautionary tale.
Online games "are difficult to pull off. They are expensive, and you have to continue to build new content and build back-end billing systems," said Schelley Olhava, an analyst at research firm IDC. "The number of people playing these games is limited."
In the United States, online games will account for $650 million in revenue this year. But subscription revenue, which includes fantasy games and services that provide traditional games like "Hearts," will account for $355 million of the total. One important factor in the equation is bandwidth; broadband, which is a must for graphics-intensive online games, is not nearly as pervasive in the United States or Europe as it is in South Korea and other parts of Asia.
In addition, game companies face the perennial challenge of keeping their products fresh and challenging. For "Mu" alone, nearly 200 designers insert minor additions to the game on a weekly basis. Major upgrades occur every three months.
"There are new weapons, new monsters," Webzen's Kim said. This summer, players will be asked to join one of two castles and enter into a massive battle.
Despite such obstacles, the potential rewards may be well worth the risks. Chinese online game provider Shanda Interactive has seen its revenue climb from $500,000 to $72 million from 2001 to 2003, said Michael Cai, an analyst with Parks Associates. Exporting within Asia also seems to work, with games migrating from Korea to Taiwan, Thailand, China and Japan. Asian exports also seem to do well in the United States.
"It is challenging because you always have to go into a new market with different tastes, and you have to set up a business structure. But it can be done," said David Cole, an analyst with DFC Intelligence. "They almost didn't bring Pokemon to the U.S. because they didn't think it could translate, but several billion dollars later, I'm sure the publisher is happy."
Namju Kim, chief executive, Webzen
Gaming companies see ancillary opportunities in related businesses as well. A TV show based on "Ragnarok" is a hit in Japan, and comic book deals are being negotiated in 15 countries. In all, 25 million registered "Ragnarok" players remain active, and merchandising may follow. The company hopes to introduce the game in Vietnam, Australia and other new markets.
South Korea's gaming companies believe they have a competitive edge in the international market, in part because experiences in their own country have given them a head start. Executives say they have a better understanding of how to localize games for foreign markets.
Webzen's Kim said Asian game players, for example, like to beat each other up and try to kill each other's characters. But American players prefer the quest aspect of its games, so the company will amend its U.S. versions accordingly.
Gravity's feudal fantasy "Ragnarok" is a multiplayer online role-playing game with anime-style graphics.
Source: Gravity
Click to view larger image.
Keeping the basic PC system requirements low and the game concepts fairly simple has further helped to preserve a maximum pool of potential players.
Whether a result of that or not, the interest in games is definitely expanding geographically and demographically. Gravity Chairman Jeong-ryul Kim pointed out that 72 percent of his company's U.S. subscribers are American natives, not expatriates familiar with Asian versions, and nearly 30 percent of "Ragnarok" players are female--just a few of many reasons for his unabashed optimism about the future of the business.
Toward the end of the decade, he declared, "at least one-third of the entertainment market will be online games." 
South Korea's digital dynasty
Consumers: Gaming their way to growth
By Michael Kanellos
Staff Writer, CNET News.com
June 25, 2004 4:00AM PT
SEOUL, South Korea--The next fashionable export from this country just might be evil.
Webzen and Gravity, two of the leading online gaming companies in Asia, are gearing up to bring their "Lord of the Rings"-type multiplayer games to a worldwide market.
About 80,000 U.S. gamers are already trying out Gravity's feudal fantasy "Ragnarok," according to the company, which has introduced the game in Brazil, Italy, Turkey and 13 other countries.
Not to be outdone, Webzen estimates that 40 million registrants hold temporary or recurring subscriptions for its online game "Mu" in China and South Korea, with an average of 500,000 people playing it at any given time.
"We will also try to acquire some U.S. companies," said Namju Kim, Webzen's CEO and founder, adding that game play will begin in the United States in a few months. The company's stock started trading on the Nasdaq last December and has a market value of more than $300 million today.
The industry's numbers are still relatively small, but they're growing quickly. Gravity pulled in $50 million in revenue with $13 million in net income for 2003. This year it expects its revenue to reach $70 million with earnings of $35 million. Webzen expects similar growth from 2003 to this year. It has predicted its revenue to increase from $48.7 million to $64 million and a rise in operating profits from $27.8 million to $36.3 million.
The seemingly overnight emergence of online gaming serves as a successful case study in South Korea's drive to strengthen its flagging economy with new technologies. An unprecedented program to build a national broadband network has provided the fast Internet connections required for online gaming to thrive. The digital pastime has, in turn, created new businesses looking to meet the demand for more products.
More than 28,000 gaming parlors operate throughout the country, according to various estimates--one for every 1,700 residents. Three cable TV channels are dedicated exclusively to covering tournaments and how-to shows on games like Blizzard Entertainment's "StarCraft," a real-time strategy game not unlike the Milton Bradley analog classic "Stratego."
Gravity Chairman Jeong-ryul Kim displays a map that marks his growing empire.
The gaming boom also shows how quickly a relatively new technology can inspire widespread cultural changes. In just a few years, online games have become serious competition to movies for mass entertainment in South Korea, despite the stereotypical images of game parlors as ill-lit rooms filled with cigarette smoke and budding criminals.
"PC baangs," as the parlors are known, are usually clean and wholesome places where teenagers often go for dates. Last year, Webzen invited gamers and their families to an event to help dissipate some of the negative reputations of online gaming in downtown Seoul. Around 30,000 people showed up.
Nearly 200 designers insert minor additions to Webzen's "Mu" each week.
Source: Webzen
Click to view larger image.
Canadian gamer Guillaume Patry learned of the Korean passion for online gaming firsthand when he traveled to Seoul for a "StarCraft" tournament in 1999. He was stunned to find 1,000 fans at his first match.
"People knew me. In Canada, I was just a teenager," he said. Crowds escalated after he won the "StarCraft" world championship. Although he has slipped in the rankings since, fans still stop his "managers"--foreigners hanging out with him in public--for a photo or an autograph.
A monthly subscription to a game costs around $25 a month in Korea, but because many players go to PC baangs, several people can get access to a game through a single subscription. In China, subscriptions cost around $7.
Lawmakers restrict online game in Asia
Microsoft moves into chip world with Xbox
Asia's online gamers trounce shoppers
The Dallas Morning News
Korea's weird wired world
Forbes
Playing a new game
Asiaweek
Internet gamers to sue NCsoft
JoongAng Daily
The bandwidth capital of the world
Wired
My avatar, my self
Technology Review (subscription site)
Different companies take different approaches in international expansion. Gravity licenses "Ragnarok" to independent operators which then pay the company royalties. Webzen licenses its game to publishers but also sets up server farms in international markets to sell subscriptions directly, a technique also used by NCsoft.
Webzen plans to bring "Mu"--in which players battle the malicious Kundun and his various agents--to the United States in three months and open an American office.
"The Kundun has the ability to manipulate humans and prevent them from working together," Kim explained, with a straight face. "We have to kill the Kundun to save the universe."
Webzen and Gravity see other opportunities in the United States, including the development of their PC games for video consoles such as Microsoft's Xbox. Announcements on console deals or new games may come at next year's E3 game industry convention in Los Angeles.
Still, few companies have succeeded in making a regional multiplayer game into an international hit. South Korea's NCsoft tried, without huge success, to market its medieval melodrama "Lineage" game in the West. Similarly, skeptics routinely cite Sony Online Entertainment and its EverQuest flop in Asia as a cautionary tale.
Online games "are difficult to pull off. They are expensive, and you have to continue to build new content and build back-end billing systems," said Schelley Olhava, an analyst at research firm IDC. "The number of people playing these games is limited."
In the United States, online games will account for $650 million in revenue this year. But subscription revenue, which includes fantasy games and services that provide traditional games like "Hearts," will account for $355 million of the total. One important factor in the equation is bandwidth; broadband, which is a must for graphics-intensive online games, is not nearly as pervasive in the United States or Europe as it is in South Korea and other parts of Asia.
In addition, game companies face the perennial challenge of keeping their products fresh and challenging. For "Mu" alone, nearly 200 designers insert minor additions to the game on a weekly basis. Major upgrades occur every three months.
"There are new weapons, new monsters," Webzen's Kim said. This summer, players will be asked to join one of two castles and enter into a massive battle.
Despite such obstacles, the potential rewards may be well worth the risks. Chinese online game provider Shanda Interactive has seen its revenue climb from $500,000 to $72 million from 2001 to 2003, said Michael Cai, an analyst with Parks Associates. Exporting within Asia also seems to work, with games migrating from Korea to Taiwan, Thailand, China and Japan. Asian exports also seem to do well in the United States.
"It is challenging because you always have to go into a new market with different tastes, and you have to set up a business structure. But it can be done," said David Cole, an analyst with DFC Intelligence. "They almost didn't bring Pokemon to the U.S. because they didn't think it could translate, but several billion dollars later, I'm sure the publisher is happy."
Namju Kim, chief executive, Webzen
Gaming companies see ancillary opportunities in related businesses as well. A TV show based on "Ragnarok" is a hit in Japan, and comic book deals are being negotiated in 15 countries. In all, 25 million registered "Ragnarok" players remain active, and merchandising may follow. The company hopes to introduce the game in Vietnam, Australia and other new markets.
South Korea's gaming companies believe they have a competitive edge in the international market, in part because experiences in their own country have given them a head start. Executives say they have a better understanding of how to localize games for foreign markets.
Webzen's Kim said Asian game players, for example, like to beat each other up and try to kill each other's characters. But American players prefer the quest aspect of its games, so the company will amend its U.S. versions accordingly.
Gravity's feudal fantasy "Ragnarok" is a multiplayer online role-playing game with anime-style graphics.
Source: Gravity
Click to view larger image.
Keeping the basic PC system requirements low and the game concepts fairly simple has further helped to preserve a maximum pool of potential players.
Whether a result of that or not, the interest in games is definitely expanding geographically and demographically. Gravity Chairman Jeong-ryul Kim pointed out that 72 percent of his company's U.S. subscribers are American natives, not expatriates familiar with Asian versions, and nearly 30 percent of "Ragnarok" players are female--just a few of many reasons for his unabashed optimism about the future of the business.
Toward the end of the decade, he declared, "at least one-third of the entertainment market will be online games."