Continuing Bad News... The Rising 3N Faces 'Dark Clouds' [Buaeri's Game Dictionary]

[Asia Economy Reporter Bu Aeri] Last year, the three major domestic game companies known as 3N (NCSoft, Nexon, Netmarble), which were on a winning streak, are now facing only adverse conditions. Due to controversies over loot boxes and poor performance of new releases, NCSoft’s market capitalization has evaporated by more than 5 trillion KRW in just one month. Nexon, which earns significant revenue from the Chinese game market, is now shadowed by risks originating from China. The earnings outlook for the 3N companies is not very bright for the third quarter, following the second quarter.

NCSoft Faces Internal Sexual Harassment Scandal

According to NCSoft on the 9th, a sexual harassment incident recently occurred within the company, prompting an internal investigation. On the 6th, an anonymous post exposing the sexual harassment incident was uploaded on the workplace anonymous community Blind. According to the author, three female employees reportedly resigned due to sexual harassment.

The author specifically listed cases such as ▲stroking the hair and touching the back of the neck of subordinate female employees, ▲contacting them until dawn under the pretext of giving advice, ▲spreading inappropriate rumors within the company, and ▲deliberately inducing one-on-one meetings or meals. The author stated, "Individuals notorious for sexual harassment have even received commendations but continue to remain unpunished." In response, NCSoft explained that if these allegations are confirmed to be true, they are considering dismissing the involved personnel.

NCSoft has recently been suffering from various risks. Earlier this year, it faced backlash from users over loot boxes (random item draws), and recently, its ambitious title 'Blade & Soul 2' failed to meet market expectations, resulting in a double blow. During this year’s National Assembly audit, the company was openly criticized and compared unfavorably to overseas games.

However, NCSoft has initiated business model (BM) innovation by restructuring the payment systems of Lineage M and Lineage 2M. The global launch of the new title 'Lineage W' is also scheduled for the 4th of next month. NCSoft announced that it will not implement the fatigue system called the 'Einhasad System' in the new release. Furthermore, regarding the excessive monetization that has drawn public criticism, the company emphasized, "We will reduce the burden on users to create a more accessible Lineage game."

Nexon’s Concerns Over China Risks

Nexon, which had been thriving with over 1 trillion KRW in sales from 'Dungeon & Fighter (DNF)' in China, is also experiencing a decline in users and a hit to its revenue. Neople, the developer of DNF, saw its Chinese revenue drop 26% from 1.074 trillion KRW in 2019 to 791.1 billion KRW last year. Nexon’s Chinese revenue in the second quarter of this year also fell 30% year-on-year due to the decrease in DNF users. Moreover, the China release of DNF Mobile, delayed by a year, has yet to be announced.

Meanwhile, China has classified games as 'spiritual opium' and imposed regulations. The Chinese government has limited gaming time for minors to three hours per week. Competition with Chinese games is becoming increasingly fierce. China is expanding its influence worldwide, including the Korean market, through massive capital and marketing expenditures.

Researcher Kwon Gumin from the Korea Creative Content Agency’s Industry Policy Team stated, "Considering the rapid development of Chinese games, it is uncertain how long Korean games can maintain their popularity," and added, "It is necessary to move away from negative perceptions of Chinese games and conduct continuous monitoring."

Netmarble Lacks a Breakout Hit

Netmarble remains quiet without major issues, but the absence of an overwhelming 'number one game' remains a constant challenge.

Netmarble suffered an earnings shock in the second quarter, posting the weakest operating profit among the 3N companies. It recorded sales of 577.2 billion KRW and operating profit of 16.2 billion KRW, plunging 15.8% and 80.2% respectively compared to the previous year. Although titles like 'The Second Country,' released in June, and 'Marvel Future Revolution,' launched in August, received favorable reviews, there was no major hit.

However, it is expected to recover from the earnings shock starting in the third quarter. Netmarble’s third-quarter sales are projected at 656.1 billion KRW, with operating profit at 75.4 billion KRW. Sales would increase by 2.1% year-on-year, while operating profit would decrease by 13.7%. Netmarble’s acquisition of social casino game company SpinX is also a positive factor for expanding its global influence. Securities firms expect SpinX to become Netmarble’s cash cow. Kang Seonghoon, a researcher at DS Investment & Securities, said, "From the fourth quarter, SpinX’s performance will be reflected, increasing sales by about 170 billion KRW," and added, "We expect performance growth and profitability improvement effects to begin in the second half."

Editor's Note The goal of 'Game Dictionary' is to understand and clearly convey game-related issues every weekend. We always listen to incidents and various voices arising from games. Any tips are always welcome.