[K Changers]⑧ Approaching the 2 Trillion Club with Two Hearts, Smilegate

'Hyoja' Crossfire Sales Growth Last Year
Another Heart Lost Ark, Rapid Domestic Growth
Aiming for '2 Trillion Won' Revenue Based on 2 Mega IPs

Games are the core of K-content exports. According to the 2021 survey on the content industry by the Ministry of Culture, Sports and Tourism, out of $12.45 billion in exports, games accounted for $8.67 billion, making up 69.6% of the total. This scale is overwhelming compared to music ($775.27 million) or broadcasting ($717.99 million).

The latest continent in Lost Ark, Bordaik (Photo by Smilegate)

Smilegate has been a leading company at the forefront of K-game exports. ‘Crossfire’ has maintained its position as the number one FPS in China for over 10 years. ‘Lost Ark’ and ‘Epic Seven’ have also achieved success overseas. Recognizing these achievements, founder Kwon Hyuk-bin, Chief Vision Officer (CVO), became the first in the domestic gaming industry to receive the Bogwan Cultural Medal.

Typically, game companies succeed domestically before expanding overseas. Smilegate was the opposite. During the time when Crossfire was the sole revenue driver, overseas sales accounted for nearly 100%. Currently, Smilegate has expanded its market and revenue domestically through Lost Ark. Smilegate’s revenue last year was 1.5771 trillion KRW, with an operating profit of 634 billion KRW. Of this, overseas sales were about 1 trillion KRW, approximately 60%. In terms of operating profit, Smilegate ranks third in the gaming industry after Nexon and Krafton, and 48th among all domestic companies, surpassing Kakao (580.3 billion KRW).

‘Crossfire’ Still Growing

Crossfire Still Growing (Photo by Smilegate)

Last year, a ‘cold wave’ hit the Chinese gaming market. Total gaming market revenue was 265.8 billion yuan (about 48 trillion KRW), down about 10% from the previous year, due to regulations on underage gaming and other factors. Even Tencent, the number one company in China’s gaming industry, experienced ‘negative growth.’ Its gaming revenue last year was 170.7 billion yuan (about 32.7 trillion KRW), a 2.1% decrease compared to the previous year.

Despite this atmosphere, Crossfire actually grew. Smilegate Entertainment, which services Crossfire, recorded revenue of 645.8 billion KRW last year, a 6% increase from 607.6 billion KRW in 2021. A significant portion of this comes from China. Even after 15 years since its first service in China in 2007, Crossfire’s success there continues. Although the genre differs, it is not an exaggeration to call it ‘China’s Lineage.’ Crossfire is an IP (intellectual property) that is serviced in 80 countries, with 8 million simultaneous global users and over 1 billion cumulative users.

The success of Crossfire is attributed to thorough localization and the ‘Guanxi (關係)’ relationship with Tencent, the supplier in China. The game includes guns decorated with red, gold, and dragon motifs favored by Chinese players, and characters dressed in traditional costumes, appealing to ‘patriotism.’ Additionally, it runs smoothly on low-spec PCs, broadening its user base. This advantage was significant not only in China but also in Southeast Asia.

When all domestic companies enter China, the ‘Guanxi culture’ acts as a cultural barrier. To maintain relations with Tencent, Smilegate executives travel to China annually for communication and exchange. One of the driving forces behind Tencent’s rise from a latecomer to the number one gaming company was Crossfire. They maintain a relationship based on mutual respect and gratitude. Thanks to this, there have been no conflicts with Tencent so far.

Now It’s the Era of ‘LoA,’ Not ‘WoW’

Lost Ark regularly communicates with users through 'RoAon' (Photo by Smilegate)

Another pillar supporting Smilegate is Lost Ark (LoA). Last year, Smilegate RPG, which services LoA, recorded revenue of 737 billion KRW. LoA ranks within the top 5 in domestic PC bang market share and is the number one RPG.

With a development cost of 100 billion KRW, LoA is evaluated as different from typical ‘K-RPGs’ where performance depends on how much cash players spend. Instead of money, investing time allows players to reach the end of the game with minimal spending. This is one reason it is called the ‘hope of Korean RPGs.’ Many players, known as ‘refugees’ from other games, settled in LoA, significantly increasing its user base.

The biggest factor boosting LoA’s popularity is the ‘Legion Commander Raid.’ This is a combat content where 8- or 4-person parties engage in prolonged battles against powerful bosses. Five Legion Commander Raids were released by last year, and the ‘Carmen Raid,’ which concludes one of the game’s storylines, is scheduled for release in the second half of this year. The ‘hack and slash’ style of nonstop attacks without targeting offers a different charm not found in the existing MMORPG giant ‘WoW.’

LoA’s success is due not only to gameplay but also to the management team. At the center is former director Geum Gang-seon. He is so well-known that there is a saying, ‘Even if you don’t know LoA, you know Geum Gang-seon.’ Known as ‘Light Gang-seon,’ he changed the currency used for the ‘More’ feature, which accounted for 17% of game revenue, from crystals to gold. Crystals require ‘cash payments,’ but gold is an in-game currency. This change aimed to induce ‘gold consumption’ to maintain the value of in-game currency. Simply put, a feature that previously required cash can now be used by paying with virtual currency earned through gameplay. This was a sacrifice of immediate revenue for the future.

Additionally, former director Geum regularly communicated with users through ‘LoA On’ events in summer and winter. Through this, flaws were corrected and strengths further developed. Although he resigned last year due to health issues, his philosophy still permeates LoA. Based on domestic success, LoA expanded services to North America, Europe, South America, and Australia. This year, it plans to enter the Chinese market in partnership with Tencent. LoA is a game made by a company that knows China best. It is regarded as a game with the potential to grow into a second Crossfire. Equipped with two wings, Crossfire and LoA, Smilegate has begun preparations to break into the ‘2 trillion KRW revenue club’ and soar.

Kim Byung-seok, managing director of Smilegate Holdings, said, “We plan to pursue continuous growth in both domestic and overseas markets centered on core IPs such as Crossfire and Lost Ark. This year, we are preparing to launch four new titles, including the Chinese launch of Lost Ark and Crossfire Sierra Squad, the VR version of Crossfire.” He added, “We will secure IPs that can succeed in the global market and continue to develop them, challenging ourselves to become a global top-tier game company.”