Nexon and NCsoft just released their second quarter results.

Aug. 9, 2012 • Financial results are in for several Korean game publishers.  Nexon Co., Ltd. saw its total revenue increase 12% to ¥22,876 million ($291 million) during the second quarter ending June 30. The bright spot was results from China, which saw an increase in revenue of 38% to ¥10,737 million ($136.7 million). Revenue in Korea and North America remained unchanged compared to the same period last year at ¥6,251 million ($79.6 million) and ¥1,515 million ($19.3 million) respectively. Japan declined 12% to ¥2,826 million ($36 million), and Europe declined 8% to ¥1,545 million ($19.7 million). One time rival South Korean publisher NCsoft reported a second quarter loss of ₩7,600 million ($6.7 million), with total revenue down 12% to ₩146,800 million ($130.3 million). It was the first loss since 2006 for the publisher with the company attributing much of the red ink to a one-time labor right-off from its recent restructuring. According to the Chosun Ilbo, ₩15 billion ($13.3 million) was paid in severance packages to 400 workers who were laid off. NCsoft generates far less of its revenue outside South Korea than Nexon. For the second quarter, NCsoft’s revenue in Korea was ₩103,200 million ($91.3 million) and ₩16,900 million ($15 million) in Japan, while revenue in North America was ₩5,800 million ($5.1 million) and ₩3,100 million ($2.7 million) came from Taiwan. Revenue from Europe amounted to only ₩700 million ($620,090). NCsoft is expecting better results during the third quarter when it releases Guild Wars 2 and Blade & Soul late in August. Last June, Nexon acquired 15% of NCsoft shares becoming the largest stakeholder in the company.

Impact: As discussed in such DFC Intelligence reports as the The Market for Browser and Social Network Games, The Game Market in Korea and The Market for English Language Client-Based Free-to-Play PC Games, Nexon has been a leader in driving the virtual item free-to-play (F2P) business model on a global basis.  Nexon’s success is pretty indicative of the overall market.  China is seeing very strong growth but other markets are starting to get more competitive.  Two major areas of competition are games on social networks and mobile platforms.  In a new report entitled The Secret of Gree & Mobage’s Success – How to Succeed with in-App Purchase in the Mobile SNS Market, Japanese publisher Enterbrain looks at how the F2P model has soared in Japan on mobile platforms.  It seems the success of Gree and DeNA is hurting other F2P providers such as Nexon.  NCsoft is a very different story in that they have had much of a traditional subscription model for their games and are fairly new to F2P models.  NCsoft is also very much a hits driven company and they need new hit products.  The challenge for them is competing in a market where an increasing number of products are being given away for free.