Poor earnings in Q1 for gaming industry

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Poor earnings in Q1 for gaming industry

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The gaming industry’s first-quarter performance was sluggish overall as Nexon was the only major company that showed earnings.

The absence of new games and the impact of the government’s regulations on web board games that took effect in February were cited as the main reasons for the poor first-quarter earnings, which did not meet market expectations. Web board games involve gambling, and the government’s rules restricted the hours during which the games can be played and the amount of money that can be spent.

Major gaming companies either barely managed to maintain their earnings performances or slipped slightly. They said they expected a poor performance in the first half and bigger growth in the second half because many companies have planned to release flagship games later in the year.

But their second-half recovery will depend largely on their success in overseas expansion.

NCSoft saw its operating profit shrink 20 percent to 44.5 billion won ($43.4 million) and sales decline 4 percent to 178.1 billion won in the January-March period from a year earlier as sales of its flagship game Lineage and newly popular game Blade and Soul China dropped significantly.

Its operating profit was 22 percent lower and sales were 15 percent less than the previous quarter, larger declines than were expected.

However, the Korean game giant said it had expected sales to level off this year after it posted a record-high sales performance last year.

The company said it is focusing on solidifying its customer base for long-term growth rather than increasing sales in the short term.

Sales of Blade and Soul China made up for declining Lineage sales.

NCSoft started its game service in China in November through Tencent and raised about 30 billion won of sales in the first quarter.

Its royalty sales also shot up 38 percent to post 44.6 billion won, unlike Lineage 2, Aion or Blade and Soul Korea, the company’s main local revenue sources.

NCSoft is looking forward to the second quarter after launching Blade and Soul in Japan on Tuesday, and it plans to launch WildStar in Europe and North America on June 3. It is expecting to revive the declining sales of Lineage by hosting large promotional events.

NHN Entertainment posted a drop in sales of 8 percent to 152.1 billion won and its operating profit dived 64 percent to 22.3 billion won in the first quarter compared to the same period last year. It said the drop was due to the impact of online gaming regulations.

Sales of its PC games made on web boards shrank 24 percent to 102.8 billion won, a 60 percent decrease from a year earlier.

However, NHN’s mobile games posted a 65 percent operating-profit growth to 44.2 billion won from a year earlier, as its Tsuritomo and Line Disney Tsum Tsum gained popularity in Japan and Wara Convenience Store also saw significant sales domestically.

Thanks to its mobile game business growth and NHN’s Japanese corporation NHN Play Art, first-quarter share sales increased overseas.

“Earnings fell due to the regulations on web board games and as the number of PC game users decreased. But mobile game businesses are growing in Korea and overseas,” said Jung Wu-jin, CEO of NHN Entertainment. “We are seeking a new way out through aggressive overseas market expansion and investment in promising companies.”

Another gaming company, WeMade Entertainment, also saw its earnings decline in the first quarter, posting a 33 percent year-on-year sales decrease and 10.5 billion won of operating loss.

Its operating profit turned to deficit as the release of its new game was delayed.

But its mobile game Arc Sphere was successful in the first quarter, so its mobile sales still increased 34 percent from the previous quarter to 6 billion won.

CJ E&M’s game business Net Marble also saw high earnings, but its sales decreased due to the online game regulations.

Net Marble saw a 28 percent year-on-year sales increase and 207 billion won year-on-year growth in operating profit in the first quarter. But the growth is smaller than the fourth quarter of 2013, when it posted record-high earnings.

Sales of its mobile games declined 13 percent compared to last quarter and sales of PC games fell 14 percent over the last quarter.

“For NHN Entertainment and Net Marble, sales of web board games are expected to fall again in the second quarter,” said a source in the game industry.

“Success in the global market and new mobile games and PC games will decide their second quarter earnings performance.”

Nexon was the only major game company to see growth in its quarterly earnings. Its sales rose 7 percent year-on-year to 493.2 billion won and operating profit edged up 2 percent compared to last year to 219.8 billion won.

The company’s cash-cow Dungeon Fighter China and FIFA Online 2 Korea led the earnings rise.

The company’s sales decreased in Japan, the United States and Europe, but these two games made a significant contribution as growth continued to skyrocket domestically.

Nexon expects sales of FIFA Online 2 will continue to grow in the second half, before and after the 2014 Brazil World Cup.

Small game providers such as SundayToZ and Gameville also recorded positive earnings.

The two mobile game companies posted the highest earnings results of the first quarter, indicating major growth potential in mobile gaming.

SundayToZ posted the highest sales and operating profit of all game companies in the first quarter thanks to the success of Anipang 2. Its first-quarter operating profit exceeded its total operating profit for 2013, posting 17.5 billion won, and its sales shot up 332 percent from a year earlier to 40.4 billion won.

Gameville reaped record-high quarterly sales in from January to March, at 27.8 billion won.

Its operating profit declined 21 percent from a year earlier but was 104 percent higher than the previous quarter.

“In the second quarter, game companies are expected to launch more mobile games, but as actual performances will be reflected in the second half, their earnings might not improve immediately in the next quarter,” said an analyst at a local securities company.

“But many companies are expecting better results for the latter half of the year and are gearing up after the poor first-quarter results.”

BY KIM JUNG-YOON [kjy@joongang.co.kr]


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