Lack of New Releases and Rising Labor Costs... Gaming Industry's 3N Faces 'Earnings Shock' (Comprehensive)

[Asia Economy Reporters Kang Nahum, Boo Aeri] The game industry’s '3N'?NCSoft, Netmarble, and Nexon?have all simultaneously experienced an 'earnings shock.' Due to the prolonged COVID-19 pandemic, lack of new releases, and rising labor costs, their second-quarter earnings sharply declined.

Among the 3N, Netmarble saw the largest drop in operating profit. On the 11th, Netmarble announced that its consolidated revenue for Q2 this year was 577.2 billion KRW, with an operating profit of 16.2 billion KRW. These figures represent decreases of 15.8% and 80.2%, respectively, compared to the same period last year. Net profit was 48.2 billion KRW, down 43.4% year-over-year.

Q2 EBITDA (earnings before interest, taxes, depreciation, and amortization) was 41.8 billion KRW, down 47.9% from the previous quarter and 61.8% from the same quarter last year. The cumulative amount for the first half of the year was 122.1 billion KRW, a 22.7% decrease compared to the same period last year.

Netmarble explained that this poor performance was due to the non-reflection of revenue from 'The Second Country: Cross Worlds' and increased marketing and labor costs related to new game launches.

Netmarble CEO Kwon Young-sik said during the earnings conference call, "The main reasons for the decline in earnings are the effects of wage increases and pre-executed marketing expenses," adding, "We expect a significant improvement in operating profit in Q3 as revenue from The Second Country is reflected."

Netmarble plans to further strengthen its global market competitiveness through the global launch of the highly anticipated 'Marvel Future Revolution' in the second half of the year and the acquisition of social casino game company SpinX.

In particular, SpinX, recently acquired, is the third-largest global mobile social casino game company. Netmarble expects SpinX to contribute to expanding its casual game lineup and strengthening business competitiveness. Netmarble CEO Lee Seung-won said, "We expect the social casino genre to continue steady growth," adding, "SpinX’s annual revenue is estimated to be between 700 billion and 750 billion KRW as of 2021. Consolidated results will be fully reflected starting from Q4."

NCSoft suffered from poor performance for two consecutive quarters. NCSoft reported Q2 revenue of 538.5 billion KRW and operating profit of 112.8 billion KRW. Revenue remained at the same level as the previous year, but operating profit fell by 46%.

The continuous decline in revenue from its main income source, Lineage M, had a significant impact. Mobile game revenue in Q2 was 352.1 billion KRW, with Lineage M generating 134.2 billion KRW, down 22% from the previous quarter. However, Lineage 2M’s revenue rose 43% quarter-over-quarter to 217.9 billion KRW.

PC online Lineage revenue also decreased. Q2 PC online Lineage revenue was 36.4 billion KRW, down 26% from the previous quarter. Lineage 2 revenue also dropped 8% quarter-over-quarter to 24.1 billion KRW. Overall PC online revenue was 105.9 billion KRW, reflecting a significant decline in Lineage revenue compared to the previous quarter.

NCSoft IR Director Lee Jang-wook said during the conference call, "Although Lineage M’s revenue decreased, traffic indicators remain very solid," adding, "After the 4th anniversary update on July 7, dormant users returned, resulting in a rebound in traffic and revenue. We expect to maintain stable revenue flow based on traffic indicators going forward."

NCSoft is expected to counterattack with the release of the MMORPG 'Blade & Soul 2' on the 26th. Additionally, on the 19th of this month, it will hold an online showcase for the global new release 'Lineage W.' This game is the global version of Lineage M and is expected to launch within this year.

NCSoft stated, "Lineage W is a major title that has been prepared over a long period with the goal of showcasing the essence of MMORPGs to users worldwide," adding, "We aim for a simultaneous release within this year in global markets including Korea."

Nexon also experienced poor performance due to the lack of new releases and a decline in overseas sales. Nexon reported Q2 revenue of 573.3 billion KRW and operating profit of 157.7 billion KRW, down 13% and 42%, respectively, compared to the previous year.

Mobile game revenue was 187.1 billion KRW, down 8% from the same period last year. PC game revenue also decreased by 15% to 388.7 billion KRW. Net profit was 91.7 billion KRW, down about 55% year-over-year. Cumulative revenue for the first half of the year was 1.4772 trillion KRW, nearly 2% lower than the same period last year.

By region, Nexon recorded revenue of 334.5 billion KRW in Korea, similar to the previous year. However, overseas sales declined: China by 30%, Japan by 22%, and North America and Europe by 13%.

After a 'breather' in Q2, Nexon plans to counterattack with multiple new releases. At a media briefing on the 5th, Nexon unveiled seven new titles including 'Project Magnum' and 'Project HP,' as well as the sub-brand 'Project Early Stage,' outlining its future growth plans. Last month, it also established a film & television division to expand its intellectual property (IP) business.

Owen Mahony, CEO of Nexon Japan, said, "Nexon is developing numerous new titles based on a multiplatform foundation to lead the company’s new future," adding, "We aim for long-term growth in the global market through expanding the value of excellent global IPs and discovering and nurturing new IPs."

This content was produced with the assistance of AI translation services.