Unexpected Q1 Performance... Game Industry Hampered by Lack of New Releases and Labor Costs

[Asia Economy Reporter Seungjin Lee] The first-quarter earnings of major domestic game companies mostly declined. This is due to delays in new game releases caused by COVID-19 and the resulting increase in labor costs.

According to the gaming industry on the 14th, Netmarble recorded an operating loss in the first quarter, turning to a deficit. Sales increased by 10.7% year-on-year to 631.5 billion KRW, but operating loss was 11.9 billion KRW. Net loss was recorded at 51.8 billion KRW.

Netmarble cited the absence of major new releases in the first quarter and the downward stabilization of sales from already released games as reasons for the poor performance. In particular, the increase in operating expenses such as labor costs also affected the poor results. Labor costs rose by 30.3% compared to the first quarter of last year to 186.8 billion KRW due to the recruitment of new development personnel.

At a conference call announcing the earnings, Netmarble co-CEO Dogiuk said in response to questions, "From the second quarter, we plan to release various new titles that we have been preparing, so sales are expected to improve," but added, "Due to the impact of increased marketing and labor costs, profitability improvement will be achieved in the second half."

Com2uS, which also recorded a loss in the first quarter this year, was also hampered by labor costs. Com2uS posted first-quarter sales of 133.3 billion KRW, operating loss of 2.7 billion KRW, and net loss of 4.4 billion KRW. Com2uS spent 136 billion KRW on operating expenses (labor costs, marketing expenses, etc.) in the first quarter, a 37.3% increase compared to the same period last year, combining both game and media business sectors. Among these, labor costs amounted to 38.4 billion KRW, accounting for 28.8% of the total.

Wemade also achieved the highest quarterly sales in the first quarter, but operating profit sharply declined due to labor costs increasing nearly threefold, resulting in an earnings shock. Sales increased by 72% year-on-year to 131 billion KRW, but operating profit dropped by 77% to 6.4 billion KRW during the same period.

The sharp decline in operating profit was due to a significant increase in operating expenses. Operating expenses surged by 157% year-on-year to 124.5 billion KRW, of which labor costs rose nearly threefold to 44.3 billion KRW compared to the same period last year.

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