Online Gaming: Is Korea a Harbinger of a Western Boom?

Electronic Gaming Business, Dec 17, 2003

It's the do or die question for game companies in the West. After the absolutely stunning success of online play in Korea, where broadband Internet penetration is about the highest in the world, will U.S. and European audiences embrace multiplayer online gaming as fervently when these populations also enjoy ubiquitous high speed access. European analyst Paul Heydon, head of interactive entertainment, Commerzbank, thinks that when it comes to growth in this segment of the industry, "the sky is the limit after growth in Korea." In a recent report to investors, he laid out the unique set of forces driving game growth online.

The Korean online market has grown 650% since 2002, and in that time its share of overall electronic gaming revenue has grown from 2% to 21%. This makes online gaimg in Korea not only the fastst growing sector but the real driver for revenue growth in the gaming industry. In the online category, NCSoft, maker of the monster hit Lineage, has 34% of the market. MMOGs are a genuine cultural phenomenon in Korea, wth 800 online game companies and 4 TV channels devoted to video games.

Can It Happen Here?

Some of the elements that drove Korean gaming's explosive growth are not present in the U.S. The Korean government was very supportive in underwriting broadband growth, so that the infrastructure for high speed access is more advanced than in most Western countries, with broadband in 70% of wired homes. As well, Koreans frequented Internet cafes, where those who could not afford a high speed connection still could play MMOGs.

Nevertheless, there are important lessons from the Korean experience for U.S. game companies. One of the driving forces in Korean gaming has been the support of the animated film industry in promoting and extending game properties. Having game worlds become larger fictional franchises that can run through film, TV, and graphic novels are not just economic opportunities for licensing revenue but also important marketing webs.

In the U.S., much will depend on capital investment, because the upfront costs of launching a major online world are now upwards of $25 million. Heydon argues that VC dollars will focus on companies that can satisfy some stringent criteria. First, publishers will need high quality intellectual property that is already recognizable. Leveraging existing brands (such as Blizzard's upcoming World of Warcraft, LucasArts, Star War Galaxies, and EA's Ultima X) is most likely to attract investment. Likewise, VCs will be looking for companies with established relationships with existing customers of audiences. LucasArts had over 500,000 Star Wars fans registered to receive information about the Galaxies game months before it launched.

Online games offer consumers a great value proposition but they are not yet marketed and distributed effectively in the U.S. and Europe, says Heydon. Compared to a $50 console title, a $4.99 or $9.99 a month fee for an MMOG or other online play represents a low barrier to entry with an attractive option not to buy, an inexpensive trial period. Nevertheless, the game industry needs to market this as a service, not just as a finite product. Upcoming MMOGs such as World of Warcraft are leading with their service attributes and promising gamers that the online gameplay will expand regularly, that a dedicated team of designers will be staging regular events and additions to the world to keep it fresh.

Also key to online gaming's success will be more evolved distribution channels. In Korea, the Softbank "BB Games" portal demonstrates how aggregation can help drive interest in online play by bringing a wealth of alternatives together for consumers. BB Games will be providing over 100 titles this year and over 300 titles next year from scores of different game companies under a unified delivery and payment system. In the U.S., K2 Network is trying a similar model. The company is hoping to aggregate fee-based games, including MMOGs, and become an intermediary with broadband operators, who will help market the games to their customer base and bundle the game software or client pieces on the installation CD for the high speed service.

Online multiplayer gaming may be a mass phenomenon on Asia but it remains a niche play in the West. But it may not have to remain so. By repositioning the product as a genuine service, a persistent entertainment source that is well-maintained, and by making it much more accessible to gamers outside the MMOG cult through broader, smarter marketing, online gaming could well become the sort of major media force in the West it has already become in the East.

Online Game Fundraising (Private Companies)
Company                Amount        Country
                       (inMillions)
E-Pub (Uproar)         $0.50         Hungary
Netamin                $1.90         US/Korea
There                  $37+          US
Nevrax                 11 (Euro)     France
Barrysworld            3 (UK)        UK
Mythic Entertainment   $32           US
Terra ICT Sdn BHD      $16.10        Malaysia
Prizepoint             $2.75         US
Zona                   $1.20         US
Artifact               $4.50         US
Wild Tangent           $51           US
VR-1                   $13.60        US
Gamania                $10.60        Taiwan
GameSpy Industries     $15           US
Unibox Korea           $7            Korea
Taewool                $5            Taiwan
iWin                   $30           US
Gamesville             $14           US
Gamers.com             $11           US
Turbine Entertainment  $13           US
Butterfly.net          $9.20         US
Source: Commerzbank