Korea's Nexon Bets On Sales of Virtual Gear For Free Online Games [wsj]
By NICK WINGFIELD
May 23, 2008; Page B1
The online game company Nexon Holdings Co. has won legions of fans on its home turf in South Korea. The company estimates nearly a third of the country's population of more than 49 million has played Kart Rider, an addictive, anime-style online racing game from Nexon that allows youngsters to customize their vehicles and chat with friends.
Now Nexon is making a bigger play for gamers in North America, bringing with it an innovative approach to making money that U.S.-based game makers like Electronic Arts Inc. are scrambling to emulate.
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Nexon Holdings
Nexon will release its 'Sugar Rush' game in North America.
Unlike the traditional approach, Nexon makes its games free to download to personal computers and to play. The company makes money by charging customers anywhere from 30 cents to $25 each for virtual "items" to enhance their game experiences, including everything from souped-up vehicles to wacky hairstyles for in-game characters. Later this year, Seoul-based Nexon will release its first game created in North America, Sugar Rush, in an attempt to further boost its local appeal.
The in-game purchases add up to a big, fast-growing business. Prepaid cards used to buy Nexon game items are now the second best-selling entertainment gift card at Target Corp. stores in the U.S., after cards for Apple Inc.'s iTunes Store, Target says.
Closely held Nexon says it had a $75 million profit on $230 million in revenue in 2005, the most recent year for which the company has released its global sales. That's up from a $35 million profit on $110 million in revenue the prior year. By comparison, EA, the largest world-wide game publisher by sales, posted a $236 million profit on revenue of $2.95 billion for the fiscal year ended March 31, 2006.
Nexon declines to say whether it has plans for an initial public offering. Interest in videogames has intensified with the runaway sales success of Grand Theft Auto IV launched last month by Take-Two Interactive Software Inc. (Please see related article on page C2.)
Nexon's biggest hit in the U.S. so far is MapleStory, an online role-playing game popular with teenagers in which players assume the identities of warriors, magicians and thieves and collectively fight monsters. The game has 85 million users globally, of which 5.9 million are registered in the U.S. Last year players world-wide bought more than 1.3 million articles of clothing and more than one million hair makeovers for their MapleStory characters. Nexon's U.S. revenue last year more than tripled to $29.3 million from $8.5 million the prior year.
Socializing with other users is a big part of the appeal of Nexon games, which is why players are willing to fork over real money for in-game status symbols. In MapleStory, players can pay between $20 and $29 to marry their avatars to each other in elaborate ceremonies attended by other in-game buddies, including a Las Vegas-style bash officiated by an Elvis Presley impersonator.
"These games are as much Facebook as they are raw videogames," says Evan Wilson, an analyst at Pacific Crest Securities in Portland, Ore. "There's a network effect -- the more people you get to play, the more fun the game becomes."
While revenue from sales of virtual items is still estimated to be a small part of the more than $40 billion global games market, it is growing quickly and could broaden the audience for games by eliminating the hefty price tags that users must pay for typical game-playing consoles and PC game software sold in retail stores. Vivendi SA's World of Warcraft, one of the most successful online games, costs most users about $15 a month to play, though few other games have managed to approach its global audience of about 10 million subscribers.
"We sell social experiences, not packaged products," Min Kim, vice president of marketing at Nexon's U.S. division.
Some big Western games publishers are starting to mimic Nexon and other Asian game companies that sell virtual goods, in a potential threat to their businesses. EA of Redwood City, Calif., has started giving away its FIFA soccer game in Korea, in part because piracy there hurt retail sales of the product. Instead it charges players for new uniforms and other character enhancements. Later this year, EA will release a free, cartoonish combat game, Battlefield Heroes, that lets users buy weapons and other gear.
A big test for Nexon will come with this year's release of its first game aimed at the North American market, Sugar Rush, in which players brawl with each other as they try to gobble up virtual coins. The game is being made by a team of Nexon workers in Vancouver, Canada, including Steve Rechtschaffner, a former competitive freestyle skier who helped to create EA's popular SSX skiing game during a 12-year career at the games publisher.
Mr. Rechtschaffner, now chief creative officer at Nexon Publishing of North America, predicts more and more consumer dollars will shift toward free online games and away from traditional games costing $60 each. "I think we're going to become television to their film," he says. "There will always be room for big blockbusters, but there will be less and less of them. I think we'll reach a much, much broader audience." |
