South Korea: Video Games' Crazed Capital

Its gaming-design smarts and mega-following have given South Korea major clout in the worldwide online games business

by Moon Ihlwan

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Electronic Arts' (ERTS) $105 million purchase this month of a major stake in Neowiz underscores the growing global clout of South Korean design houses in next-generation online gaming. Gadget-happy South Korea is one of the most wired societies on the planet currently, and its avid young gamers represent the perfect global laboratory to try out new game concepts that will drive future growth in the $28.5 billion global video game industry.

Traditional video game companies such as Electronics Arts need the gaming design smarts of companies like Neowiz that have created smash-hit games that can take full advantage of high-speed broadband networks and the wireless connectivity that new game consoles such as Sony's (SNE) PlayStation 3 and Nintendo's (NTDOY) Wii offer. Some observers see more global tie-ups ahead in the game software side of the business. "This is just the beginning," says Choi Seung Hoon, director at the Korea Association of Game Industry.

South Korean gaming software companies have become global leaders in so-called "massively multi-player online role-playing games" (or MMORPGs), where hundreds of thousands of players create their own characters and partake in blood-splattered adventure or historical fantasy games.

Game Fixation

Game software that works with consoles and portable game players is still the industry's big revenue driver (Korean companies want a piece of that action, too). But in fast-growth Asia economies with blisteringly speedy broadband networks and big, tech-savvy gaming communities, these online entertainment games are a hot and growing market segment.

These days young Koreans spend hours at Internet cafés—known locally as PC Baang or PC salons—fixated on locally designed online role-playing games such as MapleStory and City of Heroes. (Indeed, game addiction is a hot topic in the local press.) Nearly 90% of 15.9 million households enjoy broadband Internet access, and virtually all adults and teenagers carry mobile phones, the bulk of them capable of surfing the Net and handling multimedia services. The World Cyber Games, the ultimate battle of wits in global gaming, was founded in South Korea.

This is a very fertile market for game designers worldwide, not only to sell their titles—but also to gain insights into what sort of game environments really click with gamers. "Global game publishers like EA (Electronics Arts) can save time to develop online versions of their popular console games while offering their Korean partners an easy access to mainstream gaming markets," says Choi.

Sports Games Online

Last year, the combined revenues of some 1,200 online gaming companies in Korea reached an estimated $1.94 billion, up from $1.54 billion in 2005, according to the state-funded Korea Game Development and Promotion Institute. The institute forecasts the industry's overall revenues will grow more than 20% to about $2.35 billion in 2007.

In fact, EA's Mar. 20 purchase of a 19% stake in Neowiz came after a very successful collaboration in South Korea. Neowiz developed an online version of EA's FIFA Soccer sports game last year, which became an instant hit locally. EA said last week it would jointly develop four additional online games with Neowiz. No further details were given, but industry analysts say they will probably be based on console sports games, the stronghold of EA. They will be adapted and redesigned for the popular online game genre.

Other big-name international players in the industry see Koreans as their potential partners. Vivendi Games, a unit of French media giant Vivendi, signed a contract last year with Korean developer JC Entertainment to market its online sports game called Freestyle Street Basketball in North America this year.