Korean Game Portal Profits Soar On Record Virtual Goods Sales

Three major Korean game portals publishers recently announced their revenue and profit figures for Q4 2008 and the entire year. Despite the global downturn in the economy negatively impacting much of the games industry, all three Korean companies reported record profits from soaring virtual goods and currency sales. Translation and aggregation of the data, usually reported only in Korean, was provided by Virtual Economy Research Network. Portals covered include Neowiz Games's Pmang, CJ Internet's Netmarble, and NHN's Hangame.

Neowiz Games reported 4th quarter sales through Pmang reaching nearly $50 million in revenue, with $8.6 million in profit. This represents 58% growth from the 4th quarter figures Neowiz Games reported in 2007 and a 100% increase in profits. This would make Neowiz Games's 2008 Q4 performance its strongest ever in terms of both total revenue and profit. All of the games offered through the Pmang portal are microtransaction-driven free-to-play titles, including the FPS Special Forces. Two of its titles, FIFA Online and NBA Street Online, are co-productions developed in concert with the Western company Electronic Arts.

CJ Internet reported 4th quarter sales through its Netmarble portal at $52 million, with $14.5 million in profit. These figures represent a 17% increase over the company's Q3 revenue and an 11% increase from its Q3 profits. In addition, CJ Internet reported a yearly sales revenue of $190 million and a yearly profit of $55 million. Netmarble hosts the single most popular free-to-play title in South Korea right now, Sudden Attack, an FPS that incorporates virtual goods. 

NHN reported only revenue and not profit figures for its Hangame portal and only for the entirety of 2008. The company reported $360 million in total sales for 2008, a 51% increase over the company's reported 2007 revenue. The Hangame portal offers primarily casual board and gambling games that encourage users to spend on virtual goods and currency in the course of gameplay. 

VERN speculates that the surging 2008 virtual goods sales can be attributed to efforts made by Korean publishers over the last year to create a mature sales environment for virtual goods, which included making portal users feel comfortable with making microtransaction purchases while gaming. VERN also notes that marketing is something of a non-expense for the Korean portal advertisers, as new games being added to a particular service are rarely advertised by traditional methods. Instead the companies rely on positive buzz about a new game spreading through their user community by word-of-mouth.

The VERN interpretation of the revenue and profit figures considers all of the money as the direct result of microtransaction sales of virtual goods and currency. This is not always the case in a literal sense, as most game portals do run ads and also deal in "cross-promotions" that can be similar both to Western branded virtual good promotions and ad offers of the sort offered by Super Rewards and Offerpal.

That said, Neowiz Games representatives reported to Forbes that only 3% of their 2007 revenue was generated by advertising. While there is little broad English-language reporting on the role of advertising in the Korean virtual goods business model, it seems safe to assume that this minor role for advertising did not change significantly in 2008. It also is very likely that the very minor role advertising plays in the Neowiz Games business model is not significantly greater in the CJ Internet or NHN models, either.

The question left by VERN's sales figures report is whether or not the Korean virtual goods sales trends can be taken as predicting the future for the market in other countries in any way. In the Western world, for instance, the free-to-play model has only gained significant traction within the past three years, and much of the potential audience for these games is probably still uncomfortable with the notion of spending real money on a virtual item in a game. Advertising has also played a more robust role in the development of virtually all Western online profit infrastructure, which may make users ultimately more resistant to the idea of paying for virtual goods than their Korean counterparts.

This said, the Korean numbers show a clear snapshot of the type of profit margins and revenue figures possible for a free-to-play game that gets widely adopted by its users. With this in mind, there's little wonder that Western game developers and many start-ups are trying to get into the developing virtual goods space early. There is clearly a great deal of potential for growth in the market, a potential that defies shrinking ad budgets and user interest in other parts of the gaming market.

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