Domestic major game companies reduced their research and development (R&D) expenses last year due to sluggish sales. Unlike the past, when aggressive investments were made for new games and intellectual property (IP) expansion, there is a growing sentiment toward 'selection and concentration' as uncertainty in the business environment increases. There are concerns that if this trend continues for a long time, development momentum could weaken.
◇ Performance declines, so R&D expenses are also reduced
According to the gaming industry on the 26th, NCSOFT invested about 421.8 billion won (467.1 billion won in 2023) in R&D last year, marking a decline for three consecutive years. The percentage of sales is 27%, slightly higher than the previous year (26%), but with the absolute amount decreasing, there is an analysis that new game development could become stagnant. Recently, the company has been focusing on artificial intelligence (AI) and is researching next-generation character scanning and motion technologies, but significant investment expansion is not expected in the near future.
Netmarble also invested 634.7 billion won (670.8 billion won in 2023) in R&D last year, a decrease compared to the previous year. The investment ratio to sales has fallen from 26.81% to 23.83%. Amidst a lack of new releases leading to stagnant performance, the company is preparing new games utilizing character IP and popular webtoons and web novels. However, investments in large-scale projects are being carried out with limitations.
Com2uS also spent 119 billion won (138.8 billion won in 2023) on R&D last year, with the percentage of investment compared to sales (17.1%) decreasing. The company is focusing on the long-term success of its representative IP, the 'Summoners War' series, and is selectively allocating resources for new game development.
Krafton executed 424.8 billion won (379.2 billion won in 2023) in R&D last year, increasing its investment scale. However, the ratio of R&D to sales is 15.7%, lower than two years ago (19.8%). The company is focusing on global market penetration using its 'PUBG' (Battlegrounds) IP and investing in next-generation technologies such as AI and blockchain, but the release of new major projects requiring large budgets has been delayed more than expected.
In the case of Pearl Abyss, R&D expenses rose from 135.5 billion won (35.1% of sales) in 2022 to 132.8 billion won (39.9%) in 2023. Last year, it maintained the 132.8 billion won level. The company is steadily funding projects like the next-generation big project 'Dokeebi' alongside 'Crimson Desert,' focusing on ensuring quality rather than hastily releasing long-term projects amid industry recession.
Wemade invested 54.7 billion won (54.5 billion won in 2023) in R&D last year, maintaining a similar level to the previous year. The percentage of sales is 7.69%, lower than in 2023 (9.01%). While the company is interested in new businesses such as blockchain and expanding the Mir IP, it plans to selectively engage in substantial investments for large-scale new releases in preparation for a decline in profitability.
WEBZEN invested 16.9 billion won (18.1 billion won in 2023) in R&D last year, with the percentage of sales declining to 7.9% from 9.3% the previous year. The company has maintained stable revenue with the 'Mu' series, but is cautiously approaching new game development and overseas market entry.
Devsisters invested 3.3 billion won (3.7 billion won in 2023) in R&D last year, with both the amount and the percentage of sales (approximately 1.40%) decreasing compared to the previous year. The company is focused on projects centered around sequels utilizing the 'Cookie Run' IP but is cautiously considering large-scale investments until it confirms success in the global market.
◇ South Korean gaming market growth has stagnated
Not all domestic game companies reduced their R&D investments. NEXON GAMES, the game development subsidiary of NEXON, saw its R&D expenses increase by 15.9% to 72.1 billion won last year compared to the previous year. Compared to two years ago in 2022 (48.8 billion won), it has increased by 47.7%.
Despite poor performance last year, Kakao Games invested 168.8 billion won in R&D, increasing the amount from 149.2 billion won the previous year, and the ratio of investment to sales climbed from 20.6% to 26.9%. The company is focusing on supporting large projects such as LIONHEART STUDIO's 'Odin: Valhalla Rising' and XL Games' 'ArcheAge 2.'
NEOWIZ is strengthening its previously lacking development capabilities after allocating 45.6 billion won (4.1 billion won in 2023) following the success of the large console title 'Lies of P.' The company plans to expand its investments in large new projects targeting the console and PC markets.
According to the '2024 Korea Game White Paper' published by the Ministry of Culture, Sports and Tourism and the Korea Creative Content Agency, the domestic gaming market size as of 2023 is 22.9642 trillion won, reflecting only a 3.4% increase compared to the previous year. Mobile games are at 13.6118 trillion won (4.1% increase), and PC games are at 5.8888 trillion won (1.4% increase), showing a stark contrast to the past periods of double-digit growth.
As the market growth rate has stagnated, there are increasing instances of focusing on verified IPs and adjusting release schedules rather than hastily launching large-scale MMORPGs or AAA projects based on console and PC.
An official from a major game company noted, 'Unlike during the pandemic, it has become challenging to recoup investment funds, and even if new titles are released, it is difficult for them to achieve the expected success. We are currently focusing on strengthening live services while only introducing a minimal amount of new titles.'
Lee Jeong-hyun, president of the Korea Game Society (professor at Chung-Ang University) stated, 'Chinese game companies boldly invested billions of won during the development of 'Genshin Impact,' but domestic game companies tend to rely on existing IPs and avoid developing new titles. If founders lose their initial spirit of challenge and remain fixated only on revenue and stock prices, the overall innovation power of the industry may wither away.'
He claimed, 'Except for successful cases like NEXON, the domestic gaming industry has not been able to move away from conservative management centered around founders. Now is the time to revive innovation through bold generational and leadership changes.'