KRAFTON recently acquired 'BCJ-31', the parent company of Japanese advertising company ADK Group, for 75 billion yen (approximately 710.3 billion won). After KRAFTON founder and chairman Chang Byung-kyu declared in April this year an aggressive business expansion aimed at 'portfolio diversification', this marks the first large-scale investment. With the long-term success of the popular game 'Battlegrounds', KRAFTON is aiming for 3 trillion won in sales this year, but it is interpreted that the company is seeking new sources of revenue in non-gaming areas due to the sense of crisis that relying solely on the gaming business cannot guarantee future growth.
'BCJ-31' in Japan is the parent company of ADK Holdings, which has major subsidiaries under the ADK Group. Through this acquisition, ADK Group will be incorporated as a consolidated affiliate of KRAFTON. ADK is one of Japan's top three comprehensive advertising companies and has participated in over 300 animation production committees. Co-produced animations include 'One Piece', 'Crayon Shin-chan', and 'Doraemon'. According to the securities industry, ADK's revenue last year was approximately 1.2 trillion won, of which 80% is estimated to come from advertising and 20% from animation. The Japanese advertising market is monopolized by Dentsu, so ADK's market share in advertising is not large, standing at single digits.
KRAFTON noted that it is seeking new opportunities for the expansion of game-centric intellectual property (IP) through connections with the rapidly growing global animation market. This is part of a medium to long-term strategy to strengthen the basis of content and media business in Japan by broadening the potential for collaboration between animation and games, such as producing KRAFTON's game IP into animation or converting Japanese animation IP into games.
The acquisition of ADK is the largest in the history of content investment by domestic gaming companies. KRAFTON's current investment aligns with the industry's strategy to broaden IP business. In the past, the gaming industry has focused on expanding businesses utilizing original IP to overcome the limitations of performance being dictated by the success of new releases. This includes efforts to produce animations, dramas, and movies using game IP or to create products like clothing and toys.
The global animation market, which was valued at $386 billion in 2022, is expected to grow by an average of 5.5% annually, reaching $588 billion (approximately 796 trillion won) by 2030. The plan is to leverage ADK's animation planning and production capabilities alongside KRAFTON's game development experience to expand IP business.
However, investments and acquisitions of content corporations by domestic gaming companies have not yielded results compared to expectations, and it remains to be seen how much actual synergy effects will be realized.
Earlier, Nexon acquired a 38% stake in AGBO Studios, known for producing 'Avengers: Endgame', for $400 million (approximately 480 billion won) in early 2022. Following this, they secured nearly half of AGBO's equity, 49.21%, through an additional investment of $100 million. Despite the strategy to achieve the dream of being 'the Korean version of Disney', it has posed a risk that undermines the company's net profit.
Nexon recognized an impairment loss of 44.4 billion yen (approximately 39.5 billion won) on its investment in AGBO, causing the net profit of its subsidiary Neople, which developed 'Dungeon and Fighter' in 2023, to decline to 131.9 billion won. This is an 82.1% decrease compared to 737.8 billion won in net profit in 2022. The reason Neople was impacted by the impairment loss is that Nexon US Holdings, established with Neople's investment, invested a total of 600 billion won in the acquisition of AGBO. An impairment loss refers to the situation where the market value decreases, and the recoverable asset value falls below the book value, resulting in an accounting loss.
Nexon aimed to create films and TV content from its game IP through AGBO, but has not produced any significant results. Apart from AGBO's involvement in producing the teaser video for 'First Berserker: Kazan', there have been no synergy effects with the games yet. Expected to reassess the AGBO-based IP strategy is Owen Mahony, the former Nexon Japan Corporation representative who led the AGBO investment, as he has left the company.
Com2uS also acquired the content production company WYSIWYG STUDIOS in 2021, but has not seen significant results. Com2uS reflected a total of 152.9 billion won in impairment losses related to intangible assets last year, most of which occurred at WYSIWYG STUDIOS.
Industry experts analyzed that KRAFTON's investment in ADK is a movement aimed at securing IP that can generate long-term revenue in content areas outside of gaming while expanding its presence in the Japanese market. KRAFTON earns about 90% of its total revenue from overseas. It has been raising its recognition in international markets beyond Korea, including India and China, but has a relatively minor presence in the Japanese market.
Lee Jun-ho, a researcher at Hana Securities, noted, 'Japan is the third largest global gaming market that cannot be overlooked, and it is leading the world market in the animation sector,' adding, 'This acquisition is expected to mark the beginning of KRAFTON's full-fledged entry into the Japanese gaming and content market, and there is a possibility that further mergers and acquisitions (M&A) with Japanese game companies may follow.' KRAFTON acquired Japanese game company Tango Gameworks last August, securing the game company's Hi-Fi Rush IP and absorbing about 50 game development staff.
In the gaming industry, KRAFTON, which possesses over 4 trillion won in cash reserves, is expected to aggressively pursue M&A this year. As of the end of the first quarter, KRAFTON's cash and cash equivalents amount to 555.1 billion won, while cash-equivalent financial assets measured at fair value stand at 3.6565 trillion won.
Recently, KRAFTON acquired 39.37% of the equity in the ad tech company Neptune, held by Kakao Games, for 165 billion won, and last year, invested 120 billion won in the short-form drama platform Spoon Labs, further increasing its investments in non-gaming areas. Chairman Chang Byung-kyu emphasized the importance of brand power based on 'mega IP' and mentioned that KRAFTON is considering trillion won M&A in non-gaming sectors.
This researcher evaluated, 'KRAFTON has conducted over 30 M&A deals in the past four years, but most of those outside India were investments in game studios like Unknown Worlds' and added, 'It has been confirmed that there is a direction to pursue global content businesses through acquisitions in non-gaming sectors outside of India.'