As the won-dollar exchange rate has surged into the 1,470-won range, showing a strong dollar, Korea's game industry is expecting windfall gains from foreign exchange. Because of the industry's characteristics, it does not directly feel raw material price swings from a stronger dollar, and with a large portion of sales coming from overseas, it stands to benefit from the exchange rate. However, since the share of overseas sales differs by game company, the exchange rate has emerged as a variable affecting their earnings.
On the 27th, the previous day's won-dollar exchange rate closed at 1,470.50 won on the Seoul foreign exchange market. The rate, which was in the 1,350-won range in early Jul., has been on a steep rise since mid-Sep., when concerns over economic uncertainty grew.
A rising exchange rate means the won has weakened against the dollar. Even if corporations' revenue earned overseas does not change, a weaker won translates into a larger amount in won when converted domestically. Thus, Korean corporations that generate dollar revenue abroad enjoy a windfall whereby their sales and operating profit in won terms increase on exchange-rate effects alone, even with the same actual sales volume. Conversely, corporations that spend in won or purchase raw materials can face higher cost burdens on expense.
Typically, a rising exchange rate increases import expense burdens and works negatively for Korean corporations, but the game industry is different. Major domestic game companies earn a significant share of their revenue overseas and, due to the nature of intellectual property (IP), are not directly affected by raw material price fluctuations. According to the Korea Creative Content Agency (KOCCA), in 2023 Korea's game industry exports totaled $8.394 billion (about 12.298 trillion won), accounting for 62.9% of all content industry exports. Against this backdrop, the game industry is looking for a windfall from foreign exchange gains.
In particular, SHIFT UP, Krafton, Pearl Abyss, and DoubleU Games derive most of their total revenue from overseas and are enjoying foreign exchange gains. SHIFT UP generated more than 99.6% of its 3rd-quarter revenue of 75.5 billion won overseas this year. The company services "Goddess of Victory: Nikke" and "Stellar Blade" in more than 153 countries. Krafton also saw overseas sales account for 91.9% of its 3rd-quarter revenue (870.6 billion won) this year. Its flagship IP "PUBG: Battlegrounds" is serviced in more than 200 countries worldwide, with sales occurring evenly across North America, Europe, and all regions of Asia.
Pearl Abyss also derived 81.5% of its 3rd-quarter revenue of 106.8 billion won from overseas. As the "Black Desert" IP delivered solid results in the North American and European markets, more than 60% of its overseas revenue came from the West. Because it develops and services its own IP, incurring virtually no overseas IP royalty expense, this is seen as a factor that amplifies exchange-rate effects. Some game companies have an overseas sales ratio of 100%. DoubleU Games generated 100% of its 3rd-quarter revenue of 186.2 billion won overseas, and, given the nature of social casino games, North America alone accounted for more than 80% of sales. As its business is run on global platforms, it is cited as a representative company highly sensitive to exchange-rate fluctuations.
Despite sluggish overall 3rd-quarter results for the game industry due to these factors, these companies showed clear improvement. In the 3rd quarter, SHIFT UP and Krafton's revenue rose 30.1% and 21.0%, respectively, from a year earlier. During the same period, Pearl Abyss's revenue increased 34.3% year over year, and operating profit turned to a surplus at 10.6 billion won. DoubleU Games' revenue grew 20.8% from a year earlier, the best result in five years.
By contrast, corporations with a high share of domestic revenue, such as NCSOFT and Kakao Games, have relatively limited exchange-rate benefits. NCSOFT said that about 37% of its cumulative 3rd-quarter revenue of 1.1027 trillion won was from overseas, while Kakao Games derived only 20.7% of its 3rd-quarter revenue of 127.5 billion won from overseas. NCSOFT's core revenue sources, including the "Lineage" series, are centered on domestic users, and Kakao Games also relies heavily on domestic IP such as "Odin" and "Friends Games." Given their cost structures, some imported server and cloud expense may rise, narrowing the net benefit.
A game industry official said, "It is true that the higher a game company's share of overseas sales, the more it benefits from a rising exchange rate, and with the strong dollar continuing, the exchange rate has become a variable affecting future earnings," adding, "However, game companies that pay overseas IP royalties in dollars or have foreign currency borrowing fund may instead see increased expense and larger translation losses."