Webzen, a leading mid-sized game company in Korea, has run into trouble. Despite the "responsible management" pledge of founder and former board chair Kim Byung-kwan, who returned to the front lines after nine years, the company is facing both a legal risk worth tens of billions of won and turmoil in the rollout of a flagship title.
On the 20th, according to the industry, Webzen was recently notified by HOUND13, the developer of the open-world action role-playing game (RPG) Dragon Sword, that their publishing contract was terminated. After its January launch, the game hit No. 1 on the popularity charts of Google Play and Apple's App Store and was seen as a new title that could ease the company's reliance on the "MU" intellectual property (IP). But the contract was canceled just a month after service began.
HOUND13 cited nonpayment of the remaining contract fee and insufficient marketing as grounds for termination. Webzen countered that it accepted requests to delay the development schedule, prepaid part of the minimum guarantee, and even proposed additional operating-fund investment. The two sides are trading blame over how the contract unfolded. Webzen decided to refund all payments made after launch and has suspended payment functions.
Terminating a publishing contract itself is not uncommon in the game industry. Nexon and DRIMAGE (formerly HYBE IM) have also ended contracts with developers after discussions. However, it is considered unusual for a title already in live service after launch to proceed all the way to full refunds. The burden is especially heavy given that this comes at a time when strong performance from new releases is vital.
A legal risk also remains. Webzen lost the appeal in a lawsuit with NCSOFT over copyright infringement and violations of the Unfair Competition Prevention Act related to "Lineage M." The court ruled that Webzen's "R2M" unlawfully used NCSOFT's work and ordered 16,918,209,288 won in damages. This is the largest confirmed award in copyright and unfair competition cases in the domestic game industry. Webzen said it plans to file a final appeal and seek a stay of compulsory execution.
Results have also deteriorated. Webzen's revenue on a consolidation basis last year was 174.4 billion won, down 18.7% from a year earlier, and operating profit fell 45.5% to 29.7 billion won. The stabilization at lower levels of existing game revenue and delays in launching new titles weighed on performance. Reliance on the MU IP, which has accounted for more than 60% of total revenue over the past five years, remains. Although the share of overseas sales expanded to 49%, it was not enough to offset the decline in domestic sales.
Attention is turning to the former chair, who returned to management. Returning as an inside director in Dec. last year, the former chair, the largest shareholder with a 28.47% equity stake, is pursuing mid- to long-term strategy and portfolio diversification. Webzen is preparing to release its in-house developed subculture title "Tervise" within the year, but strong performance from new titles and rebuilding trust with external developers are seen as prerequisites.
A game industry official said, "As a structure centered on major companies solidifies, concentrating capital and development talent, mid-sized game companies are finding less room to operate," adding, "When revenue from existing IPs slows, if new IPs do not gain traction quickly, earnings volatility inevitably widens." The official added, "In Webzen's case, this is not a problem unique to one company but a structural situation common to mid-sized game companies."