Since the start of this year, Nexon has been winding down legacy games with declining profitability. "Crazy Arcade," once called a "national game," ended service after 25 years, and "The Kingdom of the Winds: Yeon" will shut down early next year. Under the leadership of Chairman Patrick Söderlund, who took office in March, the company appears to be accelerating structural reform. As the global game industry struggles with surging production costs and fewer users, Nexon plans to push through the downturn by focusing its resources on building out flagship intellectual property (IP) with guaranteed success.
As of the 21st, according to the game industry, Nexon has been accelerating a business restructuring focused on expense efficiency since March, when Chairman Söderlund was appointed. Even games that were once popular but have since seen their user bases weaken have been put on the chopping block.
Nexon's online shooter "Crazy Shooting Bubble Fighter," released in 2008, ended service in June ahead of its 17th anniversary, and "Crazy Arcade," which defined Korea's online gaming culture in the 2000s, shut down this month. "Crazy Arcade" once drew 350,000 concurrent users in Korea and 1 million worldwide, but its profitability recently fell so low that maintaining service became difficult, according to reports.
More recently, the mobile massively multiplayer online role-playing game (MMORPG) "The Kingdom of the Winds: Yeon," which uses the "The Kingdom of the Winds" IP, also announced it will end service. Nexon said it will conclude service for "The Kingdom of the Winds: Yeon" in February next year. Including "KartRider: Drift," which disappeared last October, Nexon has wound down four long-running games over the past year.
This is seen as part of the expense-efficiency strategy that Chairman Söderlund is pushing. At a capital markets briefing (CMB) in March, Söderlund said he would boldly exit low-revenue businesses and reorganize Nexon's overall game portfolio (product line) to focus investment on core IP with a higher chance of success.
At the time, he said, "Nexon's supported project portfolio is currently too broad," and, "We will keep only projects that meet the newly set profit floor." The games that recently announced service termination are interpreted as failing to meet Nexon's profit threshold.
Instead, the company plans to maximize profitability by expanding the "MapleStory, DUNGEON & FIGHTER and FC" franchises, cited as Nexon's three major IPs. In fact, the biggest contributors to Nexon's first-half results this year were the steady-selling "MapleStory" franchise and the new title "ARC Raiders," which has sold more than 16 million copies since its launch in the second half of last year. Nexon's first-half revenue this year was about 2.5603 trillion won, with operating profit of 837.9 billion won, up 17% and 13%, respectively, from a year earlier.
Analysts say Nexon's pivot to a "selection and concentration" strategy that emphasizes proven IP is largely due to the global game industry slump. On a recent second-quarter earnings call, Chairman Söderlund said, "The game industry is going through the toughest period in the past 30 years." He said the Western game industry, in particular, has entered a downturn amid soaring production costs and weakened console-buying sentiment. Developing a AAA title requires hundreds of millions of dollars, he noted, but with demand for console games falling in the West, it has become difficult to recoup production costs by selling $60 to $100 package games as one-offs.
"As a result, numerous game projects are being canceled, studios are shutting down one after another, and tens of thousands of developers are being laid off," he said.
From a game company's perspective, rather than risk developing a new title—with massive budgets and staffing—whose success is uncertain, it has become safer to extend the life of long-running IP with solid fan bases. In the past, games mainly competed against other games, but now they also compete with short-form content from Netflix and other OTT services as well as YouTube, Instagram and TikTok, increasing the risk of new-title failure. That is cited as one reason Nexon has decided to focus new development on core franchises.
Chairman Söderlund founded Sweden-based Embark Studios, the developer of "ARC Raiders," and was appointed Nexon's chairman in recognition of the game's success. Before founding the studio, he served as executive vice president at Electronic Arts (EA), leading development of global hits such as "Battlefield." For "ARC Raiders," a team of 70 developers spent three years and about $75 million (about 100 billion won) on development—roughly one-quarter the expense of a typical AAA game. As of the second quarter, cumulative revenue for "ARC Raiders" has exceeded 88 billion yen (about 780 billion won).
He cited automated tools using artificial intelligence (AI) and fast decision-making and execution by small teams as reasons "ARC Raiders" could be produced with relatively less budget and time. Söderlund said, "This was intentional, and we intend to apply the formula used at Embark Studios to Nexon as well."
As Nexon continues efforts to cut production costs and speed up development with fewer staff, analysts say the company is likely to minimize new hiring. Söderlund said he is not considering layoffs, but added, "Over the next few months, we will focus on cost control and manage this year's total labor costs at last year's level."