As Krafton expands its business into artificial intelligence (AI), content, and advertising, the number of its affiliates has more than doubled over the past year. The company has aggressively pursued investment and mergers and acquisitions (M&A) to find the next growth engine to follow its popular game intellectual property (IP) "Battlegrounds."
According to Krafton's semiannual report on the 25th, as of the end of June this year the company had 77 consolidation subsidiaries, up 40 (108%) from 37 a year earlier. The increase was largely due to seven subsidiaries under ad tech (advertising technology) company Neptune, acquired for about 165 billion won last year, and 23 entities under Japanese full-service advertising company ADK Group, purchased for about 710 billion won, all being consolidated as subsidiaries.
Buoyed by steady performance from its long-running, "sales workhorse" IP "Battlegrounds" and the success of new title "Subnautica 2," Krafton posted the strongest results among domestic game companies in the first half of this year, surpassing Nexon. In the first half, Krafton's revenue was 2.6616 trillion won and operating profit was 972.5 billion won, up 73.3% and 38.3%, respectively, from a year earlier.
On the back of stable results from its flagship title, Krafton is expanding outward into non-game fields that can create synergy with its core gaming business, including advertising, content such as animation, physical AI, and mobility. Based on the cash flow generated by the Battlegrounds IP, it is strengthening new-title development capabilities and accelerating efforts to pioneer new businesses outside games.
The three entities Krafton established in the first half are also seen as an extension of this new-business cultivation strategy. In March, it founded U.S.-based robotics subsidiary Ludo Robotics, which aims to develop the "brain" of Humanoid Robot that can interact with people. Ludo Robotics is currently testing the early version of "Ludi 0.1," a robot-dedicated AI agent system, by loading it onto an actual humanoid robot.
Lee Kang-uk, Krafton's chief artificial intelligence officer (CAIO), who also serves as Ludo Robotics' chief technology officer (CTO), recently said on X that "Ludi 0.1 is an agent-based humanoid system integrating real-time conversation, social intelligence, memory, movement, and object manipulation capabilities."
In India, which has emerged as one of Krafton's key markets, the company established software entity "Kinvrs," which will operate a user payment platform, and local ad tech entity "Krafton Ad Platform India," which will handle advertising for "Battlegrounds Mobile India (BGMI)." A Krafton official said, "Based on cooperation with Neptune, we will strengthen our competitiveness in advertising technology to expand our influence in the Indian market, and we also plan to roll out locally tailored advertising businesses."
In its core game business, the company is continuing to invest in promising game companies and expand development subsidiaries under Krafton. U.S. studio Eleventh Hour Games, developer of "Last Epoch," acquired for 132.4 billion won last year, and newly established Ninevee Studio, Omnicraft Labs, Roonshot Games, and Olive Tree Games were also added as consolidated subsidiaries.
However, it is expected to take time for new-business investments to deliver meaningful results. Due to the ADK acquisition, advertising accounted for 19.9% (530.7 billion won) of Krafton's first-half revenue, a sharp increase compared with a year earlier when advertising was included in other revenue (10.1 billion won), representing just 0.7% of total revenue. Still, ADK has seen its sales and profitability decline for three consecutive quarters amid a sluggish advertising market, and there has been little progress yet on the "strengthening synergy between games and animation" that Krafton cited as a rationale for the acquisition.
The physical AI joint venture that was to be established jointly with Hanwha Aerospace in March this year also has yet to firm up its business direction or plans.
A game industry official said, "The key is how Krafton's aggressively pursued businesses related to physical AI, advertising, and content will create synergy with its core business and translate into revenue going forward."
Krafton CEO Kim Chang-han also presented AI and content as long-term growth drivers on the second-quarter earnings conference call at the end of last month. Kim said, "We expect physical AI to open up larger market opportunities, and because AI investment is large in scale, we will expand it by leveraging external financing along with our own funds."