Free-to-play has become a key buzz word in 2012, but the fact is that it's nothing new. Nexon has been leading the space for nearly ten years, and with the business model taking off in Western markets in addition to Asia, the online publisher is reaping the rewards.
In recent months, Nexon has been making a bigger push into social and mobile markets, but as Nexon America boss Daniel Kim would tell you, the bulk of the business is still from client-based PC downloads, and even with the rise in iOS and Facebook, Nexon believes in the strong growth potential of the PC.
GamesIndustry International recently caught up with Kim to discuss Nexon's approach to the marketplace, how Nexon views the competition, and what adapting to mobile and social will mean for the company.
GamesIndustry: What would you say is the key to Nexon's future growth right now?
Daniel Kim: It is interesting for us having invented the business model that started all this. We knew it was going to happen eventually here in the West. We've been here in North America operating our games for six years now - Nexon's been in business since 1994 and we invented the free-to-play model in 2002, so just over a decade of free-to-play, gone through a lot of trial and error to figure out how to do it right. I think that's really helped us grow as a global company to reach broader audiences and offer our brand of immersive gameplay that lasts a long time and [offers] long engagement - being able to create communities and develop relationships with our players.
Primarily we've been focused on PC as a platform; we need a massive audience and PC was the platform that enabled us to do that, along with the hardware that enabled the type of rich and immersive experience that we'd like to design for our players. And all our games are online - you're playing with other people, and you need an internet connection fast enough to be able to do that. And all those three things existed for PC as a platform for us, for the past 15 years that we've been in business.
Now the landscape is changing. What's interesting for us is that these new platforms like mobile or social are now coming to a level where there's enough installed base, technology is good enough to provide the level of immersive experience that we'd like to provide and the connection speeds are fast enough that it really made sense for us to invest more heavily.
I'd say 90 percent of our revenue still comes from our traditional PC client based games, but if you take a look at our pipeline and the new projects that are being developed right now you'll see that a large portion of that is looking at these new platforms - either bringing our existing IPs to new platforms like we've done with MapleStory on both mobile and Facebook and the latest one is KartRider Dash. KartRider Rush was already a free-to-play iOS and Android game, and that's received a great response from the worldwide audience. I think we had close to 7 million downloads over the first three months of that being available; and now KartRider Dash is going to be available on Facebook for everyone to play around the world, against their friends, against people they don't know yet.
It's going to be an interesting experience for us to provide the type of immersive experience, synchronous gameplay that doesn't quite exist yet on Facebook. There's a huge pent up demand, especially for Western audiences for KartRider because a number of years ago we went through a closed beta test to test out the game as a client version. We ended up not launching the game as a client version game and since then I get monthly emails from fans saying 'when are you going to launch KartRider? We're still waiting' and so I think putting it out on Facebook allows us to make it truly a social experience.
One of the reasons KartRider was such a big franchise for us and a huge success in Korea where a third of the population play the game, and it broke all kinds of records, and in China also, is because it is a very social game; you play against other people, much like the Super Mario World's two-player mode, there's a lot of back and forth, talking smack about the game. And that sense of community is what's so important to make this game, that is inherently social and community driven, to be successful. I think Facebook provides that type of environment virtually where you're connected to your friends that might be far away and the game provides the glue that brings you together. So we think bringing KartRider...will get a lot of new Facebook audience who haven't experienced the game excited about this opportunity.
GI: So who do you consider your top competitors? You're just now entering social and mobile and seeing those as your growth opportunities, so does that mean you're looking at companies like Zynga and Playfish?
DK: That's a really good question. Our toughest competitors is ourselves in some ways, because when we put out a new game we have to compete against our own games that are typically doing very well in any of the markets that we're servicing. So that forces us to be very unique and innovative and forces us to have a different perspective and offer something new and different to the audience so that this new title can compete against the likes of MapleStory or Dungeon Fighter. But the truth is while we look at these new platforms as great future growth opportunities for us, there's still huge room for growth left in the traditional PC-based client download games too.
"We still like the PC as a platform very much... But we expect the console space to change significantly over the next five years."
We're just scratching the surface in markets like North America and Europe, as well as in Korea. We thought the Korean online gaming market would be saturated and would be done with by the mid-2000s; one of the reasons why Nexon expended very heavily and invested in going into international markets was because we thought that market was going to cap out once the broadband penetration reached the ceiling, but the fact is that even in Korea, which is kind of the mecca of online games, one of the oldest markets for online gaming, the audience is still growing year over year. Our existing base of games that have been in service for anywhere between five to fifteen years, they're all on a growth path.
So we're pretty bullish on our ability to continue to grow the business based on our existing base on the PC online side. And then on top of that we decided to add on these new platforms. We think it's a different opportunity and a different type of behavior we're going to be capturing. The way I play mobile games is quite different to the way I play PC games; the time and place is different, my mindset is different, and there's even the difference between iPad and iPhone, what types of games I play and how I play and where I play, who I play with. Those are all new opportunities and audience touch points that we can get into, and that's where we're really excited about. But growth is going to happen on the existing base as well as the new.
So from that perspective, going back to your question about who our competition is, it really depends on which category you're talking about. We have a tremendous amount of respect for companies like Riot that have brought League Of Legends - it's a new kind of phenomenon over here in North America, they're doing very well globally as well. Obviously Blizzard has their lineup of Starcraft and World Of Warcraft and all these amazing titles, but in terms of free-to-play we feel pretty good about where we are in the space, having been the pioneers, not only of the business model but of the type of games we've added to the industry as a category or a genre. We have to do better than we what we have done in the past if we're to continue to grow and that's really the challenge for us. We're our own biggest competitor.
The way we approach Facebook is quite different from the way Zynga approaches Facebook. We're just getting started - we're experimenting right now - but our approach is that we believe there's an audience out there among the Facebook audience who are looking for our brand of immersive, longer lasting richer gameplay, and the games that we've released so far are kind of testing the waters on those different fronts. KartRider will be another interesting one; it's the first synchronous gameplay that is really providing this level of richness and depth that you really haven't seen on Facebook as a platform. So that's how we're thinking differently about that space. Zynga is the 800lb gorilla in that space, we're just an upstart in that category. But when you look at the online gaming space as a whole there isn't a bigger, more global, more international company than Nexon right now in the space.
GI: Are you looking to expand development teams, perhaps through acquisition?
DK: We've done a lot of acquisition, primarily in Korea just because that's where most of the development studios are, but we're starting to see Western developers both in the US and Europe, really focus on rich, free-to-play, online immersive experiences and we're hoping to do acquisition or investment around the world so it's becoming more interesting for us to look at those opportunities globally and not just in Korea. We're pretty picky about who we invest in or acquire, and part of it has to do with our DNA as a development company, as a creative organization. and the way we think about development. of these games and our ability to maintain the longevity and run the game for a really long time. So we think there will be great opportunities for acquisitions and things like that in the future. We haven't made any specific announcements yet but we're always looking at different opportunities out there.
GI: Is cloud gaming something that you guys are looking more closely at?
DK: The way we're looking at it, whether it's cloud gaming or different technologies that are becoming available, Flash 11 versus Unity... whatever technology is appropriate for providing the type of experience [we believe in is what we'll use]. Our focus really is on creating the experience, creating a fun experience, creating a lasting experience, creating communities within our game environment and within the context of the games. We'll use whatever technology is available and most appropriate to deliver that experience.
What cloud gaming offers is interesting in that whether it's browser-based stuff or [another platform] it gets rid of the barrier to download something. And that's a big plus especially for the Western market where the download speeds aren't quite as high as in Asia. But it has its upside and downsides. The quality that you can provide on cloud isn't quite up to the type of experience that we can provide on either console or PC, so we're thinking about those sorts of trade-offs. But even if you look at our portfolio and the history, our focus has always been about the game mechanic and game experience rather than making the greatest, highest polygon count. I mean we have games like Vindictus that have very high fidelity graphics and physics and everything but we chose it because it was the appropriate thing to do for the game design and game experience. So graphics and technology comes in service of the experience, not the other way around.
So cloud computing is a great opportunity for us to remove some barriers and think about different ways to introduce the game experience to different audiences, but again it's a tool. It's a way to provide a compelling experience rather than an end in and of itself.
GI: There's constantly talk about free-to-play, mobile, tablets, cloud gaming, and all these things putting huge pressure on the console makers. What do you think is ultimately going to happen with the future of console?
"I really applaud the guys at Riot and League Of Legends, because they were able to identify an opportunity that was pretty niche, but able to grow it over time."
DK: It's really interesting, because even now you're starting to see LG just made an announcement that they're going to have Unity enabled and embedded in their TVs, so what is the console going to look like in two years? What is the next generation console going to look like and will the business model still be the same? I think you're going to see a lot more digital download... there's huge momentum there. I don't expect the console to go away in like a year but maybe in two years, three years down the road, I don't know. Console makers are kind of already moving towards more digital downloads and things like that.
I think for us we've been talking to all the console makers too, and in fact Dungeon Fighter is being released as a Microsoft Xbox Live Arcade version of the game. But again we had to modify the game and the business model to fit their restrictions or requirements. It's not free-to-play, it's DLC essentially. Which is not really truly how we like to service our games, we like to service our games completely free-to-play, no limits, and earn the players' business by convincing them there's value in purchasing stuff.
But I think at some point the console makers have to make a decision about how closed or open they're going to be to the different models that are going to be emerging. Today it's free-to-play, and I'm convinced that that one is going to continue to flourish and expand into other genres and other categories, but there may be something else completely and entirely different that comes out that again changes the industry. If your mind is just set on keeping the current model of buy a game for $60, play for 40 hours, buy another game for $60, play for 40 hours, that model I think is eventually going to change. It's going to have to change. How they will adapt I really don't know, but I hope that they're aware enough to understand that the value proposition of free-to-play is not going to go away.
Once you've experienced it... just like in Facebook, no one expects to pay to play a game, and in Korea, no one expects to pay for an online game. Very few games are subscription-based these days. The tide has definitely turned and I think it will be interesting to see how it will end up eventually. And actually I was just talking to the guys from CCP and their next FPS title is going to be serviced as a free-to-play game on PlayStation. So that's encouraging, to see that they're willing to at least try out a different model.
GI: I think Sony has always been a little more open with their network, while Xbox Live has been very closed and restricted. Microsoft has all the control on Xbox Live and so if you're a company that wants to do something a little bit different it makes it hard for you guys.
DK: And that's true with Apple too. You know iOS has their restrictions, Google has their restrictions, Android to a different extent. I think it's healthier if there's more of an open field and you could try a lot a different models for it to work, but as soon as there's a curator and natural restrictions that come with having a curated experience you're going to run into the problem of being limited to what they're allowing you to do. So until Apple allowed for in-app purchases, we wouldn't have been able to offer our game KartRider Rush, where we give the game away free and a lot of people can purchase items in game. That's been a great success for us so far and helped us learn a lot about how that whole system in the platform works. They may very well decide to change their policy and we'd be out of luck.
We still like the PC as a platform very much for that reason - there's no governing body that's restricting us or telling us how to do our business. But we expect the console space to change significantly over the next five years.
GI: So when you look at the portfolio of games that you have right now whether it's MapleStory or KartRider or Dungeon Fighter, is there a plan in place to grow with X amount of new IP every year - do you plan it out that way?
DK: We have some goals in terms of how we want to grow the portfolio, and where we want to take more of a risk or less of a risk; role-playing games are less risky, in some ways, but right now for us here in Nexon America it's still open season. The field is wide open, so I think there's more opportunities than we're able to actually absorb.
So not only is it important for us to know what to do but deciding what not to do right now is more of a challenge because there are a lot of options coming and we have limited resources - we have to choose pretty carefully about how we want to take those next steps. But we do look at a lot of properties and IPs across the board. We don't necessarily say "well, we want one RPG , one FPS and one AOS" or whatever, that's not really our strategy, we really go after audiences. If there's a new audience that we think is out there we can bring into our world by offering a certain type of game or a category or a genre that hasn't really been explored or discovered by other companies, those are the opportunities that we really look for.
And that's why I really applaud the guys at Riot and League Of Legends, because they were able to identify an opportunity that was pretty niche, but able to grow it over time, and I have a lot of respect for those guys. That's pretty much how we've operated the company throughout - we find new audiences, grow that audience and make it mainstream.