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Gaming firms expected to suffer in Q3 results

Oct 29,2018
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After reporting record earnings last year, major gaming companies in Korea are under threat by regulation and market protection.

According to industry forecasts, NCSoft and Netmarble, two of the “big three” gaming companies in Korea, will likely suffer 40 to 60 percent declines in third quarter sales and operating profits this year compared to the previous year.

The classification of gaming addiction as a disease, the Chinese government’s regulations on Korean games and a new “shutdown” policy that bars mobile games after a certain time are among the potential risks to the local gaming industry. Gaming companies are further troubled by a government that has failed to offer a clear direction in policy and has leaned towards regulating the industry rather than promoting it.

One of the major complaints from the gaming industry is the conflicting signals from government branches on whether gaming addiction will be categorized as a disease. The Ministry of Health and Welfare and the Ministry of Culture, Sports and Tourism have expressed differing positions on the issue.

The World Health Organization (WHO) may next year classify gaming addiction and disorders as diseases, and Health Minister Park Neung-hoo said on Oct. 11 during an audit by lawmakers that the ministry will follow the WHO’s decision. “If the WHO categorizes gaming addiction as a disease, Korea will immediately incorporate the decision.”

The global gaming industry has voiced opposition to the WHO plan, claiming that being absorbed in games is different from the medical definition of addiction and disease. In light of the controversy, lawmakers pressed the government to promote the industry during National Assembly audits earlier this month.

“The difficulties faced by the game industry are being made worse with policy,” said Kim Kwan-young, a lawmaker for the minor opposition Bareunmirae party. “The government needs to present a plan for the growth of the gaming industry.”

The Culture Ministry, which oversees the promotion of the gaming sector, is at odds with the Health Ministry. Its Korea Creative Content Agency and Game Culture Foundation will soon present a research report that refutes the Welfare Ministry’s position.

The mixed response from government branches has left gaming companies confused.

“There needs to be a public discussion and agreement on whether gaming disorders will be categorized as diseases,” said an official at a local gaming company. “Esports are part of the Asian Games and were just called an export cash cow for the local gaming industry. The government’s game policy direction can’t be understood.”

Gaming regulations by China, the world’s largest gaming market, pose another problem. China’s Ministry of Education and other government branches announced measures in August to limit game usage times and to control the total number of games in the country. China’s policies will likely hurt local companies as well as Korean gaming giants.

Another unresolved issue for Korean gaming companies is China’s ongoing retaliation against Korea for deploying the Thaad missile defense system. Not a single Korean game has received approval to enter the Chinese market since March last year. As the Chinese market accounts for about 40 percent of export sales for local gaming companies, Korean gaming companies have to look elsewhere as difficulties with China continue.

Regulations on probability-based goods are another point of contention for the gaming sector. Probability-based goods are features within games that are purchased, but their effect or performance is determined by a lottery system. The goods have been criticized as gamers are compelled to spend money multiple times to get the item they want.

NCSoft CEO Kim Taek-jin is scheduled to appear at the Culture Ministry audit scheduled for Oct. 29th to discuss the goods. NCSoft has been at the center of the controversy, as its flagship Lineage M game sells probability-based items. The industry, however, explains that such goods have been voluntarily regulated by major gaming companies since 2015 and that they do not warrant further discussion during an audit.

The government’s gaming policies received low scores from gaming industry experts, according to a survey conducted by Wi Jong-hyun, a professor at Chung-Ang University and the head of Korea Game Society. In the survey, the government’s gaming policy reform received 45 points out of 100, while its response to foreign markets scored 43 points and its efforts to improve negative perception received 39 points.

“The government has no long-term vision and does not recognize the unfavorable factors that the gaming sector faces,” Wi said.

BY HA SUN-YOUNG [chae.yunhwan@joongang.co.kr]