As free-to-play mobile games go global, so does South Korea’s Netmarble

Netmarble Games grew up in the shadow of South Korea’s Nexon, but it moved to free-to-play mobile games in a timely way. Last year, it launched the huge mobile role-playing game Marvel: Future Fight, invested $130 million into casual game publisher SGN, and generated nearly $1 billion in sales. Now it ranks as No. 8 on the global list of the largest mobile game companies.

I caught up with Seungwon Lee, chief global officer at Netmarble Games, for interview at the Game Developers Conference last week. We talked about Netmarble’s rise in free-to-play games, as well as the unique characteristics of the Korean mobile game market and what makes it a haven for games.

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We also talked about how Netmarble is expanding on a global stage with titles like Marvel: Future Fight, which has launched in 149 countries and has hit the top charts in 118 regions. Last week, Netmarble launched a major update for the Marvel game, and it also has had good results from the release of its Seven Knights mobile game in Japan.

Lee talked about the kind of entertainment intellectual properties that work globally. He said the company is launching 30 mobile games this year across a variety of genres and regions, and it is looking to make a number of investments or acquisitions this year.

Here’s an edited transcript of our interview.

GamesBeat: Can you run down the history of Netmarble again?

Seungwon Lee: We’re 16 years old. The company was founded [and chairman] by Jun-hyuk Bang in 2000. We celebrate March 1 as our foundation day. At the time, we started doing business on the PC with casual games. We became very successful in Korea and other Asian markets. We came up with a new business model for PC game publishing, where we licensed games from self-publishing studios. We would market and promote their games, just like the movie business. Before that, game companies strictly published in-house development.

We got a reputation as a very strong publisher. That sustained us through 2009 and 2010. From that time, the company’s business slowed down. Our founder had been absent for five years or so. He left the company in 2006. When he came back, we focused more on the mobile game business. We weren’t a first mover, but we wanted to be among the first followers, and we were able to capture the market.

GamesBeat: Did you grow up closely alongside Nexon? Were you ever larger than they were?

Lee: Nexon was earlier as a player in the market, several years prior to Netmarble’s foundation. We were quite close to Nexon around 2006, around 80 percent of their revenue. But after our founder left, they kept rising. There was limited room in the market. By 2011 the gap was quite wide, so we wanted to focus on mobile while Nexon was still focused on PC.

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GamesBeat: Did you focus on free-to-play as much as they did?

Lee: Yes, we were always in free-to-play. Our roots are in PC, free-to-play, microtransactions, and long-term service. Some of our games on PC have sustained for more than 10 years. We’re servicing mobile titles that are more than two years old. We started to derive considerable revenue from our mobile racing game around 2014. Mobile has kept growing while PC is just sustaining itself or declining. We drew more than 95 percent of our revenue from mobile in 2015.

Nexon reached $1 billion in annual revenue several years ago. We nearly reached $1 billion last year. We expect to reach a similar size this year. Worldwide we have about 3,000 employees. About 500 of them are international. 1,500 of those people are on the development side.

GamesBeat: Do you remember where you guys came in on the rankings of mobile game companies worldwide?

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Lee: According to App Annie, we were the eighth largest globally last year in mobile. We were the largest in Korea. Most of the top 10 is Japanese and Chinese. Several are from Europe and the U.S.

GamesBeat: I wonder what are some of the unique circumstances in Korea and why it’s done so well across all kinds of games. The behavior of Korean gamers is unique.

Lee: Every market is unique — Japan, China, Korea. As to why Korea developed in a certain way, I’d point to a few things. We have very strong broadband penetration from very early in the PC era. We’re one of the most developed countries in broadband service. That continued into the mobile era. We have manufacturing companies like Samsung and excellent telephone service. The government was very involved in building and supporting that infrastructure.

Korean people are characteristically very quick to embrace new technology. That created a unique environment for IT development, including gaming. The Korean economy developed very quickly in that area. We have a limited console heritage, too, compared to Japan and Korea. PC online, where players are able to interact with each other, was pioneered by Korean companies, taking advantage of our infrastructure and our grasp of IT. That’s a big part of the unique background in Korea.

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GamesBeat: I’ve never been to Korea, but I’ve traveled a lot in other countries, and I’m trying to figure out why some regions are very strong in games, whether in terms of consumer demand or development talent. The circumstances are very different. Israel is very strong in social casino games now. They have a lot of marketing technology as well. It’s been fascinating to see all the different things that contribute to whether a region is strong or not.

Another thing that seems to matter is what kind of disruption happens in the industry. There was a book back in the 1980s called Regional Advantage, which was about Silicon Valley versus Boston. It observed that when the change happened from vertical companies to horizontal, the Valley was ready for that and Boston wasn’t. Boston had DEC, making everything up and down the vertical stack. Silicon Valley had Intel and the storage companies. The horizontal model won, so Boston lost.

Lee: Silicon Valley was very early in embracing more diversity of companies than Boston, yeah.

GamesBeat: In mobile it seems like Silicon Valley is positioned to be behind the rest of the country. The broadband here isn’t good. The wireless isn’t good. Stronger investments appear elsewhere, like in Helsinki. The folks at Supercell made mobile games for 20 years because there was no other choice, no console game industry. They experimented with mobile games for so long that they became the best at it, and when the market arrived they were ready. I don’t think that was the case in Silicon Valley.

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Lee: Korea’s continuing its expansion and we’re seeing a lot of changes. Early development was driven in a lot of ways by Kakao, which involves social interactivity — people connecting and playing together. Kakao was a way for people to get in touch with each other. I’m not sure Korean companies have worked out many other mechanics that have that same win-win, though, when it comes to expanding themselves.

Apart from the gaming business, Korea is seeing a lot of changes and developments in the manufacturing businesses. China is catching up in areas like mobile device manufacturing. They’re making very good products at a very good price. We need to think about changes in those areas.

GamesBeat: There was a period when Facebook had a lot of the social media helping out with user acquisition for companies like Zynga. But then it hit a wall. Americans all felt like it was just too much spam. It seemed like with Kakao—I don’t know if they ever hit that limit. Koreans shared more about gaming, but it was okay.

Lee: In the early stages, Korean players were quite generous when it came to sending and receiving indications. But after a while, game content became more content-driven. People wanted deeper content. Social factors didn’t play as much of a role as before. Developers became more concerned with ensuring high quality of game content. That impacted the market. We work a lot with Kakao, LINE, and Facebook, a lot of social companies. But we’re a content-driven company. We believe our role is to provide the best gaming service, so we’re optimizing how we work with various partnerships. We need to evolve along with changes in the market, the environment, and technology.

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GamesBeat: In the U.S., maybe the last place people tolerate a lot of social stuff is in the celebrity games, like Kim Kardashian. Glu is very lucky to have all those games. That’s a place where people still share a lot and social makes a big difference for user acquisition.

Lee: It’s part of a country’s culture. In this country, maybe in the U.K. and Canada, there’s a big following for celebrities and people who have a lot of social followers. People are excited to follow stars. They want to be mentored by their stars, to go in that same space and be instructed by their stars. It seems to be unique to American culture.

GamesBeat: Is that working in Korea as well? Do celebrity endorsements for games play a role? I remember there was a German company, Flare Games, they launched a game in Korea and used a video from a Korean rapper to promote it.

Lee: American people, they’re sentimental about stars. Americans look at their stars as stars. Korean people tend to expect something more, even from stars. Kim Kardashian is crazy, for example. From a Korean perspective, that kind of thing might not be so much appreciated. Famous people can’t get away with that kind of thing.

It may be possible for us to create that kind of excitement by having a star, having a celebrity in our game. We’ve thought about it, especially when we look at the North American market or in Europe. These games seem to be very popular with young women in particular.

GamesBeat: There’s not as much content that works globally. Maybe Marvel or Star Wars.

Lee: It’s the nature of different intellectual property. Celebrities tend to target North America, and the space is big enough there. Your audience has a lot of purchasing power and they get very excited about stars. That’s very American. Things like Marvel and Star Wars are definitely more global IP. They’re very big in Asia and other places.

GamesBeat: Do you think Marvel has to be careful about how many games it’s making? You have Kabam’s game and Netmarble’s game and more games coming. Is there a limit?

Lee: We believe they’re managing the portfolio well to avoid that kind of duplication. Their games don’t have many similar characteristics. Kabam’s game is quite different from ours. They may opt to build another title for the Chinese market, but they’re trying to avoid as much duplication as possible. They’re very good with their IP. License management is always maximizing the leverage of your IP and customer appreciation. Marvel is quite strict in that area, even though they’re producing quite a few titles compared to some other IP that are open to a smaller number of licenses.

GamesBeat: Is VR very interesting to Netmarble?

Lee: We’re paying close attention. We want to be in close touch with developments in the VR space. As a content company, VR and AR and new technology developments are all opportunities for us. It’s a productive trend. We want to make high quality games with whatever technology comes along. The right timing important. The market should be ready. The technology should be ready. We should be able to understand how we can take advantage of VR to make quality content. We want to stay in touch with contemporary development. We’re participating in a VR fund as a limited partner.

GamesBeat: Did you see the news about Fun Plus forming a $50 million investment fund for mobile? That was interesting because it seems counter to the cycle. Everyone else is investing more in VR and AR now. Fun Plus is saying that mobile has a billion users and VR has almost none, so the place to invest now is mobile.

Lee: It seems like they’re more focused on the international market than the Chinese market, even though it’s a Chinese company. They’re trying to find where they can differentiate themselves in different regions. China is already very competitive. Korea could be a good potential market for them. They’re in the process of finding less competitive areas.

GamesBeat: Where is Netmarble looking for acquisitions and investments?

Lee: We believe in economies of scale. The mobile business is entering an early stage of maturity. Economies of scale will be very important. A handful of companies will stay competitive. We’ve been through a phase of development in the industry, and we’re looking at consolidation, but not just consolidation.

Our mission is to provide fun games for a global audience. Whenever we can provide fun to users, we’re passionate about partnering with capable studios who can make and serve good games in both new and existing genres. Acquisition is an effective way for us to do that while we also grow from an organic standpoint. We’re always aiming in that direction.

GamesBeat: Are you looking at any particular regions like North America or Europe?

Lee: We want to be vital in any region where we can expect sizable growth — the U.S., Japan, China, other parts of Asia, Europe. All of these regions should be part of our target audience map. Korea, even though it’s the fourth-largest market after Japan, China, and the U.S., it’s quite a distant fourth. There’s a big gap between three and four. For a Korean company to stay competitive and sustain growth and stay vital, that demands globalization. On top of our strength in Korea, we need to build a global vision so a global audience can appreciate our games.

We believe we’re destined to become a global company and explore new regions. SGN’s case is a good example. They wanted to build presence and greater influence. We wanted to communicate with a larger audience. We thought about what type of games are being enjoyed by American users and what capabilities would be necessary. We’ve been preparing many games to publish for U.S. users, both in-house and third-party games. But we believe we need partnerships with proven and capable players in areas where we don’t have expertise. We plan to continue doing that, as long as we can provide fun games in any region and any influential genres.

GamesBeat: Does SGN have more opportunities in casual or core games? Or is it both?

Lee: They’ve been doing great in match-three games. We believe there are some areas that they can leverage to expand out of casual into more mid-core titles. There might be better people out there to comment on SGN’s strategy. But as the largest shareholder, we believe SGN has the capability to expand beyond match-three casual into simulation games and other mid-core genres. We see a lot of potential in their original capabilities.

GamesBeat: What does Netmarble have planned in the coming year?

Lee: We’re launching around 30 games in a number of genres. In some cases we launch first in Korea and then move to the U.S. and Japan. But in many cases we do separate builds for Japan, the U.S., and Korea. For the global market we’ll have an extensive lineup of global IP to go along with Marvel Future Fight. We’re launching our first Disney project soon. We’re trying to do that kind of collaboration globally, backed by very strong culturalization. We’re servicing separate builds for Japan and other regions. We have quite different product directions and regions. The Japanese game will incorporate Japanese characteristics, and we’ll be supporting the U.S. and Korea and the same way. That’s our basic strategy, coupling global IP and culturalization and servicing different builds. We’re investing very aggressively in global studios, global marketing, and global IP.

GamesBeat: Did you happen to see the speech Gabe Leydon from Machine Zone gave at the Recode conference? He talked a lot about how so much more of the overall advertising market was going to be performance-based. The precise measurement of results that you can get from working with hundreds of ad networks, advertising around the world, and having a large in-house group of people managing all that would be the way of the future. The very vague brand advertising that’s done without much measurement is going away. Things like doing Super Bowl ads, the TV part of it may not make very much sense, but the way that ad lives on YouTube getting millions of views there with more precise metrics is useful. He shook a lot of people up by talking about how severe the change is going to be — that it’s going to destroy a lot of the old media companies.

Lee: It depends on strategy and it depends on the viewers you’re marketing to. Metrics are certainly going to be demanded more and more, as technology develops to measure user behaviors and the performance and effectiveness and advertising. Media that doesn’t provide that kind of measurement function — people are going to demand it, at least very basic, functional metrics. That’s a trend. At the same time, we believe brand advertising has its own value and area. We do our own brand activity in TV and so on for the Asian market, in Korea and Japan. We might do something like that in the U.S. as well. We believe in combining branding with performance-driven activities to create more effective marketing impact.

GamesBeat: Is it more important for Netmarble to become a more familiar name in the U.S.?

Lee: We have more products becoming more popular with U.S. users, and so we’ll naturally build a reputation as a brand. But also, in parallel, when we have successful products in certain areas, we’ll turn to conventional media like TV. They have their own role to further boost our place in the market. It’s a question of weighing how significant each form of media’s role will be. But we believe branding still has its own role. Marketing is a critical capability for a mobile gaming company.