Nexon wins over Western developers by pitching gaming as an art form

Nexon is a pioneer of free-to-play online games in Asia, and it wants to break into the West in a big way.

A couple of years ago, the Tokyo-based, South Korean-born company appointed Owen Mahoney, a former Electronic Arts executive from the U.S., as its CEO. And he has been on a quest to sign up as many third-party Western game developers as he can to help Nexon expand into the global $30 billion mobile gaming market, as well as the online gaming market worldwide.

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And he’s not signing just any developers. Nexon has concluded deals with Titanfall maker Respawn Entertainment (and its mobile studio Particle City); Big Huge Games, an independent studio cofounded by PC game industry veterans Brian Reynolds (Civilization II) and Tim Train; Shiver Entertainment, a studio started by former Zynga executive John Schappert; and Cliff Bleszinski’s and Arjan Brussee’s Boss Key Productions, which is making an online shooter game called LawBreakers. Bleszinski is one of the most notable developers of shooter games in the world, working on

Mahoney has had luck getting these deals because his view of gaming is similar to those of seasoned developers. He views games as an art form, and he explained his strategy in a fireside chat with Mike Vorhaus, president of Magid Advisors, at our GamesBeat 2015 event.

Here’s an edited transcript of their conversation.

GamesBeat: You’ve been at Nexon for four or five years now, and you’ve been the CEO for the last couple of years. You had a couple of big transactions during your time. What about Nexon made you want to go there? How are you seeing things shape up?

Owen Mahoney: By way of quick background for the people in the room who aren’t familiar with Nexon, because we’re relatively small in the United States, we were founded in Korea. We moved our headquarters to Japan about 10 years ago. We’re headquartered in Japan now and listed on the Tokyo stock exchange. We listed in the end of 2011. We do about $1.8 billion in revenue every year. We operate around 35 percent or so operating income margins.

Our largest region is China. Our second largest is Korea and our third largest is Japan. U.S. and Europe together make up less than $100 million of our total, so they’re small as a percentage, but they’re both growing very quickly. That’s the background on us.

You mentioned Pointcast. When I was at Pointcast I met the founder. They were in a room, the whole company, about the size of four times this table. It was really small when I visited them. When I joined EA in late 2000, by then they had become the second largest game company in Korea. We’re now the largest in Korea.

What impressed me so much when I visited them from EA was—again, this is dating me a little bit, but it was late 2000. EA had invested several hundred million dollars, about $400 million, in a very smart idea, which was that the internet was going to change the games business. We laugh at this now for being so blindingly obvious, but in those days EA was the only large company thinking about this in a very forward way.

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The problem and the challenge was that if you didn’t have a lot of experience online, it’s very hard to change the core of your company from a packaged goods business to an online business. Nexon was one of the few companies around the world that was very forward thinking. What they showed me the second time I visited them in 2000 really blew my mind. It was incredible creativity. Not around graphics fidelity and polygons on the screen and story, but about setting up gameplay that was fun, easy to learn but very hard to master, between thousands of people in their country at that time.

Korea itself was of course way ahead of the U.S. and Europe in terms of online gameplay. And still is, in my opinion. It was very fast broadband, very cheap, and everybody had it. It reached saturation of about 45 million people, the total number of the population in Korea, somewhere around 2004 or 2005. 100 percent saturation. Every man, woman, and child has broadband. It was way ahead of the United States, and it was very fast broadband.

Nexon, NCsoft, a lot of the game companies that were early pioneers were way ahead in their thinking. That got me very interested. I tried to buy Nexon at that time. Jay turned me down. Invited me to come over and worked for him. I turned him down.

GamesBeat: You don’t want to tell us the price, by any chance?

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Mahoney: No, I don’t. You would throw me out of the room, as a businessperson. Later on I tried to buy Nexon again and Jay invited me over again. Late in my time at EA, around 2009, we tried again, and he said, “Thanks but no thanks,” and invited me over. By the fourth time I lost, or won, or whatever the case may be, but I came over to Nexon. All along what impressed me about Nexon was the very forward thinking about online specifically.

GamesBeat: Building on top of that heritage, what’s your strategic plan over the medium and near term?

Mahoney: We come at it from a very particular angle, which to game-makers and a lot of the people in this room would seem very obvious. But to a lot of the games industry, particularly recently—unfortunately a lot of the games industry, in our opinion, doesn’t think this way. But the core principle is that games are very much an art form. If you want to build a game company that’s sustainable over time and that grows over time, you have to build great game art.

The core factor that you judge a game on is whether it’s fun or not. It’s that simple. Like all art, you sort of know it when you see it. You think about the game when you’re not playing it. You want to play the game again. You enjoy talking about it with friends, like all great art. But unlike other game art, particularly online games, it’s the one art form where you write your own story.

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Other art, like books and music and movies and so on, they will tell you a story and you sit and watch what some screenwriter and director have given you. In games, particularly online games, on PC and mobile, any other platform, the game emerges from the gameplay between the players. Those are the games we like.

Some people think of us as a free-to-play game company. We invented free-to-play in Korea many years ago. But we think of ourselves as an online game company. We like the fact that great games emerge from that. When we think about our forward plan, with that as context, we think that the most important thing is that we create great games.

Again, that seems blindingly obvious. Unfortunately we don’t meet a lot of companies that talk about it in the way we think about it. That’s number one. The other thing about online games is, it’s actually really hard to do live game operations and live game development. Building a game so it builds up over time. The technical aspects of running a client-server system that can support gameplay, particularly in an MMORPG or a sophisticated game, is actually very hard to do. And so that’s an expertise we’ve been able to build up.

The other aspect is live game development. If you want to build a game that, like many of our games, has gotten bigger and bigger over a period of more than a decade, you have to invest a lot in live game development, putting new things into the game. Many companies have not realized this, which is why their games tend to blow up quickly and then go down.

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A lot of what we’ve been doing in the last year and a half since the new management team took over is to sort of sweep out the brush that had developed and then go back to that core. That’s a very strong core. It’s proven itself over and over again. The companies that we respect around the games industry, in Asia and in the west, tend to have that same orientation, and they’ve been able as a result to build up their companies in a very healthy way over time.

GamesBeat: I love the fact that you think of yourself a story platform versus a storyteller, what all the other media are.

Mahoney: That’s the best part of the games business. It’s what I love about the art form.

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GamesBeat: Give us a little hint of what we might see over the next two or three years as you guys focus back on the core and focus on making it possible for people to build their own stories. You have some exciting stuff that you can hint at, at least?

Mahoney: Sure. You might have read about some of the deals that we’ve done with western game developers. We’ve done several in Asia as well. We have been looking hard, over the last two years, for game companies that have a similar approach to online games as we do. It’s been surprisingly hard. We talk to a lot of game companies who are not really focused on the art of games. They’re focused first and foremost on the business of games.

You ask them, “Hey, what’s the game you’re making?” and it’s like a scene out of The Player. Did you ever see that movie? They’re like, “We got this license and it’s going to be sort of like this game, but a little bit different, and this is how many polygons we’re going to put on the screen.” And I keep asking, “Yeah, but what’s the game? Why is this going to be fun?”

We’ve been able to find some that we’re excited about, though. We like to do things where we can combine something that we’re good at, particularly live game operations and live game development, and bringing your game around the world. Being successful in Asia, which is a gigantic market and in practice an extremely hard one to be successful in—We like to combine that with things those game developers know and can bring to us. That’s fun for us.

For example, we’ve got an arrangement we’ve been talking about with Cliff Bleszinski. That game is looking really good. We’re very excited about that. He and his team are very excited about the opportunity to bring that around the world, their game Lawbreakers. We’ve also created an arrangement with Lego and Warner for bringing Lego, a fully featured Lego MMORPG around the world. That’s going to be big. We partnered with Square Enix for Final Fantasy XI. We’ll put that on mobile, bring that around the world. Both companies that are in the east and coming west and companies in the west going east. We also successfully launched Maple Story 2 on PC in Korea. We’ll bring that around the world.

We’ve been talking about Ghost in the Shell, a fantastic first-person shooter. We developed it in Korea. It’s a franchise that’s very well known in Japan. We’re going to be launching it first in the west, though. That’s pretty cool. The game plays really well. The combination of those two – western developers going east and around the world, and eastern developers going west–

GamesBeat: Can we talk about Shiver a little bit?

Mahoney: Absolutely. Shiver is founded by a guy named John Schappert. John and I worked together for many years at EA. John’s a fantastic guy. His team is working on a couple of games that we haven’t announced that much about publicly, but we’ll be talking about them a lot more coming up. We’ve had Dominations. Dominations was Tim Train and Brian Reynolds. We launched that in the United States and then we had a lot of success in Asia with that game. It’s worked out really well for us.

GamesBeat: Let’s come back to this important core strength of you guys in terms of free-to-play. God forbid people think Facebook and Zynga invented free-to-play.

Mahoney: A lot of people do.

GamesBeat: That would ruin a lot of my days. Give us a little bit of the history, a little sense of how the West is adapting to free-to-play.

Mahoney: We could talk all day about that. I won’t bore everybody. Free-to-play started the story, because of course success has a lot of fathers. We had a game called Quiz Quiz in Korea. It was a subscription game on PC. It was basically going down. This is long before I was there, but the team there was very smart and they said, look, we got nothing to lose. It’s about to go away anyway. Let’s give it away for free. Our MAU number, monthly active users, skyrocketed when we made it free, because that’s usually a pretty appealing price point.

GamesBeat: Do you remember the increment?

Mahoney: I wasn’t there. I could look it up. It was significant. Then they started experimenting with giving away little items within the game. We found that some were really—for a dollar here, a dollar there. The point of the story is that it didn’t start out as a monetization strategy or a business strategy. It started out as an idea of how to help your customers or your gamers have more fun in the game. And so you might be interested in spending a dollar here, a dollar there to make your game experience much more fun. It took off.

Not long after, our then-head of development – he’s returned since then and is now again our head of development – said, let’s try this on other games. We started trying it on live subscription games and it worked across all of them. We realized that the core idea of a game where you—90 percent of your players don’t pay anything, but that 90 percent still has a great time in your game and enjoys it. The 10 percent that do buy something are going to make the game experience that much more fun. That’s a win for the customer and a win for the company. As a business, that works out well.

My take from watching how this developed—in 2006 or 2007, you’d go to Seoul and look at how the world was developing. Then you’d come back to California on that flight that lands in the afternoon and it’s a totally different market. It was all packaged goods here and it was all online there. It was quickly becoming all free-to-play there. Here, nobody was talking about microtransactions or free-to-play.

As microtransactions and free-to-play started to become a thing in the west, my perception – right or wrong – is that a lot of the people introducing that thought of it as a business model. They looked at the economics and said, “Gee, I could charge more than I ever would have charged for a packaged goods game or a download.” They took a very different viewpoint on it. I think that our industry is probably still suffering some from that.

If you think about it as a business model and as a way to pull money out of people’s pockets, you’ve stopped thinking about retention. The name of the game is retention. To get retention you have to have a game that’s fun over a long period of time. You can fool people once, but they don’t come back. It’s death for your game. We’ve made those mistakes before. It’s not like we haven’t made mistakes. But it is not good for the industry. It’s not good for your company or your game, but it’s not good for the industry. It’s something we’ve learned.

GamesBeat: Who do you see in the west getting it a little bit more than others?

Mahoney: Valve, for sure. I have enormous respect for those guys. Probably Blizzard as well. These are very thoughtful people.

GamesBeat: And all dedicated to the game.

Mahoney: Very dedicated to the game, absolutely.

GamesBeat: VR. What do you think? Where do you think it’s going? What’s the timeline?

Mahoney: I don’t want to take a contrarian opinion from the person who just appeared on stage before me. He seemed pretty psyched. As a customer I’m psyched about VR. We’re not currently investing heavily in VR. I question what the timeline is. Right now we have a zero billion unit industry. To be consumer—take it from a business perspective first and then come back to the art aspect of it, because you have to take it from both angles in the games business, I think. From a business perspective we’re probably—I don’t know what the experts think. You’re an expert. How many years are we from 10 million units?

GamesBeat: Three to five. We’re including the low cost units.

Mahoney: Sure. What’s low cost? $350?

GamesBeat: No, these $10 Google Cardboard units.

Mahoney: But is that the real experience? I think everybody in this room will probably own a $350 Oculus or equivalent as soon as they can get their hands on one. I know I will. But that takes a while to get to the actual numbers where it becomes a consumer device. It’ll take time to get there. It just seems early for us. Even though every day there’s an email, every day there’s a discussion at some panel about VR.

From a games art perspective, the question I keep asking is, where’s the game? I would like to see a game. I use it and I’m blown away by what I see. It’s everything that everybody says. But I still go back to—The reason I keep playing a game for 40, 50, 100 hours, 200 hours is because I love the game. I can envision some things happening.

You also have to remember that when you put on a VR headset, you’re literally shutting out the rest of the world. It cuts you off. It’s the opposite of the mobile phone opportunity. It’s not accessible. It’s definitionally inaccessible for the people around you. It cuts you off from the outside world. I don’t even know where my Red Bull is when I’m playing a first-person shooter. That’s sort of an issue.

GamesBeat: eSports. You’re living part of the time in the land of esports.

Mahoney: Korea is absolutely where we were founded. It’s the place for esports. We have the Nexon arena. This is the future of eSports. Nexon arena seats 550 people in downtown Gundan, which if anybody’s ever been there, they know it’s the party area. We do 300 events a year in this arena. It’s huge. It’s broadcast on TV. It’s a big deal. I’m a big believer in that. It hasn’t quite hit here in that way. I was at the Hearthstone semifinals yesterday. It’s not quite as big here as it is there. But I believe that the future is big. I’m very excited about it.