Nexon CEO’s progress report on westward migration — and the dirty secret on game quality

Owen Mahoney has a unique view on global gaming. He’s a former Electronic Arts executive who landed a job first as chief financial officer of Asian gaming giant Nexon. Last year, he became its chief executive, which has its headquarters in Tokyo and big operations in South Korea. Thanks to its success with games such as Maple Story and Dungeon Fighter Online, the company has more than 4,656 employees (as of December) around the world.

But Nexon makes most of its money in markets such as China, South Korea, and Japan. It has grown big thanks to PC online games in those countries. Its revenues for the first quarter ended March 31 were $418 million, up 9 percent, with profits at $151 million. But the company is generating just a small amount of money from Western games and the mobile sector.

Mahoney wants to change that. He has been investing in game startups led by famous Western game makers such as John Schappert (formerly EA, Microsoft, and Zynga, now at Shiver Entertainment), Brian Reynolds and Tim Train (Big Huge Games), and Cliff Bleszinski (formerly Epic Games, now the founder of Boss Key Productions). And Nexon still has nearly a billion dollars in cash (almost $2 billion if you consider more of its assets), in case other good deals are out there.

Some of those deals are producing results. Big Huge Games has launched DomiNations on the mobile app stores, and the early results are promising. And today, the company is also launching the open beta of Dirty Bomb, a zany first-person shooter online game. Mahoney told us in an interview that his focus is on making quality games. Everybody says that. But we went into a deeper discussion on it, and we also delved into the larger forces in gaming that are shaping Nexon’s future.

Here’s an edited transcript of our interview.

GamesBeat: So, how have you been doing?

Owen Mahoney: We’re doing great. I’ve been traveling around the world a lot. I’ve been shuttling back and forth through Tokyo, Korea, and the U.S. We’ve had a lot going on in those regions. I’m heading to China, Taiwan, and Europe at end of this month. But it’s all going very well. As we said in our earnings call, we’re on the move. It’s all fine when you feel like you’re making forward progress.

GamesBeat: Your earnings report had some interesting directional information. It sounds like DomiNations is off to a good start.

Mahoney: We’re really happy with it so far. We’re happy with development partners. We’re happy with what we’ve been able to bring to the table. The thing we like about it, it’s very much down the center of what you and I have been talking about for a while, which is to combine what they’re good at and what we’re good at. Tim (Train) and the team over there have a lot of knowledge about how to make a terrific game. Nexon has a lot of knowledge about how to make a free-to-play game that can last and build over time. We can be a good publisher as well. Combine all that together and the outcome is good so far.

GamesBeat: I wrote a bit about it. I’ve been playing it the whole time. Now that it’s out, I do wonder what you mean by what Nexon has been able to add to the free-to-play style. Is there something that’s a bit more of your trademark in the game?

Mahoney: On a game of that style, there’s stuff we’ve already released and stuff that’s coming up. The core questions are, “Where is the game?” and “Is the game fun to play?” My feeling is, when I’m playing the game, I feel like I’m playing a real game. One of my personal favorite games of all time is Civilization, particularly Civ II and Civ V. The idea that you’re in a historical universe, playing and progressing your society over time, is something that needs to come out in a game, if it is a game.

One of the challenges people have had over time, especially in the West, is that you sometimes ask where the game is. I get that this is a place, a pastime, but I’m really asking where the game is. What I like about DomiNations, there’s actually a game there. When you do that, then you can decide over time, in very subtle ways, how you boost retention. There’s a thousand small things that go into that. Hitting that line is where the art lies. There are things we have out now and things we’re going to bring out over the coming months that help to boost that feeling. We think that’s how we should be judged.

GamesBeat: I feel like there’s a line the game is walking on free-to-play between making you wait enough so that you are tempted to go and spend money and speed things up, but also retaining you and keeping you playing as much as possible. That seems to be one of these delicate tunings that games like this have to go through.

Mahoney: That’s right. I play the game a lot with my son, who’s 11. I don’t give him money to buy stuff. We’ve been playing a lot since launch. He and I — among other people, although this still isn’t very scientific — are going through that right now.

The thing that’s interesting about this topic is, let’s go way back to how free-to-play was born. It was born in Korea at Nexon. The game was Quiz Quiz. It was a long time ago. It started as a subscription game that was essentially going down. The team there felt that since the game was going down anyway, why not make it free? That’s one way to see how things go. Then of course the monthly active user (MAU) numbers rocketed up, and they started to experiment with just putting some things in the game that you could buy for a very small amount of money, a dollar or two U.S., and seeing how people liked it. It was pure experimentation. That’s the spirit under which real free-to-play was born.

That said, it was a very different experience through which free-to-play came to the west, which was much more from the angle of, “Isn’t this an interesting monetization mechanism?” Those are different questions. One is born from the perspective of art. I’d argue that the people making Quiz Quiz really looked at their game as an art experiment there. Some people come to free-to-play very much from the side of looking for a monetization strategy. In order to figure out all this stuff, you have to view it from the perspective of art. You have to recognize that in the games business, we are in the art business. If you focus on making art, you’ll be able to come to conclusions that are healthy for your game and your players, and ultimately for your business over time.

That’s a big thing that’s being grappled with in the West. It’s also been a change within Nexon in the last year since the new team and I have come on board. We’ve gone back to our roots. Like other companies, at times we got pulled away from this perspective. It hurt us. But it’s certainly hurt the industry in a big way. The industry steered in a much different direction, one that hurt gameplay. I’m happy that as we experiment with this more and more, we’re doing the right thing by gamers. It feel like that, at least, because we’re all gamers ourselves.

It’s certainly a process. It’s easy to talk about in concept and it’s really hard to do in execution.

GamesBeat: I’ve seen DomiNations ounce around the charts in the top 100. How are we to interpret some of that movement at this stage, at least in terms of the top grossing chart? I don’t know if that directly relates to user acquisition spending that happens on the game.

Mahoney: The way I’d look at it, we intend to be publishing this game for a very long time. Whatever’s happening today or this week is relevant, but it’s not a core driver. What I care about is whether the game is something that’s going to be interesting to talk about in a year or two or three. That’s where we’re focused as a publisher.

GamesBeat: From what you know, then, it’s off to a good start? You see the potential in this game, that it could go on for a long time?

Mahoney: We see potential in this game. It’s part of a theme, or a couple of themes, that we’re focused on right now. One is on gameplay quality. Another is on partnering in which we bring something big to the table and our partner does as well. Third is about making sure that we have the right perspective, that we’re focused on building this over time in a way that benefits all parties. That’s been at the core of what we’ve been able to do in other markets. It’s been at the core of how Nexon was built over the last two decades.

GamesBeat: You also launched Dirty Bomb. What sort of comments do you have on that so far?

Mahoney: We’re in beta. In the games business you can judge yourself based on results, but it’s way too early to tell on a hardcore PC first-person shooter game, how that’s going to do over time. I’m playing it. A lot of people within Nexon have been playing it and enjoying it. It feels like the community likes it. We’ve been getting good feedback on what we can do to improve it. We’ve been able to work with our partner really well on making the game work for the online gaming and free-to-play community. So far, so good.

We want to judge ourselves based on the quality of the gameplay. The performance of the game will take care of itself if we do a good job at that. Again, I’m enjoying the game. I plan to be playing it for a long time. But it is early on.

GamesBeat: It looks like you’re in a stage where things are coming out of the pipeline.

Mahoney: We’re very much on a metronome of new product introductions. Our pipeline consists of both games that we’re creating internally—that’s as strong as our pipeline has ever been for internally created games. We’ve also done a lot of external partnering over the last year and a half. You mentioned Dirty Bomb and DomiNations. We have the Shiver games coming up, John Schappert’s studio, and farther out we’ve partnered with Square Enix for Final Fantasy XI mobile. We partnered with Warner and Lego for an upcoming Lego game down the road.

Internally developed, we have Ghost in the Shell coming up, which I’m personally excited about. We have Maple Story 2 coming up. We have Durango on mobile. All of those games I’m very excited about. The game quality is very good already. Plus have basically 20 games in the mobile pipeline. We’ve whittled that down and really tried to focus on quality games. We feel like we’re going at a pretty good clip right now. The development teams are happy with it and I’m happy with the partnerships we’ve created so far.

GamesBeat: What are some things that have changed? Watching the U.S. part of Nexon, I’ve seen a lot of turnover. It feels like you guys are still trying to get a footing for the management team. How would you view some of the internal changes coming and how that’s showing to us on the outside?

Mahoney: They’re all part of the same time. Last year at this time, when I and the rest of the new management team came on board, we were focused on gameplay quality, quality of execution in live games, and on bringing world class marketing around the world. If you look at our IR documents for Q1 and Q4 of last year, where we executed well on live game operations and on marketing, our regions did quite well.

Everything we’ve been doing has been around focusing on those two things. That’s hard to do in practice. We just need to keep on focusing on that relentlessly.

GamesBeat: You mentioned China. How much activity do you have in China, as well as Korea, Japan, and the U.S.? What’s the relative emphasis?

Mahoney: Our biggest three regions in the most recent quarter were China, Korea, and Japan in that order. Then North America and Europe. China had another good quarter. We were happy with that. Dungeon Fighter continues to perform well in China. We’ve also talked externally about our intention to bring Dungeon Fighter Mobile to the Chinese market with one of our partners, Tencent. We continue to feel good about the Chinese market.

Korea has been firing on all cylinders. We have outstanding execution in terms of live game operations and marketing in that region, not to mention a very strong pipeline. Our mobile business is quite a bit bigger, more than three times as big as it was a year ago. It’s scaling quickly. We’ve had a renaissance in our Korean business. As you know, the Korean market for online and mobile games is hyper-competitive. We feel good about our performance there.

Japan has been more of a struggle recently. Our numbers are down there year over year. We’re focused on making that better. It again shows how it’s easy to talk about all this and very difficult in execution. We think that market is somewhat like our U.S. market a year ago and Korea two years ago, where we can really turn it around through strong execution. We can turn it into a positive business again.

North America has been coming up. We’re happy with how the team’s performed since mid-year last year. Several of our existing games have grown very nicely year over year. We’re introducing several new games. That was a matter of fixing the operations engine, making sure that it’s running well, and then we can feed it with a pipeline of new games coming up. North America is a big opportunity for us. It remains an area of continued focus. Our pipeline is in terrific shape with the leadership of the new development team we put in place a year ago.

GamesBeat: What do you feel are some big forces, larger than Nexon, that are affecting your business? It seems like China and its rapid growth and expansion in mobile, the embracing of brands, all those things seem to be affecting every game company.

Mahoney: I was interested in what John Riccitiello said at your summit. I was thinking back to Nexon’s IPO, which was in the end of 2011. At the time, I remember talking to fund managers, who were very sophisticated, around the world. The viewpoint at that time, with what seemed like a lot of justification, was, “Everybody knows the games business is transitioning from console to Facebook games.” And I’d think, “Wait a minute. Everybody doesn’t know that.” I can see why you’d think that, but that’s not necessarily a trend. What was clear at that point was that revenue was going up on Facebook and the console cycle was down. But that doesn’t mean people were stopping playing console games to play casual games on top of Facebook.

I was thinking about this because of a conversation we had internally. The constant of all this goes back to a question of, “Are there fun games to play? Are game developers really focusing on creating fun online games, games that are built to last?” Everything else, in my view, is secondary to that. It may not seem sexy to say that, or say that’s the new thing, because it’s been a constant throughout the history of the industry. But it seems to me that whenever the game industry has gotten away from that and thought the trend was about something else, or that the big topic in the industry was about something else, then the industry has gotten itself in trouble.

The industry has gone through generations of thinking about graphical fidelity as the primary thing, or Facebook games as the primary thing, or monetization strategies as the primary thing. What really matters is game quality. If you think about the game companies that we all admire, they’ve been companies that have stayed close to that path and not worried too much about what the rest of the crowd is thinking about.

We’re going to be successful company if we stay close to that vision. We will not be as successful if we stray from that vision too much.

GamesBeat: When the investors do ask you when you’ll start investing in VR or commissioning some games to experiment with it, what are you saying generally? Or whatever the latest new platform is, whether it’s AR or VR or something else.

Mahoney: You have to take it from two perspectives when you’re talking to an investor base. Obviously you have to make investment decisions, but we’re in the art business, so you have to make an art decision. The art decision is, do we have an insight as to how to make a fun game in VR? I’ll buy one or more VR devices because I think VR is cool and I’ve always wanted to be in a VR world since I was a kid. But if I don’t play a fun game I won’t be doing it very much.

Given the costs associated with VR and the fact that you have to basically tune out the rest of the world to bring up a VR experience, there is a cost in doing that. It’s not like a mobile phone where you can distribute your attention and come in and out of the experience quickly. By design it’s a very immersive experience. So if I’m not playing a really fun game I’m not going to be doing it very long. That’s the creative question – can we make a fun game that uniquely leverages a VR environment?

The second thing, of course, is that we have to see devices out in the world. They have to be in very large quantities so that you have an installed base big enough to support the business decision of investing millions of dollars to create that great art experience. If those two things don’t happen – if you don’t have a creative insight and an installed base – it’s probably too early for us. If you have both of those you’ll be in good shape.

For us, right now, we’ve been so focused on just the hard work of delivering great games on two already fantastic platforms – mobile and PC. We have our hands full with that.

GamesBeat: What is your own outlook for the consoles? There aren’t as many console games coming out. They’re all blockbusters, but as more of them get pushed back, it feels like a thinning of the console crowd is continuing. I wonder if this means that we’re in a state where they might be declining again. We might be seeing a shift to your platforms again, online and mobile.

Mahoney: I’m not sure I’m in a great position to call the future of the console business. I do think that from a creative perspective, where some developers have been challenged has been around thinking that consoles are about graphics fidelity over gameplay. A lot of the most fun games, the most innovative games I’ve played in the last year or two, have been on PC, and then some more on mobile. I hate to sound like a broken record on this, but any platform that doesn’t see games that have high artistic quality and really fun gameplay are going to be challenged.

By artistic quality, I don’t mean graphics fidelity or a beautiful color palette or fantastic cinematic sound. I mean just fun gameplay. The analogy is, you could make a movie that has fantastic special effects, but if the story stinks and the acting is terrible, if there’s not much else interesting in the movie beyond just looking at it, you’re not enjoying the movie. Whereas you can have a movie with no effects whatsoever, but a great script and great actors and a compelling story, and you’ll want to watch that movie. You’ll feel fulfilled by that.

It’s not to say that all console games are uninteresting. There are really good console games. But as a platform you have to think about that. It seems to me, at least, that the platform providers have been focusing their platforms on graphics fidelity. That’s been a primary driver on the console platforms for the last two cycles. My personal feeling as a gamer is that we’re well past the point of diminishing returns there. Where I’m judging a game is whether the game makes me think and challenges me in the right ways, whether I find it compelling for some core reason.

GamesBeat: Have you gotten any closer to figuring out exactly what it takes to accomplish quality — how big a team to assemble, how long they should work on it?

Mahoney: Our teams tend to be in the range of five to 50 people. A development cycle is two to two and a half years or so. We put the game into a progression of betas, closed and then open, and we bring it to the market. That’s continued to feel to us about the right team size. Sometimes they’re bigger than that, sometimes it takes us a little longer. The real question is, are we playing it? Are we liking it? Do we think it’s fun? Then we try to focus on it really hard.

GamesBeat: How many people do you have now?

Mahoney: As of December 2014, we had [4,656 employees].

GamesBeat: That’s a lot of teams.

Mahoney: Again, that’s worldwide. That includes publishing teams in China, Europe, the United States, and our mobile teams around the world, plus our Korean team. A lot of those are developers, especially in Korea and Japan.

GamesBeat: Any final thoughts to talk about?

Mahoney: If you’re obsessed with getting into the top 10 or the top five, what do you do as a business? You spend, regardless of ROI, on marketing. That may be a way to get into the top five, but it’s not necessarily a way to build a business. The metric you have to watch out for is retention. There are some other good metrics that are proxies for whether people are having fun in your game or not, but if people are coming back, that’s a pretty good indication that everyone’s having fun.

It may not resonate with everybody right away. You may have a small market. But if you look at League of Legends, that built up over a period of years. A lot of times in our business, you can look at it from a business perspective or you can look at it from an art perspective. I’d argue that if you are true to the art perspective, then the business part will come around, all things being equal. That’s not always true, but it’s true a lot of the time.

GamesBeat: The only worry is if it turns out to be something like Plants vs. Zombies 2, where they had a spectacular game, people loved it, it got downloaded 25 million times, and then those players didn’t wind up spending money on it.

Mahoney: That’s exactly right. I hate to sound like a commercial here, but that’s something we’ve figured out over the years – how to take retention and turn it into a good business over time without ruining that retention. It’s a challenge. It’s hard to do in implementation. But if you can do it well, then you get something pretty special.

One thing you don’t do, you don’t do that by focusing on monetization. You have to focus on retention first and have that be your core. If you start asking questions that don’t interfere with the fun of the game, or if you ask questions but only answer them in a way that doesn’t interfere with the fun of the game, then you’re going to have a good business. That’s what we’re grappling with, and what the industry in general is grappling with in the west.