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Korea's Online Gaming Empire$

Dal Yong Jin

Print publication date: 2010

Print ISBN-13: 9780262014762

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262014762.001.0001

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Political Economy of the Korean Online Game Industry

Political Economy of the Korean Online Game Industry

Chapter:
(p.35) 3 Political Economy of the Korean Online Game Industry
Source:
Korea's Online Gaming Empire
Author(s):

Dal Yong Jin

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262014762.003.0003

Abstract and Keywords

This chapter examines the ownership patterns, market structure, and financing of the Korean online game industry. It maps out the forces driving its development by examining government policies and competition among online game companies. In particular, it addresses the major role that the government has played in the development of IT, which includes the online game sector. Finally, the chapter provides a historical account of how the online game industry contributed to the diffusion of online games in the socioeconomic milieu specific to Korea. It also sheds light on current debates of neoliberal transformation in the global video game industry and its culture.

Keywords:   online games, gaming industry, IT policy, government policy, online game companies, video game industry

Introduction

The Korean online game industry has become one of the most dynamic in the world. While several countries (both Western and non-Western) have rapidly invested in the online game industry and have become involved in the development of online games, Korea has played a central role in the PC-based online game market and digital economy since the late 1990s. Ever since Nexon, a Korean games developer, introduced the world’s first graphic MMORPG with The Kingdom of the Winds in 1996, Korean game corporations have developed immensely profitable and skillfully designed online games, including Maple Story, Lineage [I], Lineage II, and AION, which have made Korea an online game empire. The industry’s vibrancy is obvious, and, for Korea’s online game companies, life seems easy—as if operated by a joystick (Kim 2009). Primarily due to the rapid growth of users, and the structure and dynamics of the interactive game business, the Korean online game industry has become a key node in the networked environment of virtual capitalism (Kline, Dyer-Witheford, and de Peuter 2003, 169).

There are several contributing factors for the growth of the online game industry in the Korean context, including favorable government policies, a competitive market structure, a swift development of ICTs, the transnationalization and globalization of the game industry, and people’s mentalities about accepting new technology and online gaming. The online games development industry in Korea continues to be supported by extensive government intervention and preferential cultural industry policies (Chan 2008, 189). The fundamental growth of the online game industry has also been made possible through the swift (p.36) development of ICTs. The online game market is being driven by the increase in broadband subscribers, although a transition to the next generation of consoles has gradually occurred since both Sony and Microsoft introduced online gaming capabilities through their consoles (Chan 2008; PriceWaterHouseCoopers 2007).

Globalization and transnationalization are also fundamental factors for the growth of the online game sector. Over the last decade, many foreign-based game giants, such as Blizzard Entertainment, Electronic Arts (EA), Microsoft, Nintendo, and Sony have swiftly invested in the Korean game market in the midst of neoliberal globalization. In the 1990s, the U.S. government and international agencies such as the IMF and the World Trade Organization pushed non-Western countries, including Korea, to open their media and telecommunications markets, such as film, broadcasting, and telecommunications industries. Since the online game industry became a new media area, and the government had already opened the new media market, including cable and mobile sectors, transnational corporations (TNCs) easily penetrated the Korean online game market with their advanced capital and marketing skills. Consequently, the Korean online game market has been a battleground between foreign-based TNCs and Korean-based TNCs since the early twenty-first century, which has resulted in the growth of Korea’s local game industry. Along with the rapid growth of broadband and the ascent of PC bangs, several other factors, such as the popularity of StarCraft and the 1997 economic crisis, also affected the rapidly changing online game system. These historical events played significant roles in establishing the online game industry as a primary part of Korean society and culture.

It is worthwhile to analyze the context of the rapid growth of Korean online games, because contextualization provides a process for connecting present circumstances to the social and historical conditions from which online games originated. Several key factors involved in the rapid growth of online games in the context of broader socioeconomic elements are explored; more specifically, this chapter critically examines several significant aspects of the industry’s ownership patterns, the market structure, and financing of the online game industry. It maps out the forces driving its development by examining government policies and competition among online game companies. In particular, it addresses (p.37) the major role that the government has played in the development of IT, which includes the online game sector. Finally, this chapter provides a historical account of how the online game industry has contributed to the diffusion of online games in the socioeconomic milieu specific to Korea. This chapter also sheds light on current debates of neoliberal transformation in the global video game industry and its culture.

The Emerging Korean Online Game Market

The video game market, as it relates to consumer spending on console, handheld, PC, mobile, and online games—referring to games carried out on a computer network—is a burgeoning new media industry with global revenues rivaling those of film and music (Dyer-Witheford and Sharman 2005; Carr et al. 2006). Between 2001 and 2005, the worldwide game market increased by about 30%, to $27.1 billion. It is expected that the game market will increase from its 2007 figure of $41.9 billion to $68.3 billion in 2012, growing at a 10.3% compound annual rate (Price-WaterHouse Coopers 2006, 368; 2007, 424; 2008, 404). As is well chronicled in media reports, the primary driver of the global game market is the growth of console games, where gamers play on a dedicated console, like Sony’s PlayStation 3, Microsoft’s Xbox 360, and Nintendo’s Wii. These major console producers and service providers, which have provided game platforms and/or devices, have dominated the global video game market in an oligopolistic contest. In the United States, console games, including handheld games, constituted 74.4% of the market at $8.64 billion in 2007. The situation is not much different in Europe (60.6%), although online games are growing (PriceWaterHouse Coopers 2008). Although there are other game areas, including online and mobile, due to the rapid growth of the console game sector, advertisers are turning to games as a means of reaching the male 18-to-34-year-old demographic. Therefore, the total amount of advertising on video games has soared from $30 million in 2004 to $1,044 million in 2007 (PriceWaterHouse Coopers 2008, 419).

In contrast to this trend in many Western countries, online games have been markedly in vogue and are playing a critical role in Korea’s systematic transformation toward a digital economy and culture. The online game platform allows players to download games and game content to (p.38) compete against others via the Internet. The PC platform is traditionally the only means by which to play games online, and it is still the dominant platform, although both Sony and Microsoft introduced online gaming capabilities through their consoles in 2002. For instance, Xbox Live offers game downloads, video chat sessions, and the ability to compete against other players online. While there is a free version of the environment, which has limited capabilities, the majority of players pay $50 annually as of 2007 to enable full access and to allow them to compete against other players around the world (PriceWaterHouse Coopers 2007, 432).

The growth of online gaming has been phenomenal in the Korean context. In 2000, for example, sales in the domestic gaming industry were valued at $1 billion, and online gaming only accounted for 22% of the game market. During the same year, as a reflection of the dominance of arcade games before the rapid growth of online games, arcade games were the largest game genre (60%), and PC games were the third at 13%, while mobile (3%) and console games (2%) were marginal (Feller and McNamara 2003). However, only a few years later, in 2005, the Korean online game market accounted for as much as 76.2% ($1.4 billion) of the total game market ($1.89 billion), and this figure accounted for 56% of the entire Asia-Pacific market share. During 2005, the console game market constituted only 11.5%, followed by mobile games (10.3%), and PC games (2%) in Korea. The online game market rapidly increased by as much as 41.3% between 2004 and 2005 (Korea Game Industry Agency 2006). Korean online games, as of March 2007, also made up 32% of the world’s online gaming market (Kim 2007). For example, in Thailand, Korean games accounted for 80% of the market, and the situation is similar in Vietnam and the Philippines as of June 2009 (Choe 2009). The Korean online game market grew and recorded $2.8 billion in 2008. In 2010, it is expected to be $3.9 billion (Korea Game Industry Agency 2008).

The most popular online game genre has been the MMORPG; however, there are several more online game genres becoming more popular among young people, including casual games, first person shooter games (FPS), and sports games (golf, soccer, and car racing). In fact, after the introduction of Lineage II in 2003, several game firms diversified their genres, from MMORPGs to casual games (e.g., (p.39) KartRider) and FPS (e.g, Special Force and Sudden Attack), to expand their revenue sources while avoiding any financial risk from the potential failure of one or two major games, particularly MMORPGs, because this game genre needs ample development costs. Due to their efforts to make new game genres and changing users’ preferences, non-MMORPGs gradually extended their market share in the Korean game market. For example, during December 2008, five MMORPGs (including AION, Lineage, World of Warcraft, and Maple Story) still made the top 10 most popular online games list; however, casual (KartRider), FPS (Sudden Attack), and sports (FIFA Online 2) games also ranked in the top 10 (Cho 2009).

The Korean online game industry has also rapidly expanded its influence in the global market. In 2008, Korea exported $898 million, about a 15% increase from the previous year, in the gaming business (Korea Game Industry Agency 2008). When Korea exported $565 million worth of online games in 2005, the film industry exported $76, and the broadcasting industry exported $123.5 million in television programs, the two of which had been major cultural sectors leading to Korea’s increasing cultural penetration in Asia (Ministry of Culture and Tourism 2006). The export of Korean films has rapidly decreased, from $76 million in 2005 to $24.4 million in 2007 (Korean Film Council 2009); the game industry, and particularly the online game industry in the Korean context, has started to outgross the Korean movie industry basis.

The largest foreign markets for Korean online games were traditionally in East Asia, including China, Japan, and Taiwan. In particular, China and Japan have been the two largest markets for Korean online games. In 2003, China accounted for as much as 62.1% of Korean online game exports, followed by Taiwan (16.5%). During the same year, the United States (5.7%) and Europe (2%) were smaller markets. However, there have been some significant changes since that time. While China has reduced its dependency on Korean online games, and Japan and the United States have become important markets, because Korean online games have rapidly penetrated these countries. In 2007, China and Japan each received 31% of Korean online game exports, followed by the United States (17.7%), Taiwan (7.7%), and Europe (5.3%) (Korea Game Industry Agency 2008, 53). The Korean online game industry also has a presence in Latin America, the Middle East, and Russia.

(p.40) Chinese game companies quickly caught up to the Korean game industry in the area of online games in the midst of the Chinese government’s support, which has resulted in a decrease of market share for Korean online games in China. However, Chinese developers still have a long way to go before they overtake their Korean rivals, because of soaring development costs and skills requiring sophisticated graphics and game structure (Rhee and Wei 2009). Therefore, the Chinese game market, alongside the Japanese market, will be the largest market for Korean online games, at least in the near future. AION, the most popular MMORPG after the Lineage games developed by NCsoft, for example, got a license contract with Shanda Entertainment—the Chinese game developer—for $50 million, which is the largest in the game industry. Korean online games are still dominant in China (Lee, N. 2009).

In fact, in the global game market, several of Korea’s online MMORPGs and casual games have become popular. KartRider, which is an online car racing game developed by Nexon, has been played in 71 countries, including Russia and China, since 2004 (JoongAng Ilbo 2009). Groove Party, which is a stylish online dancing game with a brand-new concept that unites groovy rhythm and dynamic action, has been played in China with sales of $4.7 million. The casual online golf simulation game Pangya, developed by NTreev and published by HanbitSoft, was played in Japan, Thailand, Europe, North America, and Korea in 2009. Korean MMORPGs have been well received in many countries. Maple Story, an MMORPG produced by the Korean developer Nexon, boasts 15 million users nationwide and is available in 58 countries, serving 75 million users around the word as of August 2008 (Jeong 2008). NCsoft—the largest Korean online game developer and publisher—has particularly dominated the global online game market since it released its medieval fantasy MMORPGs, Lineage [I] and Lineage II in 1998 and 2003, respectively. The games were available in Chinese, Japanese, and English language versions and have been considered one of the largest commercial MMORPG communities before the emergence of World of Warcraft, developed by Blizzard Entertainment in the United States in 2004 (Mmogchart.com 2007). In fact, since 2005, World of Warcraft has become a dominant MMORPG in the Korean game market.

However, Korea’s domestic game market has changed since NCsoft offered AION in November 2008. In October 2008, three major online (p.41) games developed by Blizzard Entertainment (StarCraft, World of War-craft, WarCraft 3) consisted of 20% of games played in the PC bangs in Korea, while NCsoft’s Lineage games accounted for 14% of the PC bang market. However, as of early January 2009, AION consisted of 19.1%, while World of Warcraft was only at 6.1% (Lee, N. 2009). AION also rapidly penetrated the global market, including China, North America, and Europe. For example, since launching its open beta service in China, AION has recorded more than 500,000 concurrent users as of May 2009, and Gamespot, an influential U.S. Web site for video and computer games, has AION ranked second only behind Blizzard Entertainment’s StarCraft 2 as the most anticipated game title of the year (Kim 2009).

In fact, as one can see in table 3.1 , AION made $42.6 million worldwide during the first quarter of 2009, while Lineage II, which was the most lucrative online game for NCsoft, earned $41.1 million (NCsoft 2009b). As such, the Korean online game industry has developed several key games for global game users and commercialized online games in the global marketplace. Although there are several global game giants, including Blizzard Entertainment and EA, the Korean game industry has been one of the most vibrant in the global market, and Korea successfully promotes online games as a major part of its digital economy.

Table 3.1 Revenue Profile of NCsoft, 2004 – 2009

Game

2004

2005

2006

2007

2008

2009

Lineage

112,806

115,012

118,049

111,401

112,602

29,351

Lineage II

110,609

118,953

119,206

131,154

147,211

41,126

AION

9,682

42,649

City of Heroes/

31,475

34,265

25,016

23,446

24,218

6,837

City of Villains

Guild Wars

41,308

52,600

42,058

23,227

4,300

Others

2,052

6,356

9,507

1,730

Total

254,890

309,538

316,923

314,415

326,447

125,993

Note : The data are given in U.S. dollars ($1,000). The data for 2009 is for the first quarter (January – March).

Source : Data from NCsoft 2009a.

(p.42) Structural Imbalances in the Online Game Industry

The creation of a video game can be divided into three distinct processes: development, publishing, and distribution. The development sector entails the design and creation of a piece of game software. This expensive process may be financed either through the developer’s own funds or by venture capital, or, increasingly, by advances from a game publisher (Dyer-Witheford and Sharman 2005). Most Korean developers secure capital primarily from their own funds (29.7%), followed by publishers (21.3%), corporate investment (14.2%), and other methods (Korea Game Industry Agency 2008, 131). Publishing involves the overall management of the game commodity—financing, manufacturing, packing, and promotion of a game. Distribution refers to the shipping of the game hardware and software to retail outlets (Dyer-Witheford and Sharman 2005).

However, the game industry presents a rather complicated picture, because development, publishing, and distribution functions can be combined by one company or separated into two or three corporations. This is different from the music and film industries, where those functions are typically integrated into one production label. For games, a single company can perform just one or a combination of these three activities (Kline, Dyer-Witheford, and de Peuter 2003). Because of the difficulty in dividing the game industry, game-developing firms and publishing companies are lumped into the same category as development companies by the Korean government (Article 2, Law on Game Industry Promotion), unlike other countries that separate publishing from the development sector.

To begin with, the number of Korean online game firms has increased dramatically over the past several years. In 1999, when the Korean online game industry was in its infancy, the country had a total of 694 game companies. However, that number soared to 3,797 companies in 2005, although it slightly decreased to 3,744 in 2007. During the same period from 1999 to 2007, the number of game development companies, as the largest in the industry, increased 6.7 times from 416 in 1999 to 2,792 companies in 2007, while the number of distributors increased 3.4 times from 278 in 1999 to 952 in 2007 (Korea Game Industry Agency 2008). To offer a comparative perspective for a similar time period, Canada had only 247 video game companies, including both game developers and (p.43) publishers, as of August 2008 (Entertainment Software Association of Canada 2009). This means that the Korean online game industry has witnessed phenomenal growth. Because the majority of Korean game companies often do not work exclusively on online games but also on mobile and offline PC games, it is unclear how many of them are actually online game companies. However, according to one survey, about 53.1% of game companies are reporting the production of online games, followed by mobile games (30.8%) in 2007 (Korea Game Industry Agency 2008, 119). These online game companies, ranging from major publishers and middle-sized companies to small developers, together produce approximately 100 new games every year (Chung 2008, 309).

With the rapid increase in the number of game firms, the number of employees in the game industry, including the mobile and online sectors, has also swiftly increased as a reflection of the popularity of game firms as a new workplace. Overall, the number of total employees soared from 23,594 in 2001to 60,669 in 2005 (table 3.2), far exceeding the number of workers in the media industry (40,116), including newspaper, terrestrial and cable broadcasters, and news agencies (Korea Press Foundation 2005). Because many game corporations develop for two or three game platforms at the same time (e.g., online and mobile), it is difficult to sort out the number of employees in the online game industry; however, again, 53.1% of game companies focus on online games as their major platform, so it is likely that the majority of game workers are part of the online game sector. The number of employees rapidly dropped to 32,714 in 2006, with some rebound to 36,828 in 2007, from 60,669 in 2005 (Korea Game Industry Agency 2008). The sharp drop was caused by the drastic shrink of the arcade game sector, whose revenue plummeted in the midst of a bribery scandal between late 2005 and early 2006. Nevertheless, this figure still exceeded several major countries, including Japan (30,000 in 2003), the United Kingdom (20,000 in 2002), and Canada (6,000 in 2005) (Kerr 2006b).

The Korean game industry has continued to show inequality between male and female workers in the workplace. Among game workers, about 79% of the employees are men, so the male workforce is three times larger than its female counterpart. The gender inequality also influences the characteristics of the work in the game industry. In particular, the male workforce has been dominant in certain major areas of the game (p.44)

Table 3.2 Indicators of the Korean Online Game Market

Market Indicator

2001

2002

2003

2004

2007

2005

2006

2008

Domestic Market

191

452

754

1,018

1,439

1,777

2,243

2,756

Exports

130

141

172

368

565

672

78

898

Developing Companies

1,381

1,774

2,059

2,567

2,839

2,786

2,792

3,317

Number of Employees

23,594

33,870

39,104

47,051

60,669

32,714

36,828

42,730

Educational Institutions

44

62

82

69

71

75

71

Note : Domestic market and export figures are given in U.S. dollars ($1 million). These figures are from the entire game industries, including online, PC, arcade, and mobile sectors. The figures of domestic market size are for the online game sector only. Online games consist of 95% of game exports. Education institutions include high school, junior college, universities, and graduate schools.

Source : Data from Korea Game Industry Agency 2006, 2007a, 2008; Korea Creative Content Agency 2009.

(p.45) industry; for example, in 2007 more than 90% of game producers were men (92.8%), alongside other major areas, such as computer programming (93%) and system engineering (92.5%), while female workers were associated with general secretarial positions (24.8%), marketing and PR (27.5%), and as scenario writers (21%) (Korea Game Industry Agency 2008).

The majority of Korean game companies are small in terms of the average number of employees as a reflection of the characteristics of the cottage industry. Game-developing companies had 28.7 employees on average in 2007, up from 22.5 in 2006. Compared to other media and entertainment industries, such as film and broadcasting, the game industry has a much smaller number of workers and assets. Of course, several major online game corporations, including NCsoft (1,300 employees), have more than 1,000 employees and have rapidly become cultural giants comparable to those in the film and broadcasting industries. With a few exceptions, the increase of employees per company in recent years has happened primarily because of mergers and acquisitions between companies, rather than because of the entrance of new game corporations.

The average salary in the game industry is not promising. The average salary in the U.S. game industry was $61,403 in 2001, and, depending on experience, programmers earned between $55,000 and $88,000 (Olsen and Zinner 2001). According to Game Developer magazine (2009), the leading video game industry publication, the average salary has continuously increased to $79,000 in 2008, a 7% increase from the previous year. While the recession is significantly impacting the number of jobs available in the United States, the income of still-employed game industry professionals in 2008 continues to edge up (Game Developer 2009). However, in the Korean game industry, the average salary of the 15 major game companies was $30,000 in 2008. Although some game workers in a few big online game corporations, including NCsoft, received about $39,000 on average, salaries in the second-tier game corporations, including HanbitSoft, ranged from $19,200 to $23,000 during the same year (This is Game.Com 2009). Because the majority of game workers have worked less than five years in their career, mainly between two and three years, this figure itself does not prove that game workers receive lower salaries than workers in other countries. However, given that most of the workers work more than eight hours a day, and (p.46) about one-third of workers work until late at night at least four times per week, one might say that their overall salaries are not promising (This is Game.Com 2009).

Meanwhile, the online game industry has shown unbalanced market concentration. As in many other industries, such as film, television, and mobile technologies, a few of the largest game developers and publishers dominate the Korean game market, and the concentration of wealth in the industry has increased in recent years. Although there were about three thousand development houses, the top five online game companies, including NCsoft, Nexon, Neowiz, NHN, and CJ Internet, constituted 63% of the online game market in 2008 ($1.7 billion out of a total of $2.7 billion). This was up from 54% in 2006, which means that the Korean online game market is becoming an oligopoly with fewer than ten companies controlling the market (Seo 2009; Lee and Ryu 2006). The majority of game companies are small developers trying to maintain business by producing graphics, hosting Web services, and making simple board games (Chung 2008, 310). Among the top developers and publishers, NCsoft made its name with the launches of MMORPGs Lineage (1998) and Lineage II (2003), which offer players involvement in combat, sieges, and political and social systems. With the successful launch of AION in 2008, NCsoft is expected to maintain its status as the largest online game firm in Korea, while competing with global game giants. Nexon, the second largest developer, provided The Kingdom of the Winds—the first online game in Korea, followed by several successful games, including KartRider and MapleStory. These two top online game companies accounted for 62.5% of the top five online game companies in 2006 (Seo 2009). Resources such as capital, workforce, and technology are favoring a handful of leading game firms. As emphasized by Kline and others (2003, 177) and Dyer-Witheford (2004), the dominance of online games by a few major companies could continue indefinitely, because game development is an increasingly lengthy, costly, and cooperative venture. The escalation of production and marketing costs and the difficulties in recruiting skilled workers are persistent challenges to the majority of small game developers, which has resulted in a decline in their market share.

Indeed, the cost of developing one online game soared from $185,000 in 1999 to $10 million in 2008, and several developers have spent more (p.47) than $30 million to develop MMORPGs. It also takes 100 workers about 2 to 3 years to create a big game in Korea (Park, D. 2008; M. H. Kim 2005). This means that small developers who have less capital and a smaller workforce cannot compete with the few largest game developers. For example, CJ Internet spent 31 months and $10 million on the production of its online role-playing game PRIUS Online (Park, D. 2008). Bluehole Studio, which is a new game developer, has been developing its first MMORPG, known as TERA, for three years starting in 2007, and the cost will reach $32 million (Shim 2009). Because game developers and publishers invest a lot of money in marketing as well, the online game industry is now doing blockbuster-style development. This situation will continue in the game development sector, as only a few venture capitalists and large corporations are able to manage the blockbuster-level scope of game development and production timelines. However, the online game industry is itself vulnerable because only a few blockbuster titles dominate the market (Rhee and Wei 2009).

Meanwhile, structural imbalances in the online game industry continue because ownership is concentrated amongst a few large developers and publishers. Several major game companies have expanded their roles in the online game business as a way to compensate for the difficulties in financing and marketing experienced by the majority of developers (Jin and Chee 2009). Through vertical and horizontal integrations, several game corporations have tried to create synergy effects as seen in many other media and telecommunications industries. For example, in 2008, T3 Entertainment acquired 26.4% of the shares of HanbitSoft, and Dragonfly acquired Pantagram. NHN bought 10% of the shares of Webzen, and Nexon acquired 50% of the shares of Neople. HanbitSoft and Webzen were two of the largest online game developers; however, they could not manage their soaring developing costs and became victims of mergers and acquisitions (Ryoo 2008).

Firms involved in telecommunications, media, and international trade, such as SK Telecom, KT, CJ Internet, and LG International Corporation, have joined the emerging new media and technology sector in the hopes of another windfall. In 2008, SK Telecom acquired 51% of the shares of NTreev ($20 million), an online game developer, as part of a strategic plan to intensify its role in the media content area. In 2003, KT announced that it would invest $100 million in the games market over the next five (p.48) years, as a publisher. Since then, KT has funded nine online games, including Herr cot, as of March 2005 as a publisher and actively exported games to other countries, such as the United States, China, and Vietnam (Betanews 2009). As of December 2006, CJ Internet, one of the subsidiaries of the largest multimedia conglomerate in Asia (CJ Group), also expanded into the publishing business with 329 employees (CJ Internet 2009). In the same year, another large media group, Onmedia, released its plan to join the online game industry, as it wished to leverage the existence of its game channel Ongamenet in the marketplace (Oh 2007). As of December 2009, the CJ group had acquired OnMedia for $367 million as part of its corporate strategy to expand in the cable market. As discussed in chapter 4, OnMedia has one of the two major cable game channels; therefore, with this deal completed, it is recorded as the most significant convergence between a game publisher and an online game channel (Chosun Iibo 2009; Yang 2009).

These telecommunications and media corporations have been actively involved in the realms of new media technology and culture, because they believe content, including film and online gaming, is the key in the midst of the convergence of old and new media. In order to become a leader, or, at least to survive in the media and telecommunication markets, they are rapidly increasing their investment into the newly emerging online game sector. The convergence of telecommunications and broadcasting has been sought by many corporations, and online game industries are crucial parts of this trend, because online gaming is a mixture of content, broadcasting (eSports), and telecommunications. Only two years after its initial involvement in the online game sector, SK Telecom, the largest mobile service provider in Korea, announced that the company is not a telecommunications company but a global new media group, including game firms and mobile game portal GXG (Back 2005). SK Telecom has several game-related sectors, including IHQ (entertainment corporation), Ntreev Soft (online game developer), SK Telecom T1 (online game team), and SK Broadband. SK Telecom is also seeking cable channels. Through media convergence between telecommunications, broadcasting, and computers, SK Telecom has rapidly changed its corporate image from a mobile telecommunications company to a new media and content-driven media group.

Due to the surge of capital flow from many parties, from small venture capitals to big telecommunication and media corporations, domestic (p.49) capital in the online game industry has dramatically increased over the last several years. As Aphra Kerr points out (2006b, 51), many countries have consolidated the game industry by partnering with big publishers in order to compete with Sony, Nintendo, and Microsoft in their game markets. However, concentration of ownership in Korea presents a much different situation. Some Korean venture capitalists consider online games as one of the most important new media technologies for bolstering the digital economy. Most of all, several sectors, including both media (CJ Internet and Onmedia) and telecommunications (KT and SK Telecom), consider online games as a necessary industry in which to have a presence. This convergence between media and online games as well as telecommunications and online games has expedited the concentration of the industry in terms of market share and ownership in the hands of a few leading game corporations.

It was not too long ago that game development was often characterized as the ultimate cottage industry for the information age (The Economist 1997, 175), but this statement has been losing its accuracy due to the increasing concentration of the online game industry in the hands of a few large corporations. As noted, the Korean online game industry is still a form of the cottage industry; however, fewer than 20 major corporations have swiftly expanded their scopes to become among the largest cultural corporations in the nation. Of course, as discussed in chapter 8, several domestic game corporations also welcome foreign game companies, while others establish joint ventures with foreign capital to secure constant capital flow and markets.

Historical Factors in the Growth of the Online Game Industry

There are several significant sociocultural and economic factors that have contributed to the rapid growth of the online game industry. Korean developers and publishers have been able to outperform major competitors, such as EA, Blizzard Entertainment, Nintendo, and Sony, due to the growth of IT, the subsequent distribution of nationwide high-speed networks, and thriving PC bangs. The swift development of IT and related policies has provided the foundation for the growth of online games. Korea has become the most wired nation in the world, with one of the highest rates of PC penetration. Moreover, as of December 2008, about 95% of Korean households were connected to broadband services, (p.50) which is the highest percentage in the world (Strategy Analytics 2009). Against this backdrop, a survey conducted in 2006 showed that 66.6% of Korean respondents enjoyed online games, while about 25.4% of urban youth chose video games as the medium they most enjoyed in 2005 (Korea Game Industry Agency 2008; Cao and Downing 2008). This figure even increased to 74.9% in 2007. The majority of people still enjoyed watching televisions and movies; however, playing games became the third most popular activity during their free time (Ryu 2008). This acceptance into mainstream popular culture is evident in many ways, such as the success of games like StarCraft, Lineage [I] and II, and AION, the existence of celebrity professional gamers, and the organized league play of PC games, where tournaments are often broadcast on cable television (Kline, Dyer-Witheford, and de Peuter 2003).

In addition to the rapid growth of IT sectors, several historical events, such as Japan’s colonial legacy in Korea and the Korean economic crisis in 1997 (discussed in chapter 2) have influenced the swift growth of the domestic online game industry. Because of Korea’s colonization by Japan in the early twentieth century, as well as its concern about a Japanese cultural invasion, console games were never officially marketed in Korean on a mass scale (Chan 2008, 188), which has resulted in the growth of the online game sector.

As noted, console games are the most popular sector of the global game market; however, unlike in many other countries, online games are far more popular in Korea than the console variety, because the country had little exposure to console games, particularly because the majority of them were developed in Japan. Up until 1998, the Korean government banned Japanese cultural products, which included console games, film, and music due to the Japanese colonial legacy. With the ban lifted, Korea gradually opened the market to Japanese culture, with console games from the country making their appearance in the Korean market by 2002 (Chan 2008). Japanese companies that anticipated generating huge profits through gaining access to the Korean game market found the endeavor generated a negligible amount of revenue. Through its subsidiary company, Sony experienced a net loss in 2004 and 2005 when it began its sale of PlayStation 2. It subsequently delayed its launch of PlayStation 3 in Korea (Cho 2007a).

(p.51) Sony finally began to sell its new PlayStation 3 in Korea in June 2007; however, it sold only 50,000 consoles through June 2008. Nintendo also sold only 40,000 consoles during the same period, while it sold 24.4 million consoles worldwide excluding Korea (Shim 2008). While Japanese console manufacturers (including Nintendo and Sony) experienced such difficulties in penetrating the Korean video game market, the Korean online game industry has been able to utilize the opportunity to develop its own online games.

It is interesting to note that the Korean game industry has utilized the economic downturn. It seems obvious that the economic recession is not hurting games, providing that when bad news hits, people seek escapist entertainment. Perhaps, it is no coincidence that the Korean online game industry took off about a decade ago, during the Asian financial crisis, the time the country’s economy experienced the worst recession. As the recent growth of Korea’s online game industries proves, Korea is clearly not the only country where computer gaming is becoming more popular amid the economic downturn, and Korean online game companies are intent on taking advantage of that (Kim 2009).

The State and the Game Industry in the Twenty-first Century

The Korean government put the online game industry in the center of policy as a major part of digital economy and culture. Since the early 1990s, the Korean government has wanted to develop communication businesses and information technologies to establish a high-tech industrial base, and the Korean government began to support the booming online game industry primarily with legal and financial forces, due to gaming’s influence on young people, who are major consumers, as well as its relevance to youth culture. Korea, which was still a relatively underdeveloped country in the early 1980s, became one of the most vibrant and exceptional countries in terms of IT and later the online game industry, especially when compared to other countries. In the 1990s and the early twenty-first century, the Korean industry has experienced a dramatic transition to ICT-driven industrial structures, which include the online game industry. The Korean online game industry still has a traditional image as a cottage industry that employs fewer than 20 to 30 workers in most companies; however, a few large Korean corporations, (p.52) including telecommunications, media, and electronics companies, as well as venture capital, have rapidly jumped into the business or expanded their investment in the game sector as one of their most important corporate investments. They have expanded their business areas into the online game industry, assuming the production and distribution of information and culture during the same period. They believed that the online game industry would become a lucrative business with the development of new communication technologies and increasing leisure time.

Against this backdrop, the Korean online game industry has been established due in part to the efforts of the government in supporting strong IT policy, which includes online gaming, in addition to fierce competition among local game companies. The influence of the Korean government on the online game industry spans innumerable institutions, from educational facilities to Internet access programs. Of most direct interest to game developers, however, is a patchwork of financial subsidies and legal incentives provided by the government to support the growth of high technology industry. Yet while the online game industry benefits from government financial support, it also collides with the regulatory face of government, as the rating of violent game content and speculative games embroils it in public controversy and political conflict, as is the case in many other countries (Dyer-Witheford and Sharman 2005, 187).

Given Korea’s contributions to the creative industries, including game sectors, and its technological infrastructure, including broadband, it provides a great example of governmental strategies and industrial IT policies that have informed its movement into the century’s participatory media such as Web 2.0 (Jenkins 2006; Hjorth and Chan 2009). Therefore, the government support was not meant to directly target the online game sector, but broadly the IT sector. As discussed in chapter 2, the rapid deployment of IT in Korea originated in 1995 when the government enacted the Framework Act on Information, which set up a comprehensive strategy for the KII (Ministry of Information and Communication 2004). This measure works as a conduit for the growth of the online game industry, because the swift developments of broadband services and PCs have facilitated online gaming and the industry.

As a more direct measure, over the last several years, the Korean government has provided legal support and financial subsidies to game (p.53) developers, and it has increased its investment in a bid to nurture its software industry, with plans to continue. The online game industry, as opposed to other media such as film and television, had not been seen as central to the Korean government until the early twenty-first century. Although the government had nurtured IT, it had nothing to do with the emerging online game industry. Due to the rapid growth of the game industry driven by the market, the government acknowledged the importance of the game industry as a major business sector, as well as a mainstream cultural realm, particularly in relation to youth culture. As such, the direct influence of the Korean government has been as a policy maker as well as a financial supporter for the online game industry.

The Korean government first established the Integrated Game Support Center in 1999, which changed its name to the Korean Game Development and Promotion Institute in 2000, to develop the Korean game sector into a strategic export-oriented cultural industry. It has changed its name to the Korean Game Industry Agency in 2007 (Korean Game Industry Agency 2009).1 As the government has supported the film industry with a plan to develop the cultural industry as a major part of the national economy, which has been driven by export, the government has also begun to support the online game industry for the national economy.

In 2004, the Korean government announced the “Long-term Promotion Plan of the Game Industry.” According to the plan, the government was willing to support the game industry in becoming one of the three game-emperors in the world by increasing its market size to $10 billion by 2007, while increasing the number of employees in the game industry to 100,000 (Ham 2003). Although detailed plans were not articulated, it worked as a starting point for direct government support of the online game industry. Based on this plan, for example, in 2005 the Korean government announced a project to invest $20 million to support the development of graphics and virtual reality technologies in the games sector (Kim, M. H. 2005). As part of this plan, the government invested $13.5 million for the growth of the game industry and the creation of a game culture in 2006 (Ministry of Culture and Tourism 2006). Although the amount of this particular investment is small when compared with actual costs, it illustrates the intention of the Korean government to deliver on its promise of keeping to its policy (Jin and Chee 2009).

(p.54) Meanwhile, the Korean government has also supported the game industry with its legal force. In April 2006, the government enacted the Relevant Implementation Order and Implementation Rules for the Game Industry Promotion Law (Promotion Law) to protect the game industry by differentiating it from speculative games, including poker games. The Promotion Law claims that “the game industry is the core industry of the next generation, which yields additional economic values”; therefore, the government wanted to develop an environment of growth for the game industry by providing legal support, such as tax breaks and copyrights. The online game industry is still a cottage industry, with fewer than 30 employees per company on average. When these companies cannot make revenues, the new tax-related law exempts 50% of corporate tax from game corporations for the next three years.

Finally, the liberalization of information and communication technologies, as one of the effects of the transnationalization of the online game industry, has been felt profoundly due to continuing foreign interest in large Korean game firms. Along with domestic-based firms, foreign-based TNCs have swiftly invested in the Korean online game industry with the objective of making profits while participating in the development of cutting-edge technologies. As a consequence of the liberalization of the market, foreign investors were holding around half of the shares at major Korean game firms such as NCsoft (41.8%) and NHN (51.4%) as of March 2007 (Cho 2007b). As detailed in chapter 8, several transnational game corporations have played a key role by establishing their subsidiaries or joint ventures in the Korean game market.

As such, the Korean government plays a proactive role in facilitating the further development of the domestic game industry. Instead of regulating and censoring the game industry, the government has liberalized the game market to foreigners, which has resulted in the rapid growth of foreign investment. The Korean online game industry and local creative industry has been strongly informed and supported by a strong government IT policy that insisted on high investment in IT infrastructure and offered funds to Internet service providers (Jin 2006). While the widespread availability of PC bangs played a key role in the distribution networks of online game companies in the domestic market in the first stage of the growth of online games, fierce competition among game developers and favorable government policies have played major roles (p.55) in the continued growth of the game industry. In sum, government support for the online game industry is not an isolated effort but part of an ongoing government-initiated reform to build strong cultural industries, starting in the mid-1990s. The online game policies and regulations focusing on culture, technology, and economy have led to the formation of a prosperous new cultural industry on a global scale.

Summary

The Korean online game industry has witnessed phenomenal growth as it has become one of the core businesses of the new media sector, and game software has become representative of new media content for the twenty-first century. The Korean game industry has achieved one of the highest growth rates in the world, and the increasing number of game users and game firms has been dramatic. Korea, a small and underdeveloped country until the early 1980s, became a major power in today’s world of digital technology, emerging as a cultural leader in pursuit of a new kind of empire (Yi 2006). Regardless of several competitors, such as China and the United States, the Korean online game industry has set global standards and led the global game industry, which has resulted in its status as the online game empire.

The development of its online game industry has not been without concerns, such as a phase of stagnation; market saturation; increasing competition, particularly with China; and structural imbalances. The apparent flourishing of online games is precarious to a certain extent after experiencing phenomenal growth over the last several years. The chief concern is that the online game industry is now in a phase of stagnation due to increasing competition. Several major online game companies, including NCsoft, have experienced eroding growth. For example, Webzen recorded a net loss of $55 million between 2005 and 2006 (Whang 2006). The profit of NCsoft also significantly decreased from $72 million in 2005 to $45.6 million in 2008, although the profits of the first quarter of 2009 was recorded at $43.4 million due to the success of AION (Kim and Kim 2009). Given that only a few games dominate the online game market, it is imperative to develop new games, which is more difficult because of severe competition and the difficulties in financing in the midst of the global economic recession.

(p.56) In addition, Korean online game corporations have been confronted with a big challenge from China and other Asian countries. The Chinese online game industry may have had a late start, but it is growing faster than anywhere else. Several large Chinese companies, including Shanda, Netease.com, and Tencent, already enjoy a global presence, although it may be awhile before China overtakes Korea (Rhee and Wei 2009). The Korean game industry has been vibrant in the global market; however, it needs to develop its own unique strategy to compete against other global players, because the global market is becoming much more competitive.

In conclusion, the future of the Korean online game industry may depend on how two major issues are managed. On the one hand, the game industries have to deliberate on the ways in which they maintain and/or proliferate with the current boom of Korean online games against newly emerging online game firms in other Asian countries as well as Western countries. On the other hand, the Korean online game industry needs to develop new platforms by integrating the Internet-based online game with console games. Sony and Microsoft have been developing console-based online games since the early twenty-first century. Combinations of global game firms and local game companies, such as EA (United States) and Neowiz, THQ (United States) and Vertigo Games, and SCEI (Japan) and NCsoft, continue to work together to develop console-online platforms (Cho 2009). Currently, they are not significant in terms of market share; however, this clearly demonstrates that the market situation of the game industry will be more complicated and competitive, not only between online game firms but also between online and other platforms. In addition, Korean game firms must develop genres of online game software other than MMORPGs. Although they are currently dominant forms, one cannot predict the future of online gaming, so they need to develop diverse content.

To maintain its current status as an empire in online gaming, Korean policy makers and those in the game industries have to consider how to integrate the specificity of Korean online gaming into the logic of the global game market to create both diversity and commercial profits.