[KH Explains] Why NCSoft is playing coy on game revenue

NCSoft announced an annual revenue of 1.78 trillion won ($1.34 billion) and operating profit of 137.3 billion last week, down 31 percent and 75 percent on year, respectively.

Following the earnings announcement, the South Korean game developer held a conference call Thursday to explain last year's financial results.

During the call, an analyst castigated the company for a recent change to its reporting practices:

“You say that the company is putting efforts together, but it seems that (you are) regressing if I look at the corporate disclosure from yesterday and today’s (investor relations) information,” said Moon Joon-ki, an equity analyst at Baring Asset Management Korea.

“Revenues by games have begun to be concealed, starting with this IR information (report). I don't think hiding a problem because the numbers are embarrassing is the right attitude to solve the problem.”

NCSoft, which opened the era of massively multiplayer online role-playing games, or MMORPGs, in South Korea with the launch of Lineage in 1998, has reported revenues broken down by games since the first quarter of 2009. But this information was omitted from the latest quarterly financial announcement.

“The reason we looked for a change this time after releasing the revenues by games is that no other companies in the world are doing what we have been doing,” said Hong Won-jun, chief financial officer at NCSoft.

“We are trying to follow global trends and practices. We do not have any reason to hide the revenues by game. We will unveil the revenues by (intellectual properties) through the IR team as we have done so far, so I can tell you that it’s some kind of misunderstanding.”

However, experts and officials in the game industry said the sudden change of direction in the disclosure level of IR information shows that NCSoft wants to bury the performance of its newest MMORPG Throne and Liberty, or TL, which was launched in December.

“(If they release the revenues by game,) it’s going to expose that TL is not performing well,” said Wi Jong-hyun, chair of the Korea Game Society and a business professor at Chung-Ang University.

“That could put (NCSoft) in a very troubling situation. If they showed that their older games did better than the new ones, they would have to face the questions of ‘What is TL doing?’ and the numbers by games could also reveal that they cannot survive outside of probability-based items.”

Probability-based items are in-game items that are randomly drawn from purchasable "loot boxes." Gamers have criticized them for requiring players to spend more to obtain stronger items. NCSoft’s previous hit titles such as the Lineage series have raked in cash from probability-based items.

NCSoft applied a limited business model on TL, as the company decided to forgo probability-based items in response to the criticism.

An anonymous official working at a local game developer pointed out that NCSoft’s revenues by platforms show how TL, which the company took 10 years to develop with a budget of about 100 billion won, failed to meet the firm’s expectations.

“(NCSoft)’s yearly revenue from PC games decreased from the previous year,” said the official.

“Given that TL was launched as a PC game, the numbers show how it could not generate the revenue NCSoft might have hoped for.”

NCSoft posted 365.1 billion won in annual revenue through the PC platform in 2023, down approximately 6.5 percent from the previous year’s 390.4 billion won.

Of the 16 reports released by securities firms on Tuesday, eight downgraded NCSoft’s target price, citing lackluster performances below the market consensus in the fourth quarter last year. Once hitting as high as 1.05 million won per stake in February 2021, the game developer’s stock steadily declined since then to go as low as 188,000 won per stake in January this year. The stock closed at 200,500 won on Tuesday.