Thursday, Dec 14, 2017
Science & Technology | Asia-Pacific | Japan

Japan Gaming Industry

More than a creator of games, a maker of art


7 months ago

Mr. Owen Mahoney, President of NEXON
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Mr. Owen Mahoney

President of NEXON

In this interview for the Worldfolio, Mr. Owen Mahoney, President of NEXON, shares with us his vision for the gaming industry and unique insights into the company

Despite certain hints of economic re-growth expected in 2016, critics have it that Abenomics has fallen short of expectation. The monetary and fiscal policies implemented had a certain effect, as structural reforms aimed at tackling the ageing population and decreasing workforce are still to show their results. How has Abenomics impacted Japan, and most particularly your sector?

We are very much a global company. While we are based in Tokyo, our two largest markets are China and Korea. Our third largest market is Japan, along with North America and Europe. We have seen steady growth over the past few years. Because of our international sales ratio and global focus, we personally haven’t felt the impact of Abenomics on our business.

 

In 2016, the global video game market exceeded the $100 billion bar, and is expected to grow at a CAGR of 6.6% until 2019, reaching more than $118 billion. In 2019, it is expected that mobile games will account for some 45% of the total industry. What are the key factors behind this growth? How is Nexon working to capitalize on this growth?

I believe that there are broad and specific reasons. For the broad factors, I believe that the world is starting to recognize that video games are an art dissimulated in the shape of an entertainment platform. Video games are a unique form of creation, engaging in their own way. Games are all about decision making, and it is the only art form that allows you to choose your actions, to write your own story. All the other art forms, TV, movies, book; you don't make any decision, you simply consume what is given to you. I believe that more and more people are recognizing that fact, and it is attracting more and more players. When I was a kid, I played video games on my Apple II. My older brother and sister thought I was really silly and nerdy for doing it. There was a very small market in those days, but today, people recognize it is a formidable form of art.

The other factor is that the industry goes through waves. There are lots of different trends that are affecting our market. Today, there are two types of companies in the video game segment: First, there are those that care deeply about games as an art form. These companies really try to engage their costumers, they want to build games that they themselves want to play, and those games tend to last for a long time. Then there is a much broader group of game companies that are looking to monetize their products within a short period of time. I think what is happening is that the smaller first group is starting to find its footing much more, especially in the mobile industry. This segment is starting to get bigger and better.

Since the early days of PC online gaming, which we pioneered, Nexon has been an integral part of the industry’s transformation. Our whole history is based around building games that will last for years. Our oldest game is over twenty years old! That’s going into an entire lifespan! It is amazing that the oldest game, The Kingdom of the Winds, is still going on. Our two biggest games of the moment, MappleStory and Dungeon&Fighter, are over a decade old. We are focused on building games that will last for a long time, and I believe that companies such as ours are one of the driving forces behind the industry. There are very few companies that are doing that, and if that group of companies is successful, I believe that we will see sustainable growth for a long period of time.

 

Your company is a pioneer in the world of interactive entertainment software, introducing the first graphic MMORPG, The Kingdom of the Winds, in 1996. The video game industry’s development is perhaps one of the most interesting ones, with the introduction of VR and integrated reality. As a pioneer of gaming, what do you believe the video game of the future to look like?

There are core characteristics that keep people engaged in games. As I said it, games are about decision making, and that’s what is so compelling about them. To give you some examples: if you go through the historical games, such as Grand Theft Auto or Minecraft, they are “flowing experiences.” They understand you and try to match your capabilities in order to challenge you. If games challenge a user too much, the user gets frustrated. If it doesn’t challenge the user enough, he gets bored. So the way to keep the user engaged is to challenge him just enough. That is what the art of the game is all about. Same thing applies to golf or chess. The skill level of the user must constantly be matched by the difficulty of the game; and I believe that 20 to 30 years from now, that will still be the core characteristic of the game.

To give you an example of the importance of challenge. There was an ongoing debate for years as to the graphic level of a game. People thought, ten years ago, that to be successful in the future, games had to have the highest level of graphic fidelity. Much of the money that was spent in the industry by both software and hardware providers was put into polygons to enhance on-screen graphic design. People believed that it was going to be the future, and suddenly comes Minecraft! Minecraft discredited what everyone thought was true. Sometimes you simply have to go back to the fundamentals. Everything else is just a palette of tools to make it better. There is a lot of psychological study on this, and it is what we call the game “Flow.”

 

So you believe that the future of video games will be to create smart software instead of more technological hardware?

The one factor that makes people come back to games is the challenge, and this is exactly how we are built. Nexon creates interesting and entertaining challenges that make our users come back to us for years. That core is what people come from, and 90% of the games ignore that. Most gaming companies measure lifespans in a matter of days. Personally, I never look at days.

 

You were also one of the first developers to use the concept of micro-transactions and free to play, setting a completely new business model for the gaming industry that is now wildly accepted. What concrete managerial actions do you uphold to maintain this culture of innovation?

Just like any company, we have had our ups and downs. At some point, we were going the exact opposite way as the industry was, and that made us question ourselves. In the early days of mobile, the whole industry was going in the opposite direction to the kind of games that we like to make. It hasn't all been smooth sailing. The way that we keep on innovating is by getting the best people and the best game makers. The best game makers that I know, even though they do not use the word, consider themselves as artists.

The analogy towards art is very important. Most makers want to build a game that inspires them, a game that their friends will want to play. Your job as a company is to provide two things for these people: One is to provide the right environment for them to have that creative envelope. Two is to provide them with a large platform so that they can show off what they have done. It is the same as musicians: A great musician doesn't want to be playing for ten people in a small restaurant, he wants to play in front of thousands in a stadium and sell millions of records. Artists want to share their art with the largest audience possible. Nexon allows for that audience on a global scale. What we tell our game makers is to make something different, and even if you fail, it would be still ok. We will learn from the failure, but we want you to push the world of games forward.

 

In 2005, you established NX Games (today Nexon America Inc.) Followed in 2015 by Nexon Europe GmbH in Germany. What was the reason for this development?

There are two things that are core to our development. Number one is new game development, and number two is live game operations. Live game operations is the art of making a game grow from years on, and it is really hard to do in practice. It can be anything from customer support to localization, passing by applying feedback or daily events to choosing pricing within the store. That is the daily grind of live game operations and development. We felt that we needed a local operation to tune our games on a daily basis.

 

Culturally speaking, it is thought that if a product or a game works in America it can be applied to the rest of the world. On the other hand, Japan is known for being an isolated market, very unique and hard to replicate. How do you commercialize your games?

Some games cannot export themselves. The Three Kingdoms themed MMORPG is not going to resonate with a western audience. I personally never knew of the Three Kingdoms mythology before coming to Japan. I believe that there are very culturally relevant themes and others that are isolated. There are games that have met global success, and others that would look very Japanese to a Western audience. I believe that it really depends on the genre and on the games. Minecraft and Nintendo have met this with success, exporting games from Japan to the US, because they applied universal themes.

 

Looking to the future, what markets will you prioritize?

I spend the most of my personal times in Korea, China, Japan, North America and Europe. We are not making a choice based on the market, but rather on the content we make. The game industry tends to make games that are short-lived and profit oriented, whereas we prioritize on content. We focus on long-life games that can apply to all markets.

 

Both nationally and internationally, the gaming industry is one of the most competitive ones there is, with companies such as COLOPL, Tencent or Microsoft Studios. What are the competitive advantages of Nexon?

The short answer is that we do two things really well. First of all, we produce quality games that are sustainable. I personally believe that, in this industry, we are arguably the best at making a game grow over time. We are very concentrated on making live games grow over a large period of time, and that is sadly unique. We generate over 500 million dollars a year in cash flow, and that is not coming from new games, it is coming from games that have been out for at least a year. I used to be in Electronic Arts in the past, and it was hard for my colleagues to understand that the game doesn’t stop when you launch it. Launching is merely a beginning.

 

What do you think Nexon taught the industry?

I think that the lesson of Nexon is that you can be very experimental. Remember that free to play, which is widely misunderstood now, was an accident. It wasn't invented as a monetization strategy. We had a game that was failing, and we gave it away for free before it died. We saw that our monthly active users number exploded, and everybody was happy. We slowly started selling an item here and there, like a haircut or a pair of sunglasses, and people loved it. My point is that experimentation is crucial for the creative industry. We experimented with it, and it worked.

 

How many of your users actually buy in-game items?

Around 10%. You can see that as low or high, but what also matters is that you have to make the game for the remaining 90%. If you do not have a lot of users, the game loses its attractiveness. A lot of the lessons we learnt from PC can now apply to mobile.

 

In the past, you also concluded partnerships with QC Games, EA or SQUARE ENIX. Are you eyeing any future collaborations?

Absolutely. What we want to do is to prove to our collaborators that we are excellent partners. From our perspective, we know that we do not have a monopoly on game developers. Working with companies like EA, that built beloved franchises, is mutually beneficial. They gain from our experience as we build leverage on their status.

 

Since its creation, Nexon has been developing and servicing over 100 PC and Online games in over 190 countries and areas. Your most recent games include the likes of HIT and DomiNations. Which current games are delivering the best results?

We are at the front wave of a lot of games. So my answer in three months from now will be different than the one I give you today. It is hard to tell what is most successful in a new game that launches. In the video game industry, the revenue curve is at its peak point when the game is launched. Other companies can tell you exactly the potential of a game as soon as it launches. In our company, the curve waves up and down. It starts pretty small, but it picks up as time goes by and as users join. We look at different factors, like how many of our players stay with us for a quarter or longer? We launched DomiNation about two years and a half ago, and something we have noticed is that the retention level is very high. We have been able to keep and sustain our user’s attention for this game. While you may never see it in the top ten most downloaded games of the month, it is steadily growing, and it is impossible to know how long this game will go on for. That is the type of thing we look at. From a financial point of view, we see this sustainable curve as an annuity.

 

What legacy would you like to leave behind at Nexon?

I look at other industries that have gone through revolutions and I want the same for the gaming industry. When I was young, in the 70’s, I used to watch TV in the US and the cartoons were simply terrible. And then in 1995, John Lasseter and Steve jobs come out with Toy Story, and they revolutionized animation. I want to be part of a similar revolution.

Another example is TV in the US right now. 15 years ago, the televisual series were simply not interesting. Today, you look at what is on Netflix or HBO and the quality simply went up. They have the best actors and directors. There is a renaissance in TV that is based on the quality of the show. My belief is that the video game industry is currently living a similar turning point, with potential to change for the best.



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