2011 Korea White Paper Report

The Korea Communications Commission has released its 2011 Korea Internet White Paper report.  The report details, among other things, the developing Internet infrastructure in South Korea, the increasing number of broadband Internet subscribers, and the growth of the mobile platform in the nation.

On page 58, the report makes an interesting claim that in 2009 online game sales encompassed about 56.4% of total gaming sales with sales figures reaching 37,087 units (1 unit = 100 million won) (1 won = 0.0009 US dollar).  The report also claims that in 2007 online games sales reached 22,403 units and that in 2008 online games sales amounted to 26,922 units. 

White Paper

Asian Game Publishers Mull Potential Valve Purchase

Asian online gaming giants Nexon and NCsoft are rumored to be in talks with Valve, makers of the successful games "Half-Life" and "Portal", to purchase the company for around US $893 million. 

Valve was started by Microsoft veterans Gabe Newell and Mike Harrington.  The company rejects a traditional management structure and allows its employees creative freedom by allowing them to choose what to work on.  The company's unique management style has led it to become one of the most successful and innovative U.S. based game developers.  Additionally, Valve commands a lions share of the on demand market for PCs through its online game distribution service, "Steam."

Given the founders' penchant for not selling out it is unlikely that this purchase will go forward.  Also, a purchase price of $893 million for a gaming juggernaut like Valve seems very low.  However, in the off chance that a deal is hammered out, Nexon and NCsoft's ownership would continue the trend of Asian publishers establishing large footholds in the U.S. gaming market.

Games Beat

SmileGate in Business with Tencent re "Crossfire"

South Korean online game developer SmileGate, the developer of the hit FPS Crossfire, is partnering with Chinese internet giant Tencent.  SmileGate will not be renewing its contract with Neowiz Games, which will expire in July of 2013.

A lawsuit is currently pending in the South Korean courts regarding the ownership of the "Crossfire" trademark between SmileGate and Neowiz Games.

Western Developers Working with Local Partners in China

You've just put the finishing touches on a mobile game you and a couple of friends have been developing for the past year.  You're excited to launch and market the app and bring in some much needed funds.  Before you jump the gun consider the impact your game can make in China.  China currently leads the world in iOS/Android phone activations and is on track to have over 200 million smartphone owners by the end of this year.

However, the Chinese mobile game market has its own quirks and issues.  Chinese gamers have a tendency to avoid purchasing apps but make plenty of in-game purchases.  In addition, China is a hotbed of rampant, unchecked piracy.  How can one seize this market?

Lately, many Western developers have taken to working with local partners like Yodo1 and The9.  Local partners can help adapt your IP to suit Chinese gamer's tastes, translate the game, optimize monetization of in-game purchases (if you haven't already), and police your IP.  Many of these local partners have also successfully built buzz for upcoming mobile games by integrating with Chinese ad networks and promoting them across other apps.

Revenues Fall

Among almost all major publishers, revenues have fallen.  This comes on the heels of several publishers doing some major cost-cutting (e.g. THQ) and encountering lower sales of hardware (e.g Sony's PS3 and PSP).

Overall, sales from video game hardware and software have fallen for the eighth straight month down to US $548.4 million.

Businessweek

Tencent Buys Stake in Epic Games

The Chinese gaming juggernaut Tencent, which reportedly has more than 700 million users in mainland China, has purchased a minority stake in Epic Games, the makers of "Gears of War" and the mobile game "Infinity Blade."  Last year, Tencent acquired Los Angeles based Riot Games, the makers of "League of Legends."  Tencent's actions are evidently part of a new strategy to develop games across multiple platforms.

Epic Stake

I'm a Clone, You're a Clone, Clones Everywhere!

Pillsbury's Virtual World's Team has recently commented on a federal court decision finding in favor of the owner of "Tetris" against Xio Interactive, Inc., the maker of a similar falling block game called "Mino".  In its post, the team advocates a dual pronged strategy of intellectual property protection through both patent and copyright law.

Game Cloning Can be Stopped!

Intellectual property protection and enforcement is of paramount importance especially with the growth of Apple's app store distribution platform.  Although the distribution platform allows developers of "indie" games to better connect with the consumer, it also allows for hundreds of game clones from various territories like China to flood the market. 

Mario Kart Wii Clone from China

App Clone Uploaded from Vietnam

Unfortunately, many of these small developers are completely unaware of how to remedy the existence of a game clone on the market.  Further, with each passing day there is the greater likelihood that a consumer will accidentally purchase the clone causing widespread consumer confusion.

At least during the initial screening of an application, Apple should have stronger safeguards in place.

The Republic of Korea's Proposed Ban on Virtual Goods

According to the Korea Times, next month the Korean Republic's Ministry of Culture, Sports and Tourism ("MCST") hopes to ban the trade of ALL in game virtual items.  According to Kim Kap-Soo, the head of MCST's content policy division, "the main purpose of the games is for entertainment and should be used for academic and other good purposes."

The proposed law would prohibit users from using automated bot programs to collect items.  Violators of the new law would face a fine of up to 50 million won (about US$43,000, or £27,600) and a 5-year prison term.

The Korea Times

Also, this proposed ban comes on the heels of Blizzard's launch of its real money auction house in Diablo III.  At least in the US, users have spent upwards of $3,000 (US) on in game items to make them competitive on the inferno difficulty, the highest difficulty setting in the game.  With each sale Blizzard takes a small cut as shown below:

For Equipment (weapons, armor, accessories, and other unique items)

Transaction Fee (Real-Money Auction House): $1.00 USD per item / $1.00 AUD per item

Transfer Fee (when sending proceeds to PayPal or other authorized payment-service provider): 15% of amount being transferred
                    

For Commodities (gems, materials, dyes, pages, recipes, and other non-unique items)

Transaction Fee (Real-Money Auction House): 15% of final sale price
Transfer Fee (when sending proceeds to PayPal or other authorized payment-service provider): 15% of amount being transferred

Diablo III Transaction Fees

Although the ban has a good aim in the sense that it tries to discourage automated bot programs, which are always illegal, it will destroy the whole point of loot in dungeon crawling games.  Moreover, users will no longer be compelled to invest their time and money in such games.

The proposed law would threaten MMORPGs and other games that are free-to-play which depend on the value of their in-game items for their very existence.  No doubt large players in the industry will fight tooth and nail to prevent the passage of this ban.

Invasion of Diablo III....by the Korean Government

Korea's Fair Trade Commission ("FTC") has raided Blizzard's Seoul offices amidst allegations that Blizzard is refusing to offer customers refunds for Diablo III.  Because the game was hotly anticipated in the region the Diablo III servers became overloaded.  As a result, users demanded refunds and eventually complained to the FTC.

The FTC is reviewing whether Diablo III's EULA is "unfair" in that it does not allow for a refund if users experience problems with the game.

Below is an excerpt from the comparable EULA available from Blizzard's Americas and Oceania Diablo III site:

Service and Terms of Use.

The Terms of Use agreement governs all aspects of game play. If you do not agree with the Terms of Use, then (a) you may not register for an Account to play the Game; and (b) you may call 1-800-592-5499 within thirty (30) days after the original purchase and request a full refund of the purchase price. Once you accept the License Agreement and the Terms of Use, you will no longer be eligible for a refund. 

Investigation

Additional Info

Diablo III US EULA

Local Partners Required!

China has strict limitations for foreign developers.  For MMORPGS, the government requires a local partner to handle the distribution of the game.  Just recently in March of 2012, Blizzard and NetEase renewed their deal for NetEase to publish World of Warcraft in mainland China for an additional three years.  Blizzard's relationship with NetEase has spurred NetEase to be a major player as an online gaming company.

Renewal with NetEase

Starcraft II, Licensed and Official E-Sports Event

Finally, it looks like the issue surrounding broadcasting rights of Starcraft II tournaments will be at an end.  KeSPA, the ruling competitive sports gaming body, OGN, and GOMtv have officially received licenses from Blizzard to broadcast Starcraft II tournaments and will work in conjunction with each other in uniting players and leagues.

KeSPA, OGN, and GOMtv

Hello all!

Sorry for the delay, but I will now resume making weekly posts.  Check back in every week!

-Brian

The Growth Rate of Virtual Goods Slows

Virtual Goods

Virtual Goods in a Broken Marriage

In China, a judge has ruled that the virtual assets shared between a recently divorced couple shall remain with the former husband. Before marriage the man and woman had two separate accounts and merged them with only the husband's name listed. While together, they accumulated quite a large number of virtual goods under the merged account.

What implications does this case have? Although to most nowadays the notion that virtual assets could be valuable is surprising, the rising market and growth of virtual goods cannot be denied. For example, the rising use of facebook credits. Perhaps lawyers in family law would be wise to advise couples of the effect of community property laws on virual assets.

You Can't Take It With You

Japan: No Rent Policy

In Japan, you cannot rent video games or systems.  Of course, there are stores that notoriously allow you to rent CDs and make copies but that's a different story.  Japanese law goes so far as to even prosecute stores that implement quick buy back policies for games offering consumer 80-90% of the purchase price back after a week or so of use.

While renting systems in the U.S. has apparently gone the way of the dinosaurs, there is a healthy appetite for game rentals considering the rising prices of games and the increasing number of sub-par content.  How does this differing dynamic in Japan affect consumer habits there?  Does it make the Japanese consumer that much more of a discerning consumer before taking the plunge?   Does this sort of policy advance the market for games or impede it?

Japanese Stores, Buyback