Korean game firms rely on IP investments, publishing to boost sales

[Courtesy of Krafton]

In a strategic shift, major South Korean game companies are increasing their investments in promising smaller game developers and enhancing external game publishing efforts to secure vital intellectual property (IP) amid slow sales.

Although these companies traditionally focused on distributing games developed in-house, the recent trend is to expand collaborations with other game companies through various means, such as co-production, distribution partnerships, and equity participation, to bring a diverse range of games to the global stage and uncover potential blockbuster hits.

On Tuesday, Krafton announced its participation as a key investor in the funding round for Studio Sai, a game development studio founded by former Blizzard employees, where Krafton notably secured the first negotiation rights for Studio Sai’s upcoming game KAFKA. Krafton said its support for promising new developers with strong creative potential aligns with its goal of offering a wider variety of games to users in the market.

Typically, game companies differentiate revenue from in-house development and publishing. Krafton, known for adhering to a policy centered around distributing their in-house games, declared its intent to strengthen second party publishing this year, meaning that it would expand distribution not only for the company’s in-house games but also for games developed by others.

Krafton has reportedly made publishing investments into six game developers in 2023 to date. Krafton invested 26.3 billion won ($19.5 million) in U.S. game developer Playgig, gaining a 14.8 percent stake, and 15.9 billion won in Gardens, securing a 10.2 percent ownership. Krafton also invested 42.3 billion won in Polish game company People Can Fly, obtaining a 10 percent stake and secured publishing rights for a project People Can Fly is currently developing.

Krafton is not alone in this strategy. Other Korean game companies with relatively substantial financial resources, including Smilegate, Hybe IM, and Wemade, are expanding their publishing agreements and equity investments to increase their IP holdings. The advantage of these publishing efforts is that they can achieve immediate revenue growth while waiting for their in-house IP creations to bear fruit.

Smilegate is preparing to launch three new games under its publishing efforts, leveraging its accumulated expertise from in-house game development in the global publishing business. Among the trio, Smilegate is gearing up for the release of ‘Blue Protocol,’ a subculture genre game developed by Bandai Namco Online in Japan.

Hybe IM, a latecomer in the local game industry, is growing business by strengthening publishing. Hybe IM invested 30 billion won in Aquatree, a Korean game startup founded by Park Beom-jin, which developed Lineage 2: Revolution, and signed a publishing agreement for the company’s new project, tentatively named ‘Project A.’

If concurrent investments in publishing and game development prove successful, it can often lead to further equity investments, acquisitions, and mergers. Wemade, for example, ventured into publishing by supporting the release of ‘Night Crows,’ developed by MadNgine in April. The game was a success, topping the Korean sales and popularity rankings on Google and Apple, leading Wemade to invest an additional 30 billion won in MadNgine in May, securing a further 5 percent ownership.