NCSoft, a leading company in the South Korean gaming industry, is projected to report a quarterly loss in the second quarter of this year for the first time in 11 years. This downturn is attributed to declining sales of its flagship Lineage series and the underperformance of new releases. If this projection holds, NCSoft will be the only one among South Korea’s “3N” game giants (Nexon, NCSoft, Netmarble) to fail to maintain profitability. Analysts point to the company’s focus on producing games in the “Lineage style” as a critical factor.
According to financial information provider FnGuide, NCSoft’s expected sales for the second quarter are 386.4 billion won, a 12.2% decrease from the same period last year, with an estimated operating loss of 1.4 billion won. This follows a record-breaking first quarter in 2022 with sales of 790.3 billion won, after which the company saw nine consecutive quarters of declining sales. The quarterly deficit marks the first since the second quarter of 2013, breaking an 11-year streak.
As the company’s situation worsens, there has been a talent exodus. For example, former NCSoft AI Tech Center Director Shin Dong-hoon, who led AI-related R&D, including large language models and digital humans since joining in 2017, left six months after being appointed head of the AI Tech Center in January. Another key departure was Kim Hyun-seok, the chief technology officer, who recently moved to One Store.
Over the past 20 years, the Lineage series, first released in 1998, has been NCSoft’s main revenue driver. As of the fourth quarter of 2022, the Lineage series accounted for 98% of total mobile game sales (381 billion won) and 52% of total PC game sales (104.4 billion won). This success helped NCSoft achieve annual sales exceeding 2 trillion won by 2020.
However, the company began facing challenges in 2021. In April 2021, Lineage M users protested in front of NCSoft’s headquarters over the game’s loot box payment system, leading to growing dissatisfaction. Some users even filed lawsuits, accusing NCSoft of encouraging loot box purchases through promotions targeted at certain YouTubers and BJs for Lineage 2M.
A gaming industry insider noted that while NCSoft has explored diverse intellectual properties (IPs), the results of long-prepared projects like Throne and Liberty were disappointing. The negative perception of the Lineage series has overshadowed new attempts. For instance, Throne and Liberty, released in December last year, was deemed a failure, with concurrent user numbers falling below 100,000 shortly after launch.
With declining sales of the Lineage series and underperforming new releases, NCSoft’s performance has been on a downward trend. Quarterly sales, which peaked at 790.3 billion won in the first quarter of 2022, fell to 547.9 billion won in the fourth quarter of the same year and further dropped to 397.9 billion won in the first quarter of this year. Facing this crisis, NCSoft introduced its first-ever joint CEO system this year, along with restructuring and physical division efforts. Despite these attempts, the company has yet to see a turnaround in performance.
Industry experts attribute NCSoft’s crisis to its centralized game development structure. While many major game companies also have centralized development, competitors like Nexon and Netmarble develop their main games through independent subsidiaries. NCSoft’s centralized control over most of its game development and distribution magnifies the impact of failures.
This approach has led to an overemphasis on Lineage-style games. Management’s focus on the success of the Lineage series has stifled new initiatives. In contrast, other major gaming companies have produced hit titles through independent studios. Nexon recently succeeded with “The First Descendant” in Korea and the mobile game “Dungeon and Fighter” in China, developed by Nexon Games and Neople, respectively. Netmarble, after a poor performance last year, saw a rebound with successful games like “Arthdal Chronicles: Three Factions” (Netmarble F&C), “Solo Leveling: Arise” (Netmarble Neo), and “Raven 2″ (Netmarble Monster).
“NCSoft’s structural issue is that the long-standing IP of Lineage, which CEO Kim Taek-jin successfully established, has generated most of the company’s revenue, overshadowing new initiatives with smaller revenue shares,” said Kim Jung-tae, a professor of game studies at Dongyang University. “Kim’s ‘follow my lead’ style of management has hindered developers’ autonomy.”
