NCSOFT aims for rebound through restructuring, new titles

By Nam Hyun-woo

NCSOFT is aiming to recover from its first quarterly operating loss in 12 years as the game studio undertakes restructuring and financial streamlining while preparing to launch a series of new titles.

NCSOFT on Monday reported an operating loss of 14.3 billion won ($10.37 million) in the third quarter of this year, a significant drop from an operating profit of 16.5 billion won a year earlier. During the same period, revenues also decreased by 5 percent year-on-year to 401.9 billion won.

This marked NCSOFT's first quarterly operating loss since the second quarter of 2012. The results fell significantly short of analysts' expectations, who had anticipated that the company would at least report an operating profit.

Due to the disappointing earnings, NCSOFT’s Chief Financial Officer Hong Won-jun apologized to shareholders during an earnings conference call on Monday, assuring them of “grave scrutiny on the current situation and a subsequent overhaul.”

NCSOFT's losses can be attributed to rising costs. The company’s operating expenses increased 16 percent from the previous three months to 416.2 billion won, while marketing expenses nearly doubled to 48.7 billion won as a result of advertising for new titles.

To prevent the downturn from worsening, Hong said the company is implementing a comprehensive restructuring program and working to overhaul its cost structure to reduce operating leverage.

According to the CFO, NCSOFT has halted six development projects and initiated a voluntary retirement program to enhance its financial structure. The costs associated with these efforts will be reflected in the company's financial statements within this year.

When these efforts are completed, NCSOFT said its headquarters workforce will be reduced from the current mid-4,000 level to the mid-3,000 level by next year.

“We expect these efforts will address our high operating leverage, and we anticipate that an increase in our operating profit will likely follow as a result of reduced costs,” Hong said.

Last month, NCSOFT announced that it will soon create four independent spinoff companies to encourage greater creativity among developers by enabling them to work within more autonomous entities. In June, NCSOFT established two spinoff companies — NC QA, responsible for quality assurance services; and NC IDS, handling application software development and supply. In January, NCSOFT shut down its subsidiary, NTREEV, and has been laying off its employees since April.

Along with the restructuring efforts, the company anticipates that new titles will significantly contribute to its recovery.

NCSOFT is placing its hopes on “Throne and Liberty,” a massively multiplayer online role-playing game. The title made its global debut on Oct. 1 and has attracted over 4.52 million players worldwide, raising expectations for its contribution to the company’s sales.

In the fourth quarter, the company also plans to launch “Journey of Monarch,” which is based on the intellectual property (IP) of NCSOFT’s flagship Lineage series. While the company has yet to disclose the specific genre of the game, it is generating interest among gamers as it is expected to combine elements from various genres, including deck-building and real-time strategy.

Next year, NCSOFT is set to release the role-playing game “AION 2,” the open-world MMO third-person shooter “LLL,” and several other titles across various genres.

“We plan to roll out new genres and focus on collaboration with outside studios,” the company said during the earnings conference call. “We are considering ways to expand the potential of our IPs, such as Lineage and Blade & Soul, beyond the MMO genre by developing them into new genres.”