Games
The author is an analyst for Shinhan Securities. He can be reached at sokang@shinhan.com -- Ed.
Fears over possible reinstatement of China’s ban on Korean content
In December 2022, Chinese regulators resumed granting license approvals for games developed by Korean companies, which was followed by additional license approvals in March 2023. Considering the three-month interval, we can expect a new list of Korean games to receive the green light in June. Back in 2020-2022, Chinese game developers and publishers saw a sharp drop in earnings and underwent restructuring due to restrictions imposed by the Chinese government. And now, in order to promote the recovery of Chinese companies, we expect China to continue importing Korean games regardless of Korea-China relations.
With fears recently rising over the possible reinstatement of China’s ban on Korean content, companies whose games have been approved and are set to be released in China in 2H23, have suffered share price correction. On May 21, disruptions were reported in viewing videos and images on the Korean web portal NAVER when accessing the website in China. This has raised concerns that China may resume bans on Korean content, more restrictive than censorship, in light of current political situations involving Korea, the US, and China.
Preparations for game releases and marketing efforts humming along in China
Unlike fears that have consumed the Korean stock market, things seem to be running smoothly in China. Even after risks from Korea-China relations began to surface in mid- April, Tencent, Yostar, and other Chinese game publishers have proceeded with their plans for the launch of Korean games in China. At its annual gaming conference Spark 2023 held on May 16, Tencent highlighted a number of Korean titles as its major new releases for 2H23. These include Lost Ark, a PC MMORPG developed by Smilegate RPG, Cookie Run: Kingdom by Devsisters, Ni no Kuni and The Seven Deadly Sins by Netmarble, and MapleStory M by Nexon, all of which are blockbuster games that can help drive growth in 2H23. We believe Tencent’s recent aggressive marketing efforts for Korean games indicate that it is not under direct pressure from the government as in the past three years when a strict ban was placed on Korean content. According to media reports, PearlAbyss’ PC MMORPG Black Desert is also highly likely to receive license approval, pointing to the importance of Korean big titles for Chinese developers.
While Korean game developers with license approvals in China have recently reported poor share performance at home, plans for the release of Korean games in China have been increasingly taking shape over time. The official launch of Lost Ark and Epic Seven in June will mark the beginning of a series of Korean game releases in China. In addition, the closed beta test (CBT) was held for Cookie Run: Kingdom on May 19-25, and The Seven Deadly Sins and Ni no Kuni are set to undergo CBT in June. Tencent has confirmed that MapleStory M will hit the market this fall. Expectations for the release of Blue Archive rose a notch after a list of pre-registered users was posted on its official website. Focus on game releases and market response in 2H with fears already priced in Korean companies, which were expected to benefit from license approvals in China, have already erased their share price gains. We need to note that China has become the world’s largest game market, growing fast from 2015 before the Korean content ban was placed, and that the Korean games mentioned in this report will be able to make significant contribution to earnings of Chinese game companies. As hopes are expected to translate to actual earnings in the near term, we believe now is the time to shift our focus again to Devsisters, Nexon, and Netmarble among listed Korean companies whose games are set to hit the Chinese market in 2H23.