NCSoft Shows Ingenuity in the Business of Re-org, But Can It Make Creative Games?

NCSOFT has lost more than 70% of its company value from its peak of 1m Won in January 2021, resulting in a massive reorg throughout 2024. Shareholders of the company at GSM argued fiercely with the management whether they would continue to operate NC Dinos at KBO League which was seen as a distraction from its core businesses as the public anger mounts.

NCSOFT seems far from rebounding despite its reorg programme in 2024. NCSOFT reported its first annual loss in 26 years since 1998 due to over-reliance on Lineage franchise to generate cash the firm needs the most.

We will look at the aftermath of the first-ever loss for the company since its founding in this series from re-org, AAA title fundamentals and M&A risk analysis. Dave the Diver here shows up again too.

NCSOFT’s Re-org Model Explainer - We will walk you through our Obliq Alt Intelligence analysis

NCSOFT Corporation (036570.KS) sent off approximately 360 staff members, excluding those who got immediately dismissed, to newly created subsidiaries. Then they were promised to be “hired back if the new company went defunct or sold off within three years”. The affected 360 staff members had to take “the offer” otherwise they were to be suspended by the parent company NCSOFT.

Those 360 staff members who signed the freshly minted contracts were re-assigned to four separate newly created corporations as below:

Out of these four, the first three are game development studios, meaning that those 360 re-assigned, and no longer NCSoft employees, effectively and voluntarily had chosen to be affected by the possibility of being laid-off when and if the newly created subsidiaries reach the three-year milestone, that coincides with the typical development cycle of an AAA title, as the three-year rehire promise expires.

In other words, the 360 staff has signed onto the “conditional three-year layoff plan” that may or may not materialise after three years, assuming the promise is to be kept. The management would have the upper-hand to decide whether to continue any of the subsidiaries after evaluating the collective three-year performance likely based on user and monetisation metrics such as title popularity, Steam users, daily-active-users, monthly-active-users and conversion rate etc.

NCSoft is still heavily reliant on Lineage M (30%-35% of total revenue) Lineage 2M (11%-15% of total revenue) and Lineage W (15%-23% of total revenue) as its sole franchise IP that generates cash for the company as a whole. Although the company does not reveal the revenue breakdown on AION, Blade & Soul and Guild Wars, the global sales revenue for Lineage 1, Lineage 2 and all other online games combined accounted for 23% of its total revenue according to the latest FSS filings.

The newly created studios and its reorg flavour are a novel industry experiment to test the viability of new game IP development and a mechanism to shift the development risk & burden to individual studios, developers and employees whilst engineering the rights to collectively terminate, by subsidiary defunct or sold-off in three years, affected developers, a reasonably sophisticated scheme possibly devised by a financial services professional, Obliq Intelligence says after analysing the engineered financial layers within.

A performance-based collective layoff scheme seems to have been devised by NCSoft navigating often-said complex domestic labour legislations as the last resort. Other Korean corporations may follow and Krafton already has a highly similar corporate structure which we will revisit at a later date in this Korean gaming series.

Developers are Noticing & NCSoft’s Talent Attraction Crisis is Brewing Behind the Scene

NCSoft’s talent hiring crisis is brewing behind the scene as the company spends more time, budgets and resources to find top video gaming talents that they need to develop new AAA titles and spin-off IPs racing against other big 5 Korean game companies.

According to Obliq Intelligence Alt Data Models (ADM), a proprietary data model that tracks Talent & Competitor Intelligence (TI and CI), the ease of hiring indicators for NCSoft has severely worsened in recent months, possibly due to disruptive organisational changes that scare potential employees or an operational HR team that can’t just execute recruiting programmes: this in particular for the roles in Art dept.

The Most Difficult to Hire Talents for NCSoft’s HR team

who can create comprehensive visual designs across characters, creatures, items, and promotional materials using traditional and digital art skills using photoshop, mat painting, concept drawing using Unreal Engine 5

who can focus on creating high-quality character animations for games and cinematics. The role requires expertise in Unreal Engine and involves comprehensive animation work including keyframe animation, facial animation, motion capture direction and editing, plus technical skills in rigging and resource management.

who can focus on creating visual effects and graphics for game development. VFX artists with strong technical skills in Unreal Engine 5 who can handle both creative visual effects work and technical implementation.

responsible for creating realistic 3D character assets and resources who can create high-quality, realistic human and creature models using industry-standard tools, with particular emphasis on photorealistic results and technical expertise in modern game development pipelines.

NCSoft’s hiring difficulty for key senior positions weigh negatively for its creative functions and AAA title development performance in relation to its peers. Based on our quantitative models, NCSoft’s difficulty is profound for key artistic roles than its peers by a factor. For this in-depth analysis, Obliq Intelligence will cover more on the talent hiring crisis in the Korean gaming industry in terms of peer benchmarking and beyond in this series at a later time for those interested in the market subtleties and details.

In 2023, Dave the Diver rewrote the indie game scene for Korean online video gaming community by being the fifth best-selling product on Steam. It had sold over one million copies within ten days of release, setting a new record for big Korean publishers and developers alike. As a result of the title’s success in terms of sales and also user reviews, the push for innovation and creative games away from MMORPGs had begun for all gaming industry participants in Korea. By November 2024, the indie title had surpassed 5 million copies sold across all platforms. In and outside Korea, Dave the Diver received universal acclaim based on online critic reviews.

Next in January 2024, Krafton pulled it off just like Nexon with ‘Palworld’, a monster collecting survival theme open world indie genre game, by selling 12 million units on PC via Steam. In total concurrent play count, the game at once went over 19 million players with 7 million coming from Xbox. It only took Palworld two weeks to hit the milestone.

NCSoft started the indie game race much later than its competitors as the company now tries to move away from its unending dependence on Lineage IPs, trying to pull off the following experimental games:

NCSOFT’s success in the indie game genre remains to be seen

[Hidden Risk Signal] Boardroom Takeover to ‘Moderate Watch’ - per Obliq Signal Intelligence

According to Obliq Intelligence, global P/Es, passive funds and institutional investors tend to hide behind the South Korea’s 5% filing rule for institutional ownership reporting standards.

Largely unseen from the public realm, Hyundai Elevator-style institutional take-over attempt by Schindler Group et al may repeat to other domestic Korean corporations such as NCSoft with its weakened global sales and growing discontent for its management from the shareholders and possibly development teams following the re-org, registering first annual loss in 26 years since 1998 as well.

On the surface, Netmarble continues to be an ally to NCSoft with 8.88% of fractional company ownership. Korean National Pension Service holds 8.22%, whilst the founder has 11.97% with another 11.64% held by the company itself as an insurance and buffer.

Assuming Netmarble is to remain an ally and the pension service will not take part in any potential take-over, 40.71% is secured for the current management structure.

However, BlackRock Fund Advisors went stealth in September 2021 with 4.85% of ownership just below the 5% rule not to be seen again in the FSS filings to date. Similarly, Schroder Investment Management went stealth to 4.94% in November 2018.

Some other potential shareholders that may have maintained stealth ownership of NCSoft outside the public purview could include Fidelity International Discovery Fund, Blue Ridge Limited Partnership, Prudential Asset Management, Mirae Asset Group, Korea Investment Management, Samsung Asset Management, TRPI & OFI although the public cannot be certain due to the 5% filing rule.

If Netmarble breaks away from the alliance and the pension service remains neutral, the remaining 23.61% ownership may not be enough to fend off potential institutional hostile take-overs as aforementioned global institutional investors may hold between 2.53% - 4.98% each which could be totalled up to 64.32% according to Obliq Intelligence Signal Data.

Stay tuned for our next newsletter as we unveil more competitive intelligence for the Korean gaming sector.

Engineer Truth with Alternative Data

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