Nexon’s Latest Investments Pose Challenge to Chinese Gaming Rivals

Nexon’s Latest Investments Pose Challenge Chinese
Cheyne Gateley/VIP

The balance of power among a trio of gaming-company superpowers is about to shift.

Founded in South Korea and now based in Japan, Nexon disclosed investments last month comprising $874 million in entities like Bandai Namco, Hasbro, Konami and Sega Sammy, representing 58% of $1.5 billion the company freed up in 2020 for such moves.

While CEO Owen Mahoney has played coy, remarking that “leveraging partnerships” was “not a decision” in these investments, there are key factors motivating these investments that are worth exploring.

Nexon’s Top Competitors Earn Substantially Higher Revenues

At $175 billion, the global games market is huge and predominantly led by the Asia-Pacific region, whose revenue accounts for nearly half of the overall cap.

Nexon is one of three companies driving this revenue up on account of successful online gaming operations across PC and mobile.

However, despite achieving record annual revenue (per its earnings statement) totaling $2.3 billion in 2020, Chinese competitors NetEase and Tencent still tower over Nexon.

But Nexon is entirely a games company, while NetEase and Tencent are heavily involved in other areas. In addition to e-commerce and email operations, NetEase has one of the dominant music streaming services in China, NetEase Cloud Music. Likewise, Tencent operates a music streamer by way of QQ, the messaging service it operates alongside the mammoth messaging app WeChat in China.

These diverse revenue streams allow Nexon’s competition to make bigger investments, partnerships and acquisitions. Tencent owns “League of Legends,” widely cited as the most popular esports property in the world, via subsidiary Riot Games, which it purchased an owning stake of in 2011 before buying the rest of its shares in 2015, and also owns 40% of “Fortnite” maker Epic Games.

Nexon’s Investments Open Up Lucrative Property Partnerships

Despite his modest remarks, Mahoney made a point to highlight the relevance of IP at the companies Nexon acquired stakes in, saying “strong, well-managed” global properties are often “overlooked and undervalued.”

While it licenses Valve’s popular esports property “Counter-Strike” as well as “FIFA” from EA, Tencent and NetEase command much more notable IP.

Minor stakes in their parent companies have allowed Tencent to manage mobile versions of top battle-royale games “PUBG” and “Call of Duty” alongside kid-friendly “Fortnite,” while NetEase extended its partnership with Activision-Blizzard in 2019 to control popular esports game “Overwatch” in China, among other popular Blizzard games; it also licenses “Minecraft” from Microsoft.

With “Transformers,” “G.I. Joe” and “My Little Pony” in its catalog, Hasbro is a treasure trove of IP aimed at kids and a compelling company for Nexon to get friendly with. While Bandai Namco is a top publisher covering a wide variety of genres, it also owns the “Pac-Man” brand. Likewise, Sega-Sammy is the home of “Sonic the Hedgehog,” a brand that has resurged thanks to Paramount’s 2020 hit at the box office.

With Tencent further partnering with the likes of “Roblox” and “Pokémon” in recent years, utilizing IP to grow its global presence must be a top priority for Nexon, and the recent addition of former Disney and TikTok exec Kevin Mayer to its board adds an experienced voice to the mix.

Nexon’s Record 2020 Was Aided by Mobile Push

Given the concentration of mobile-oriented companies in East Asia, it’s not a coincidence that the mobile sector’s share of the overall games market is equivalent to Asia-Pacific’s regional share, per Newzoo. Likewise, Nexon’s decision to have its five biggest franchises on mobile platforms by the end of 2020 as it secured its investment strategy is not a random sequence of events.

Led by titles like “MapleStory” and “FIFA Online,” mobile revenue accounted for a third of Nexon’s revenue in 2020, per company earnings, undoubtedly making it a key factor in achieving its record year.

Making strong investment pushes to better generate revenues and boost IP partnerships can only help Nexon’s mobile push, especially as companies like Zynga reap the benefits of applying hypercasual and social models to a wide variety of titles as they acquire companies with the necessary know-how.

Securing recognizable and relevant IP is a way for Nexon to further proliferate the market with mobile games that can hook players with familiar properties while keeping them engaged through the right kinds of gameplay. If it can continue to ride its revenue wave, Nexon has the potential to fill out a true trifecta of corporate mobile gaming power from Asia.