Nexon courts Western game developers with creativity pitch

Owen Mahoney, CEO of Asian gaming giant Nexon, has been fed up with the mobile game malaise where millions of rivals are competing with each other in a race to the bottom. He wants them to be in a race to creativity as the only way to stand out in the pack.

While Mahoney is a business executive himself, he wants the artists who create games to win. Usually, he finds, these creators are often shouted out of the board rooms by the more eloquent business executives who are better trained when it comes to making PowerPoint presentations to boards.

And to get his point across, Mahoney is investing heavily in creative talent. Nexon continues its expansion into the West. Last week, during the Game Developers Conference in San Francisco, I spoke with Mahoney about this strategy. Just a day later, Nexon announced its investment in connected play startup PlayFusion, which has a hybrid game-toy product.

Mahoney is speaking on creativity at our GamesBeat Summit 2017 event on May 1-2 in Berkeley, Calif. During our interview, Mahoney said he was hopeful about the course of the game industry, and how it has retreated from a pure focus on user acquisition and pushing games on users that they don’t want to play. He’s hopeful that game developers will realize that they need to focus on creativity to win.

Here’s an edited transcript of our interview.

GB: What’s interesting to you at this GDC?

Owen Mahoney: I’m hopeful. I see more developers who are talking about making games that are very high quality, highly differentiated, and last a long time. Those are the things that drive Nexon. As I’ve said before, I wish our industry had a lot more of that.

People ask me, “Well, if you had that, wouldn’t you have more competition?” I don’t think that’s the case. More people would be drawn into video games if we had more people who cared deeply about building a really good game that delights us, that makes us happy. I spend a lot of time in Japan, because that’s where our headquarters is. That’s one of the reasons everyone in Japan is still excited about Nintendo, because Miyamoto clearly believes that.

I wish we had a more active M&A pipeline right now. But at least for us, that’s not going to come from more companies trying to figure out how to sell to companies like us. It’ll come from more companies that are trying to figure out how to move our industry forward in new, interesting ways. The next Nexon or the next Riot or the next Mojang. This is purely anecdotal, but I see less of the cynical approach and more of the aspirational, romantic approach to game-making.

I remember talking to you around the time of our IPO, five years ago. When I was CFO at the time, the number one question we got was, “When are Dungeon Fighter and Maple Story going away?” Every single fund manager we talked to asked us that question. And of course every equity analyst. Their model was, games go up and games go down. This was the time of Zynga. They had the all mindshare, even though we had the bigger IPO. That was everyone’s model.

Fast forward five years. We just closed out Q4. In Q4, Maple Story, our second-biggest game, is now 18 percent bigger. Today Dungeon Fighter is twice as big as it was at the time of the IPO. What I take from that is that you can make a great online game grow for many years. That’s the skill Nexon does better than anybody else. It’s the core thing that makes us special.

By way of comparison, we’re also running the numbers on how big Dungeon Fighter is at this point, just in terms of IP. Life to date gross revenues for Dungeon Fighter is $8.7 billion after 10 years. Guess what the biggest movie franchise of all time is? Star Wars. Life to date box office gross, that’s $7.6 billion. We’re a billion dollars bigger and we’re only 10 years old, a quarter as old. To me, that speaks to the power of playing the long game. I don’t think our industry talks about that enough, but I feel like some people are talking about it more. I’m more hopeful than I’ve been in years.

You ask me a lot about VR. I think I told you at one time that I didn’t think much of it. We weren’t spending any money on it. Our industry continues to try to glom on to the shiny thing that sounds cool. But if you actually play the games, if you spend time in the user experience, you find that it’s a very different story. In the meantime I’m playing a lot of good games coming from two- and three-person shops. They’re mostly offline games, not online games, but there’s some exceptionally good stuff out there. I play with my kids. They’re starting to be a bit more into mobile.

To experiment with this theory of trying to create games that are fun and differentiated and see how they do on mobile, we put out, for example, a game called Evil Factory. Small game. We were only in development for a few months. But it got four and a half stars. You should check it out, because I know you love ‘80s-style arcade games. I think it’s a great game, and if you read what’s being written on the app stores, people are saying, “Finally a game I can really play,” that kind of thing. In a lot of ways it was an experiment for us, to check out own premises and see if they were right.

DomiNations is doing well. Next week we’re going to announce some milestones for the three big games, including DomiNations. It turned out to be a great deal. We’re only two years in, but it’s showing the same longevity we’ve seen with many of our other games. There was a lot of skepticism. Could you really do this in the west? I think you asked me that exact question a couple of years ago. Does this apply to the west? Does this apply to mobile? I think we’re starting to see that it does. It’s not through putting a ton of marketing dollars in the top of the funnel to puff up the revenue numbers, because we’re obviously not doing that. But in terms of retention the numbers are very good. It’s very stable. It retains players well. We think there’s a lot more coming along.

GB: What’s going on with the pace of investments in new companies? I see Nexon made a new investment this week.

Mahoney: We have another one we’re about to announce. We just invested in another company in Korea as well. I’m not sure if the pace is getting higher. We have a lot of cash, about $3 billion now. We generate about $500 million a year. We’ve been accumulating cash. We think that if you have a stable set of games that generate cash flow, as ours does, that gives you a lot of flexibility to invest in new good game ideas. We’ve been plowing a lot more money than we used to into development of new games, so we can generate a pipeline. It takes about three years to make a game, minimum. Those games are starting to come out around the world — Japan, Korea, U.S. We have a huge slate in each of those regions this year.

The other place you can put it is M&A or external publishing deals. I would prefer if there were more companies that think the way we do, which is one of the reasons I’ve been getting more vocal about this. If more of us said what, as consumers, we all feel, we’d have more developers with the intellectual and financial courage, and maybe a better class of third-party investors to give good game developers the time they need to develop good games. That’s what we all want.

GB: On that front, Cliff Bleszinski yesterday — if Cliff was worried about something like Overwatch as a creator in the market, a very successful game, what would the advice for him be? As a creator, does he need to worry about a game like that? Or does he need to just focus, I guess, on what he’s doing?

Mahoney: I talk to Cliff about this a lot, obviously, because we’re very invested in him. My view is it’s good to know what other artists are making, but to not spend too much time thinking about that, and to be very clear about your own vision. I don’t think Cliff has shown you yet what he’s working on, but I believe the direction we’re all heading in is something that’s a lot different from Overwatch.

I spoke with Patrick Soderlund at EA about Battlefield One. Patrick, if you recall — years ago I bought DICE on behalf of EA because I loved Battlefield 1942 so much. We made an investment and then we purchased the company. As far as I can tell, the Battlefield franchise is about a third of EA’s revenue now. Then they come out — everybody else is doing modern or sci-fi or semi-fantasy and here comes Battlefield One. It’s World War I. You talk to Patrick about it and you realize, of course they should do that. It’s a game that positions itself. What a brilliant move by them, right?

A guy like him is going to get a lot of pushback from reasonable people saying, “Why would you do World War I? Nobody cares about that. There’s no demand. What evidence is there of any demand for World War I?” But then you think about it for a second. Of course there’s no evidence of demand for it, because nobody’s made a game like that. And yet World War I has this amazing progression of technology, an amazing history, a very personal history. You play the training example, those are all real people who died in the war. Their names are real names. It’s a massively differentiated game with all sorts of cool stuff you can put in, because of all this rich history, this compelling history. Now you have a highly differentiated game.

If Patrick and his team had worried too much about what else was going on in the rest of the world, the world would not have had Battlefield One. So, using that as an analogy — Cliff has a unique view as to what a great arena shooter is, and what has and has not been done with a competitive arena shooter. He’s a savant at that. He has great insights. Our job is to support his great insights. He’s a very vocal guy, too, but he loves to mix it up in terms of sharing ideas and debating ideas. That’s the type of people our industry needs more of.

The reason the world has Overwatch is because Blizzard took the same approach. They weren’t obsessed with modern-day, high-tech, near-future shooters like Black Ops or Battlefield 4. They had their own opinion about what could be different, what’s interesting, what the world hasn’t done.

GB: Are there more of these kinds of ideas showing up in your lineup?

Mahoney: As I mentioned, we had this little test, which I think was terrific. I enjoyed playing Evil Factory a lot. Upcoming we have a game called After the End. Again, we’re testing. We’re not aiming for a massive hit. But then we have more and more games coming out that are much bigger investments, and that have the chance to be significant impacts on the industry. We talked about LawBreakers. That’s one of them. It’s a great example of what I think we should be doing and the industry should be doing. It’s Nexon bringing its expertise in live game ops, and of course we’re funding it. We have some great marketing behind it. Then we combine that with Cliff’s unique vision.

Another one coming up, another example of a bigger-scale game, is Durango. We’re leading in North America with that game, even though we developed it in Korea. Durango is on mobile, and it’s a fully functioning, deep, massively multiplayer online experience with a lot of harvesting and crafting going on. Rather than a sort of faux MMO where you battle, get loot in the form of a card, upgrade some stuff, and go back into another simple battle, this is a much deeper experience of the kind that you’ve probably played a lot on PC. But with a lot of crafting.

The general fiction is you find yourself, for a variety of backstory reasons, going from the modern day to a prehistoric world. There’s been a space-time warp of some sort. You cooperate and work with other humans, played by other players, and you’re surviving and growing and building a society within the game. Of course there’s dinosaurs. You have to work with, or in some cases, against the dinosaurs, find food and shelter, and so on. It’s a very deep experience. We’ve done one limited beta test in North America and several in Korea. We’re tuning the sociology, the politics, and the economy over progressively larger numbers of people. That’ll launch later this year.

GB: Are you learning any particularly interesting things about how to guide these kinds of games?

Mahoney: Sometimes, when you’re working — you know how they say the fish never understands the fish tank? Only the people outside it understand. Sometimes, when you have a set of skills, you don’t realize that others around you don’t have those skills. Or just like when we work with partners who have amazing skill sets, they don’t necessarily talk about those skills because they think everybody has those skills. We learn from them.

In our case, as I said, the thing I think we do arguably better than anybody is the knowledge about how to make a game grow over years or decades. Live game operations. It’s axiomatic, because we’ve been doing online MMOs longer than anybody. Kingdom of the Winds was the first graphic MMO. We’ve been doing free-to-play longer than anybody. Things that are very obvious to us sometimes are not always obvious to some of our partners.

The game launches and the hard work just starts, particularly for a free-to-play game. That seems obvious, but then there’s the nitty-gritty of how you plan out your product life cycle a quarter, a year, three years into the future. You have to assign development resources to that. You need a P&L and a funding program that supports that. We’ve been doing this ourselves for so long that we know this, but we’ve been surprised sometimes that some of our partners don’t realize this as quickly as we do.

The questions we ask about a server farm, about a technology stack, particularly around client-server are not always obvious to people who haven’t been doing it as long as us. They’ll focus on, “Here’s the gameplay. Here’s how the physics of the world work. Here’s how the graphics look.” We have to get this yin and yang going. That’s a communication process and a learning process for everyone.

Every one of our partners brings something to the table that we don’t have. We’re investing a lot of time and energy under the hood to get that to work better. Of course we’re doing it across languages and cultures and time zones. But the more we invest in that part, the more likely we are to have success, and more important, that’s going to come from better games.

GB: Does any of your learning involve Super Bowl ads?

Mahoney: [laughs] No, is the short answer. The longer answer — my personal view on marketing is there’s two sides of the coin. There’s straight-up UA, which everybody in San Francisco seems to be obsessed with. It’s highly valuable. But if you have an undifferentiated product, or if you have a message that’s undifferentiated — if you’re not giving people a reason to care — it doesn’t matter what your UA spend will be. You’ll either waste it, because people aren’t going to download the product, or they’ll stick around for a day. Then they’ll exit, because you have the wrong targeting.

You have to make sure that the other side of the coin is there, which is the positioning side. You have a really good, differentiated message that your customers, or prospective customers, need to care about. Lee Clow, the guy who created the original 1984 ad for the Mac, he has this great quote. It’s something along the lines of, “If you think your strategy includes something other than saying something interesting, then you have the wrong strategy.” He says it more eloquently than me, but the point is, if you’re not saying something important to the customer about why they should care, your UA strategy doesn’t matter.

We’re surrounded, in San Francisco — this is UA central. The best UA people are probably in a two-mile radius of us, over at Uber and everywhere in the Valley. They’re very expensive and very hard to get, but remember, at Uber they’re selling something highly differentiated and very important for people, which is transportation around a busy city when you don’t have access to parking or a car.

Going back to the Super Bowl, an ad like that has to serve that purpose. Maybe a Super Bowl ad is the best thing for a certain type of game. But often it’s not.

GB: I wonder if some of these trends are slowing down or running out of steam in some ways, or if they really are continuing strong. This east-into-the-west trend, has there been some slowdown in the appetite for M&A deals in that direction, or otherwise pushing into the west?

Mahoney: Certainly not from us. We’re more committed than we’ve ever been to the western markets. We have a better sense of our value added to western developers than we ever have. We’re much more sophisticated than we were even three years ago in terms of how to bring that value added. Again, it’s about how to make a game last a long time, what you have to do in terms of live game operations and development. How you set up your customer support, but more important, how you do in-game events and live game development, so you continue to have a pipeline of new content going into the game. All those things that make that up, we’re much better set up for them than a few years ago.

I can’t speak for other companies, but I know there has been a lot of talk over the last year around Chinese game companies, or even Chinese non-game companies, trying to buy up a lot of assets in the west. That, as a practical matter, at least among Chinese non-game companies, has probably tailed off given the regulatory environment in China. But they were certainly making a lot of noise six months to a year ago. What was the game company that got bought by a Chinese cement company? I forget what that was. Or a non-game company of some sort. I think that regulatory environment is getting harder.

What I really hope is happening, though, is that the people who are investing in game companies are doing it — I look at what’s going on in Hollywood. It seems like there are more and more sophisticated investors backing certain types of films, and especially certain types of television. They’re very clear about what kinds of productions they will and will not finance. I was reading about the guys who backed La-La Land. They’re very clear that they’re not going to bid up what most people consider tier one IP. They’re going to look for differentiated IP, differentiated ideas backed by people they can trust.

I think the parallels to the TV industry are very interesting. When I grew up in the ‘70s and ‘80s, TV was a wasteland. It was where actors and directors went to die, literally, at the end of their careers. CHiPS. Three’s Company. Starsky and Hutch. Some people liked those, I don’t mean to take anything away from them, but I think we can all agree that they weren’t Star Wars and Kramer Vs. Kramer, tier one IP. All the good stuff was happening in cinema.

Then, in the ‘90s, you had Sex and the City. You had Sopranos. You had 24. Now, God, I saw Narcos a few months ago. It’s amazing. I saw Westworld, which you probably saw. And it’s not just that we all loved that movie from Michael Crichton in the ‘70s. The production values, the set designs, the photography. The acting and the writing are out of sight. You have Amazon, Netflix, and HBO saying, “No, we don’t need to do this the old way. Why do we have to do what everyone’s been doing for 50 years? It’s not working. You’re slumming for the least common denominator and your margins are getting thinner every year. Does that seem like a good business model? No. We can do it a different way.”

There’s a direct line, as guys like Bezos and Netflix have found, between good art and good money. It happened in animation, too. There’s before Pixar and after Pixar. Before Pixar, everybody looked to the golden age of Chuck Jones, and there was this weird guy named Miyazaki in Japan, but that would never sell in the U.S. Then came Pixar, two guys backed by another guy, saying, “We just don’t need to do it the old way.”

So I’m hopeful. I think our industry needs to have our Amazon/Netflix moment. I don’t mean those companies specifically, but I mean a decision by those of us who finance these things and support artists to be able to go out and create great art. We want to be that company. There’s a couple of other companies like us. And yet 90 percent of the companies we talk to around the world don’t see that vision. They’re trying to do something else, and they’re backed by a class of venture capitalists who largely aren’t thinking about games as an art form.

Taking a differentiated approach to new games doesn’t guarantee success. That’s for sure. But it is the table stakes, for a real hit. I can’t speak any longer for offline games, because that’s not our business, but as far as online games go, keeping a game going and growing like we’ve done with DomINations now, it’s a grind. It’s hard to do. It’s hard to get good people to do it. Much harder than it is to get new game developers, if you can believe that. Part of it is because there’s a set of things you have to learn, and people don’t consider live ops and live dev a creative side of the business. There’s an art to being able to make a game last a long time.

GB: I’ve been doing this ongoing speech about where game jobs are in the world. You wind up seeing things like the map of China, where I think it has 6,100 game companies.

Mahoney: And a lot of turnover there. You’ll have 6,300 completely different game companies next year.

GB: The conclusion I came up with was, if you did a map of the world that mattered, it would be the franchises, where they’re made. I was trying to categorize games by city, where they came from. Each region thrives based on the franchises they have. If you don’t have any of these, you’re not on the list. Beijing isn’t on this list. Shanghai and Beijing probably have more game jobs than any of these regions, but they’re not on the map that matters.

Mahoney: Yeah, I think that’s right. I wouldn’t be surprised if they started getting on the map, though.

GB: If we just had that part of the conversation, what do you think is interesting about where game jobs are and where great games are being made?

Mahoney: Let me answer that in a sort of oblique way. I was in Korea about a year and a half ago. I was interviewed by a Korean reporter. He said, “I’ve noticed that you’re starting to publish games from China in Korea.” I said yes. He said, “What would you say to the criticism that it hurts the Korean game ecosystem to do that?”

That’s a tricky question to get asked. Remember, I’m an American citizen. We were founded in Korea. But he was asking it very sincerely, and I think it was a good question. My answer to that was–I’m from Silicon Valley. I grew up there in the ‘80s. I remember, from my childhood, when disc drive manufacturers and DRAMs from Japan eviscerated the U.S. market for those products. If you look at Intel’s history, they just abandoned the field on memory chips and went direct to CPUs because they thought they could differentiate there. Other companies went out of business or battled it out. There was a variety of responses, but I certainly remember that time.

Then I was at EA. 10 years ago, EA was one of many companies. Ubisoft and Take-Two and some others were using China essentially for outsourced art. The art director would be back in Vancouver or Paris but the grunt work was done in Shanghai, someplace like that.

Today some of the smartest engineers are in China, I believe. Some of the smartest and most talented artists are in China. Some of the smartest and most talented business people I know are in China. This is not just a few people. There’s a lot of them. So whatever the status quo is today, I think our world is changing. My friends in China who are in the games industry are dead serious about being really good. They get the joke about being good. They realize they may not have all the capabilities they want now, but they’re serious about being world class. Any developer, any publisher, in any region of the world that doesn’t take that very seriously and is not noticing the trend line is missing out on something important going on in our industry.