2023 Korea's Web3 Gaming Landscape
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Looking back at Korean Web 3 Gaming Market
South Korea's gaming industry continues to grow and has surpassed KRW ₩20T (roughly US$15B) in market size, ranking as the fourth largest gaming market in the world. This is due to a combination of factors, including, but not limited to:
South Korea's long gaming history dating back to 1987 and its advanced game development capabilities.
Large user base and high average revenue per user (ARPU).
Deeply ingrained gaming culture among the younger generation.
However, South Korea's domestic regulations for blockchain games continue to be very strict. In particular, regulators have imposed a number of restrictions on development and distribution of web3 games due to issues of speculation, limiting new growth opportunities for the gaming industry.
Despite these limitations, major Korean AAA game studios such as Nexon, Netmarble, Com2uS, and WeMade have recognized the potential of the blockchain game market and are moving actively to capture the opportunity. In particular, WeMade is playing a leading role in the blockchain game market by developing a comprehensive business such as the development of Wemix, a blockchain based gaming platform.
However, it's not just AAA game studios that have shown interest. Many smaller indie studios are also joining the journey to establish themselves as the next major game company in the web3 market. In the early stages, small and medium-sized enterprises (SME) such as Sky People and Natris took the lead in developing blockchain games. Experimental blockchain games such as Sky People's 'Five Stars' and Natris' 'Hero Blaze: Three Kingdoms' were introduced. These players were the pioneers in shaping the Korean blockchain game market, while experiencing various technical and legal difficulties. As the general framework of the blockchain game market began to take shape through this trial and error period, it triggered larger AAA game studios to recognize the potential and enter the market.
Despite their efforts, Korean gamers are far from truly enjoying web3 games. This stems from strict regulations by the Korean gaming authorities. According to the Game Industry Promotion Act, tokens and NFTs in P2E games are classified as illegal prizes, and these types of games are banned in South Korea. In 2022, President Yoon considered allowing P2E games, but to date, the decision remains unclear. This is largely due to a series of negative incidents, such as politician Kim Nam-guk’s coin scandal, that resulted in a lack of favorable market sentiment.
Despite this, Korean users who are enthusiastic about blockchain games have taken it upon themselves to access them. The 'P2E' genre of blockchain games is currently banned, but users are installing VPNs to circumvent the ban and play them nonetheless. For instance, the highest relevant search for "Mir 4" on Google is "How to play Mir 4 Global.” Articles on how to set up a VPN are among the top results. However, these users are a tiny fraction of the total gaming market, which is why game companies are looking to capitalize on less regulated international markets.
As we've seen, the Korean blockchain gaming market has very unique characteristics. Ahead of South Korea's largest blockchain conference, KBW 2023, we've put together a list of 10 keywords to give you a better understanding of the Korean market.
Top 10 Characteristics of Korean Web3 Gaming Market
1. Unique Gaming Culture
For South Koreans, gaming is more than just a way to pass the time; it's a culture and a hobby. South Korea has formed a unique and in-depth gaming culture based on 1) a mature eSports market, 2) ‘PC bang (computer game cafe)’ culture, and 3) in-game item trading.
As of 2021, the Esports industry is valued at KRW ₩104B (roughly US$80M) and is growing rapidly, driven by large-scale domestic and international tournaments, top-level professional gamers (such as StarCraft's Im Yo-han and League of Legends' Faker), and the support of passionate fans.
The PC bang culture is also one of the key elements of the Korean gaming industry, accounting for about 9% of the domestic gaming market. Although the number of PC bangs has decreased by 43% since 2009, the number is still higher than that of Japan, the third-largest gaming market, and represents a distinctive element of Korean gaming culture. In fact, for young people in their teens and twenties, PC bangs are the number one source of entertainment.
The volume of in-game item transactions in Korea is estimated to be over KRW ₩1T (roughly US$770B), and most game items have been cashed out through intermediary exchanges such as 'Item Bay' and 'Item Mania' since the early days. This indicates that Korea is a market that is historically accustomed to item monetization. The Korean gaming market was also one of the first to introduce the 'freemium' model, which made gamers grow accustomed to the pay-to-play model early on. These factors have led to a high willingness to pay for games among Korean gamers. These complex characteristics of the Korean gaming market are likely to apply to the blockchain gaming market as well.
2. RPG fans, nostalgic for Fighting Games
According to the "2022 Gaming White Paper" published by the KOCCA(Korea Creative Content Agency), "RPG/MMORPG" is the most preferred genre among Korean users on PC, followed by "shooting" and "sports". Experts say that the popularity of MMORPGs among Koreans regardless of platforms stems from their desire to achieve, explore, and socialize. This means that the ability to achieve high levels, explore hidden elements in the game, and socialize in a virtual setup is a big selling point to Koreans. Korea's preference for RPGs/MMORPGs contrasts with the U.S., where PC gamers tend to favor action genres more. Interestingly, puzzle games dominate the popularity in the U.S. mobile game market.
Top 3 Preferred Game Genres in South Korea and the United States
During the early days of gaming industry in South Korea, the most popular game genre was the fighting genre, with titles like ‘Street Fighter’, ‘Tekken’, and ‘The King of Fighters’. These games, accompanied by the passionate amusement arcade culture in Korea, played a leading role in driving the gaming industry forward.
However, with the decline of the arcade industry, the popularity of competitive fighting games began to gradually decrease. This change can be attributed to the natural evolution of the South Korea gaming industry, which simultaneously elevated the standards and perspectives of domestic gamer.
The early 2000s witnessed the rise of MMORPG games like ‘The Kingdom of the Winds’ and ‘MapleStory’, captivating gamers with a diverse array of content offerings. In contrast, the fighting game genre, primarily centered around one on one combat with limited content, inevitably saw a decline in its popularity.
However, in recent times, fighting game genre have once again been recapturing the attention of korean gamers. Notably, ‘Tekken 7’ was selected as the featured games in the recent 'South Korean National Assembly Speaker's Cup e-Sports Tournament,' drawing substantial viewership on platforms such as Twitch and YouTube, with approximately 30,000 concurrent viewers. This unequivocally proves that the fighting game genre still holds its ground and continues to captivate the attention of the South Korean gaming community.
3. AAA Giants are leading the journey
South Korean game companies are considered to be ahead of their U.S., Chinese, and Japanese counterparts in terms of blockchain game preparation. The fact that they are making bold investments and performing rigorous tests shows that the companies are eager to disprove the sentiment that their heydays were back in the early 2000s.
Nexon is boldly promoting its core IP, ‘MapleStory’, which was first released in 2003, as its core web3 game content. This is in contrast to U.S. and Japanese game companies that are developing web3 game businesses based on new IPs for fear of damaging their core IPs. Nexon is promoting the establishment of an NFT ecosystem by introducing Polygon's 'Supernet' for the MapleStory universe, but the details of its tokenomics are still undisclosed.
In 'Meta World: My City,' Netmarble introduced NFT real estate transactions in a virtual space based on a real city. In addition, it is redesigning 'The King of Fighters ARENA', a fighting game familiar to people in their 20s and 30s, into a web3 format. WeMade is bringing blockchain to gaming with blockchain versions of its globally serviced games along with its newest release, ‘Night Crows’. Com2uS recently released a blockchain casual game, a remake of its hit ‘MiniGame Party’, and is planning to introduce a blockchain-based trading system in ‘Summoners War: Chronicles’, taking a phased approach with a play-to-own (P2O) concept.
4. Startup Studio Trend
Korean SME game companies have been quite active in the blockchain gaming market since its inception. Most of these companies have had hands-on experience of the paradigm shift in the gaming industry. This explains why they seem to be eager to recreate the success of the transition from online to mobile games in the past through blockchain technology. Com2uS serves as an example of this mindset. Although it was only a small game company in the past, it was able to achieve rapid growth by leveraging the surge in popularity of mobile games.
The following is a rundown of currently active gaming SMEs. Planetarium released Korea's first full on-chain MMORPG, ‘Nine Chronicles’ and is gaining global popularity, being the only Korean game in the top 10 blockchain games on DappRadar. Delabs, a blockchain gaming subsidiary of 4:33 Creative Lab, announced that it will release a web3-based racing game, ‘Rumble Star Racing,’ in the second half of this year, as well as synergize its existing partnership with various PFP NFTs. Finally, 111Percent's blockchain gaming subsidiary Gomble is developing a blockchain-based PvP casual game called ‘RumbyStars’, which is also expected to launch this year.
It is clear that many gaming SMEs are rapidly entering the blockchain gaming market in search of future growth drivers, and investment seems to be flowing accordingly. It is also noteworthy that many web2 game founders have taken the helm of web3 games themselves.
5. Layer 1, 2
What sets the Asian blockchain market such as Korea and Japan apart from other regions is that there are local L1 and L2s. These locally-initiated L1 and L2 projects have been able to onboard game companies of various levels with their strengths of 1) enthusiastic local communities, 2) convenient and timely technical support, and 3) strong business development capabilities. A leading example is Klaytn, developed by Korean tech-giant Kakao. Currently, Netmarble’s MarbleX and Kakao Games’ Metabora are launching Klaytn-based games. Wemix has also been building a game ecosystem based on Klaytn, and only recently launched its own Layer 1. As of today, more than 100 games are using the Wemix chain built by WeMade.
Other non-local blockchains, such as Polygon, Immutable, and Aptos, have also been working with Korean partners to strengthen their presence in the country. The crypto purchasing power of South Korean retail investors is among the highest in the world, making expansion into the Korean market a priority for non-local blockchains.
6. Wallets
In the blockchain gaming industry, wallets play a central role in a user's identity. From a web3 gaming perspective, there are two main types of wallets: 1) White-labeled wallets that are integrated in-game, and 2) game ecosystem wallets that can be accessed from outside the game.
In general, small and medium-sized game studios and web3 native companies prefer in-app wallets because they seek interoperability and universality. Their inability to develop an entire vertical ecosystem due to the lack of financial and human resources is also a contributing factor. For example, Korean web3 startup Haechi Labs has developed Face Wallet, which is being applied to blockchain games by various gaming SMEs. ME2ON's latest RPG game is also planning to integrate this wallet.
Major AAA game companies take a platform-centric approach. WeMade is one example. The company uses "Play Wallet" on its own blockchain gaming platform called Wemix Play, which provides a variety of transaction functions in addition to the usual swap function. Kaikas wallet developed by Kakao and Klaytn is also used by some Klaytn-based games as well.
7. Metaverse
Similar to Roblox and Sandbox, there are locally developed metaverse gamification platforms in Korea. NAVER Z's 'Zepeto' and SK's 'ifland', which have emerged as two strong players in the Korean metaverse market, are centered on the formation of a creator economy through character-centered activities in virtual spaces. Both hinted at the possibility of integrating blockchain technology, heralding a new digital economy paradigm. In particular, 'ifland' announced the introduction of a virtual asset trading system in 2022, but has not yet disclosed specific services. NAVER Z, the developer of Zepeto, has established a joint venture with Korean mobile game developer Supercat to launch web3 functions through its ZEP service, and is also actively working on a practical NFT project using its web3 metaverse platform ZTX.
8. NFT Marketplace
Korea also saw the launch of a variety of local NFT marketplaces during its rise in popularity. For example, PalaSquare, a collaboration between Alchera and NAVER subsidiary Snow, focuses on trading NFTs on Klaytn. Local platforms such as Upbit's NFT exchange, Naver Line's 'DOSI', and SK Telecom's NFT marketplace 'TopPort' are struggling to dominate the domestic market and compete with global platforms such as OpenSea.
Despite the emergence of these marketplaces, the reality is that there are only a limited number of platforms that have seen a significant amount of active NFT trading in Korea. This shows that Koreans are also highly dependent on global platforms such as OpenSea, Magic Eden, and Blur.
9. Web 3 Game Sentiment - Low interest from Web 2 gamers
The majority of Korean gamers have a negative view of blockchain games. Their negative attitude stems from the view that many game companies are focused on profit-seeking behaviors such as token issuance and NFT sales. In fact, according to a survey of Korean gamers, the negative public opinion of P2E and NFT games adds up to about 60%. Many feel that P2E and NFT games are more like in-game labor or speculation, and may harm the essence of a game. This is likely due to the fact that AAA blockchain games have yet to be released. In addition, issues such as gacha and lack of transparency regarding item drop rates have caused Korean game companies to lose the trust of gamers, which has also discouraged game companies from releasing tokens.
Nevertheless, it is clear that from Korea’s volume of in-game item transactions and their unique gaming culture, the majority of Korean gamers are less resistant to the concept of blockchain technology itself and are in fact attracted to the values of digital property rights, transparency, scalability, and ownership pursued by foreign blockchain games.
Survey results of Korean gamer sentiment regarding P2E games (n=6,324)
10. Strict Regulation on P2E Games
In 2022, the newly inaugurated President Yoon made a pledge to allow P2E games during his presidential election campaign, but it was excluded from his final policy manifesto. Currently, blockchain-based games are not allowed to be classified by the Korea Game Rating and Administration Committee (“GRAC”) because they fall under Article 32 (1) (7) of the Game Industry Act, which states that "the act of exchanging or arranging for the exchange or repurchase of tangible and intangible results (scores, prizes, in-game virtual currency) acquired through the use of game products" and Article 28 (3) "the act of promoting gambling by providing prizes, etc." Without GRAC classification, games cannot be distributed in South Korea.
Due to these regulatory hurdles, Korean P2E mobile games such as ‘Five Stars’ have been forced to shut down their services. In fact, the original intention of the Game Industry Development Act was to crack down on offline illegal gambling venues (e.g. street casinos). It is somewhat unfortunate that social problems that occurred 20 years ago are still hindering the development of this new industry. Currently, the Korean Prime Minister's Office has requested research on how to improve and promote the regulation of the gaming industry. However, due to it still remaining in early stages, the direction of regulatory improvement is still unclear.
Disclaimers
This report comprises information sourced from resources deemed reliable. Nonetheless, neither an explicit nor an implicit guarantee is provided concerning the accuracy, completeness, or adequacy of such data. We disclaim any liability for any losses arising from the use of this report or its contents. The conclusions and recommendations within this report, premised on information available at the time of creation, are subject to change without prior notification. Any projections, estimates, forecasts, targets, opinions, and/or perspectives expressed in these materials are subject to change without prior notice and may differ or be contrary to views expressed by others. This document is provided solely for informational purposes and should not be construed as legal, business, investment, or tax advice. It is recommended that you consult with your own advisors regarding these matters. References to any securities or digital assets are purely illustrative and do not constitute an investment recommendation or an offer to provide investment advisory services. Furthermore, this material is neither designed for nor directed at any investors or potential investors.
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