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additional services, such as audio-visual data, streaming video clips, real-time Internet
broadcasting, and online games (Yun et al., 2002).
According to Hausman™s (2001) study of the estimation of cross-price elastics of the
Internet infrastructure market, the broadband Internet market is asymmetrically and
distinctly separated from the narrowband Internet market. In terms of the characteristics
of data flow and traffic, the narrowband Internet connection is not complementary to the
broadband Internet market. That is, the narrowband Internet connection is incompatible
with data-intensive multiplayer online games.


Sense of Community

One of the most salient characteristics of the online game business is in its relatively long
life cycle of more than eight years (Lee, 2001; Themis Group, 2001). Ultima Online is
currently in its seventh year of live operations. It has more than 200,000 subscribers, and
consistently adds more subscribers each year. EverQuest reached its second anniver-



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Internet Economy of the Online Game Business in South Korea 293


sary in May 2001. It had more than 410,000 subscribers as of August 2001 and also
appears to be steadily growing. As a result, EverQuest and Ultima Online respectively
generate more than $U.S. 4 million and $U.S. 2.75 million per month (Bartle, 2001).
One basic question remains. What is the factor that consistently makes online game
players happy to spend $U.S. 15 ˜ 25 each month? According to a report from the Themis
Group (2001), past performance shows that there are at least two main phases in the
subscriber growth for online game services: the initial “try it out” phase and the second
“this is my home, come join my team” phase. Thus it is almost an axiomatic principle
among online game providers that players come for the game and stay for the “commu-
nity” (The Themis Group, 2001). In other words, players may be attracted to a certain
genre or style of game and try it out, but ultimately they remain because they make friends
and fulfill their need for social interaction within the game™s framework. There are also
other factors involved, such as the ongoing and persistent ownership of items and in-
game property, regular new features and an evolving storyline. But the “key” element is
the “social bond” that forms among game players.
In this context, the Themis Group (2001) suggests an interesting lifecycle model of online
game players. The stages consist of confusion, excitement, involvement and boredom
(see Figure 2). Among them, the third stage (involvement) is the longest subscription
period of the player lifecycle and is closely linked with game users™ strong involvement
with the online game community. If a game player becomes attached to an in-game micro-
community, he/she generally becomes involved in the meta-functions of the game, such
as an ongoing story plot and sponsoring team events. Players who move into the
involvement phase normally continue to subscribe to the game for a period of years. In
sum, one of the most important success factors in the multiplayer online game business
is constructing the feeling of community and belonging among online game users. In
terms of the value chain, while the conventional console and PC-based games have retail-
driven forms of the value chain, the multiplayer online game mostly depends on game
users™ subscription fees. In the online game business, consumer subscriptions generally
constitute about 70˜80 percent of the total revenues (The Themis Group, 2002). And, in
this case, revenues are highly dependent on the extent of the game™s community-oriented
structuring (in cyberspace) and the game company™s promotion of festivals, contests
and other meetings for subscribers (in the real world). All are important in evoking a sense




Figure 2. The ideal persistent online game player lifecycle


4 MONTHS ˜ 4+ YEARS
< 1 MONTH 2 ˜ 4 MONTHS 2 ˜ 4 MONTHS



INVOLVEMENT
CONFUSION EXCITEMENT BOREDOM




Source: The Themis Group (2001)



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294 Park


of cohesive belonging to a cyber-community among game players. Therefore, it is not
an unusual event, for example, in South Korea, for online game users whose animated
game characters married in cyberspace to “really” marry in the real world (Macintyre,
2001). Even the following case is quite pervasive throughout the country.


Last September Han Sang, a 14-year-old boy in Seoul, stole $35 from his
parents to buy sunglasses and other accessories. The petty thievery was bad
enough, but what really irked his dad was that none of the stuff he bought was
real. They were for the animated character, or avatar, the boy used as a stand-
in for himself on the Internet. Han was spending four hours each night hanging
out online with his friends and wanted his virtual stand-in to look as cool as
possible (Fulford, 2003).


At least in the online game business, the distinction between “real” and “virtual” is
drastically blurred, combined and contested. This process seems to have its own
economy. In terms of Jean Baudrillard™s (1983; 1988; 1998) notion of “simulation,” the
figuration of cyberspace as spatial simulacrum undermines the symbolic distance
between the real and the imaginary. In the age of a technology-based postmodern culture,
the semiotic equivalence between the signifying and the signified gives way to simula-
tion, which is “no longer a question of imitation, nor of reduplication, nor even of parody
¦ rather a question of substituting signs of the real for the real itself” (Baudrillard, 1983).
Simulation envelops the whole edifice of representation as itself a “simulacrum,” that is,
an imaginary construct that has no referent in reality, but is more real than the real (i.e.,
hyperreal). In the Baudrillardian epistemology, the cyberspace of the Internet as a
simulacrum is not a representational space of referents in reality, but it has “real”
spatiality with its own geographies almost unconsciously inscribed in such spatial terms
as “home” page, e-mail “address” and web “site.” The real spatiality of cyberspace is
especially salient and significant in the image-enhanced and user-intensive space of the
online game. At the same time, we should be careful not to overestimate the relative
autonomy of spatiality in the online game, not only because it cannot exist without the
network of a broadband-based Internet infrastructure, the game operator, and the
massive game uses in reality, but also because it is essentially inseparable from the
economic geography of the online game industry. It is in this context that Baudrillard
(1988; 1998) considers the notions of simulation, simulacra and hyperreality as the
postindustrial (or postmodern) cultural phenomena that have resulted in drastic changes
in the consumption sphere. For example, Baudrillard (1998) argues that consumers no
longer purchase goods because of real needs, but because of desires that are increas-
ingly defined by artificial images for a commercial purpose, which keep consumers one
step removed from the reality of human bodies. In sum, the online game business is
located at the frontier of the emerging broadband-based socioeconomic community that
creates a “third” economic space in-between “cyberspace” and the “real world.”




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Internet Economy of the Online Game Business in South Korea 295


NCsoft™s Lineage: The Bloodpledge
The online game business in South Korea has been one of the country™s most consis-
tently profitable, sustainable, and successful accomplishments in the midst of other
dot.com companies™ waxing and waning (IDC, 2001; Kim, 2001; Moltenbrey, 2003). The
online game has become in name and reality a national sport, frequently broadcast by
television stations and Internet Web sites in South Korea. A considerable number of
“professional” online game players visit Seoul from Australia, Canada and the U.S. in
order to win large amounts of prize money coming from online game tournaments.
Compared to the world game market (see Table 1), the growth of the online game business
in South Korea has significantly exceeded PC and video game markets since 2002 (see
Figure 3). The arcade game market had been the largest, but the online game market has
exceeded other types of game markets since 2002. Most online game companies estab-
lished in the last four to seven years are small-sized firms predominantly funded from the
venture-oriented capital. While employing a relatively small number of employees, these
South Korean online game companies have made high net profits and experienced a high




Figure 3. Korean game business market
(US$ bn)
700

600

500

400

300

200

100

0
2000 2001 2002 2003

Online PC Arcade Console


Source: NCsoft (2002).




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296 Park


growth rate in their sales. Domestic gamers account for about 80 percent of all registra-
tions, and foreign gamers make up the remaining 20 percent. Also, major South Korean
online game businesses have been expanding their services with success in Taiwan,
Japan, Hong Kong, China and the U.S.
Among the online game companies in South Korea, NCsoft, established in 1997,
accounted for about 40 percent of the domestic online game market in 2002. It is by far
the world™s largest online gaming network, with 3.2 million subscribers paying about
$U.S. 25 per month (Fulford, 2003) 3. This company was considered one of the most
successful venture businesses in South Korea in 1998, and since has expanded into
Taiwan, Hong Kong, Japan and the U.S. The company also aggressively pursued and
acquired the prominent U.S.-based online game companies ArenaNet and Destination
Game. It also established a strategic branch, NC Austin, in Texas in 2001. NCsoft™s
Lineage: the bloodpledge has been the principal propellant of the company™s rapid
expansion and growth in the global online game market. Figure 4 shows that the average
ratio of operating profit amounted to over 45 percent (77,115 million Korean won, or $U.S.
65 million) of the total revenues (154 million Korean won, or about $U.S. 130 million) in
2002. Most strikingly, out of the total company™s 154 million Korean won in revenues,



Figure 4. Revenues, operating profit, and net profit of NCsoft (2000-2003)




Reprinted from NCsoft (2002).



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Internet Economy of the Online Game Business in South Korea 297


the cost of goods sold, which includes the Internet operation and other services, is only
about 32 billion Korean won (20.8 percent). Hence, the company™s total gross profit in
2002 amounted to 154 billion Korean won (79.2 percent), which is nothing short of
incredible in terms of conventional Internet businesses.
NCsoft™s Lineage is a so-called “massively multiplayer online role playing game”
(MMORPG) in which more than 120,000 users simultaneously can gain access to the
company™s game servers and associate with other players. Set in the Middle Ages,
Lineage is a fantasy game in which each game player chooses to be a knight, wizard, elf,
or prince/princess along with other players. Lineage requires a high level of co-operation
as armies storm castles, platoons need to be organized, and charges planned and
executed in cooperation with other players. Lineage operates via multiple remote
computer servers in which users in different places can constantly meet new counterparts
literally around the world who are accessed via the Internet. Most importantly, Lineage
features over 50 different cyber worlds, and each of them is so large that it takes over six
hours for an animated character just to walk from one end to the other. The cyberspace
in Lineage is not a metaphor but a reality. In this way, according to Taek-Jin Kim, the chief
executive officer of NCsoft, “the game has evolved into a new society in the virtual world”
(Macintyre, 2001).


Growth of the Internet Sector in South Korea

The necessary condition for the online game business, as noted above, is a broadband
infrastructure and Internet environment favorable to dot.com companies. Either fortu-
nately or strategically, NCsoft™s Lineage was first launched in 1997 when the South
Korean government vigorously began following the Asian financial crisis to seek new
ways to implement successful economic restructuring projects. These projects include
radical rationalization of labor-intensive industries, deregulation of governmental eco-
nomic policies, decentralization of large conglomerates, and strategic facilitation of high-
tech venture businesses (Kim, 2000; Shin, Chang and Belsey, 2002). Although South
Korea is still struggling with considerable economic problems such as continuous
stagnation and high rates of joblessness, neoliberal governmental policies and institu-
tions in the restructuring process have strongly promoted the country™s economic
constitution into a more flexible, liberalized and knowledge-based structure (The Econo-
mist, 1998; Kim, 2000; Bremner and Moon, 2002; Shin, Chang and Belsey, 2002).
Of all these economic transformations and initiatives, one of the most striking successes
is South Korea™s rapid achievement and its pioneering position as one of the most wired
(and wirelessly-wired) countries in the world, all the direct result of its elaborate Internet
and telecommunications infrastructure. It thus comes as no surprise to witness the
miraculous success of NCsoft™s Lineage to the South Korean digital economy. Accord-
ing to the Korean Network Information Center (2003), South Korea in 2002 had 25.6 million
Internet subscribers, equivalent to 58 percent of the country™s total population. Among
these subscribers, 10.2 million have broadband Internet connections with 54 percent
having xDSLs (x-Digital Subscriber Lines) and another 34 percent high-speed cable
modems. Thus, South Korea had the world-highest 20.8 broadband Internet penetration



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permission of Idea Group Inc. is prohibited.
298 Park


per 100 inhabitants (OECD, 2002) 4. Furthermore, at least 80 foreign companies have set
up research sites in Korea to tap into this gigantic broadband laboratory (Fulford, 2003)5.
South Korea is one of the most electronically wired countries on the planet, with cheap
broadband access available almost everywhere (Lee and Choudrie, 2002; Internet
Magazine, 2003). In truth, South Korea is now “the powerhouse in broadband and
wireless Internet markets” (Rao, 2001), “the bandwidth capital of the world” (Herz, 2002),
and “tech™s test market: a hotbed for anything new that™s digital or online” (Moon and
Stone, 2003).
In a broad sense, NCsoft™s success should be contextualized within the “national
innovation system” (NIS) (Nelson, 1993; Lundvall, 1992; Wijnberg, 1994; Leinbach and
Brunn, 2002). National laws, policies and institutions in conjunction play a major role not
only in the construction of the broadband Internet infrastructure, but also in promoting
domestic capital to invest in small-size and high-tech intensive venture businesses such
as NCsoft. In this sense, the South Korean government is considered one of the most
interventionist and aggressive in the world in superseding the narrowband market with
broadband Internet networks (Rao, 2001; Herz, 2002). Since the mid-1990s, the South
Korean government has implemented a series of three master plans for the development
of information and telecommunication industries. First, in August 1995, the South Korean
government enacted the Framework Act on Informatization Promotion, established the
first Master Plan for Informatization Promotion in June, 1996, and established a national
organization for planning and implementation of the goals outlined in the Master Plan.
The plan presented ten key projects for the realization of an “advanced information
society” by the year 2010 (MIC, 2002). Second, in March 1999, the government estab-
lished “Cyber Korea 21 Project” as the more concretized blueprint for the new information
society of the 21st century. The project has become one of the highest priorities among
principal structural adjustment programs since the 1997 financial crisis. Through these
plans, the government brought South Korea closer to the realization of the information
society with the construction of an advanced information infrastructure. More recently,
the government launched its third master plan called “E-Korea Vision 2006,” which was
implemented primarily to cope with four current issues: (1) slow spread of informatization
in the public sector, (2) low IT investment in the SMEs (i.e., small-and-medium enter-
prises), (3) the adverse effects of information and communication technologies such as
computer viruses, hacking problems and privacy infringement, and (4) insufficient
investment in the R&D sector of advanced information and telecommunication technolo-
gies. Especially, in regard to the broadband Internet infrastructure, its policy objective
is to have broadband connections of 155 megabytes to five gigabytes available nation-
ally by 2005 (MIC, 2002; 2003). South Korea has also made direct investments of $U.S.
600 million to promote its digital contents industry, and is scheduled to add an additional
$U.S. 30 billion into its broadband infrastructure by 2010. These are the results of a
combination of government and private investments along with the strong cooperation
with the R&D sector such as universities and research institutes (Adamson, 2003; MIC,
2003). As a result, xDSLs and cable modems provide service to 94.7 percent of all Internet
connection subscribers in 2003 compared to only 3.3 percent using dial-up modem (see
Figure 5).




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Internet Economy of the Online Game Business in South Korea 299


Figure 5. Internet infrastructure in South Korea

subscribers
7,000,000


6,000,000


5,000,000


4,000,000


3,000,000


2,000,000


1,000,000


0
1997 1998 1999 2000 2001 2002 2003
97,325 2,353,314 5,178,323 6,386,646 6,483,463
xDSL
173,662 1,556,072 2,936,280 3,717,173 4,000,758
CATV
108,733 121,965 93,775 93,685 90,935
ISDN
6,186 13,843 38,938 73,058 93,388 98,308 83,226
Leased Line
31,398 39,959 36,856
BWLL/WLL
317,329 754,680 951,989 1,018,155 622,876 479,837 366,279
Dial-up



An examination of the sales breakdown of NCsoft™s Lineage (see Figure 6) reveals more
about the broadband-based economy of the online game business. While narrowband-
based sales are minimal, broadband-based PC-cafes and households account for the
most of the company™s total sales. From 1998 ˜ 2000, PC-caf©s in particular were the most
important source of NCsoft™s revenues 6. They were mostly privately run facilities that
provide super-speed Internet access to those households not equipped with xDSLs and
cable modems. In 2002 the number of PC-caf©s in South Korea was about 24,000,
ubiquitous on almost every street corner in built-up areas and nearby commercial
buildings (KNIC, 2003; MIC, 2003). The PC-caf© is not just a place for Internet access,
but also a convenient place for meeting friends and socializing with other online game
users. For this reason, despite the rapid growth of the home broadband market, PC-caf©s
still remain important cultural and social places for Internet users (Lee and Chourdrie,
2002). Finally, as NCsoft began to expand its services for Internet users overseas, the



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300 Park


Figure 6. Sales breakdown of NCsoft™s Lineage: The Bloodpledge
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

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