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Free-to-Play Is Not What You Think It Is, Says Nexon CEO Owen Mahoney (Q&A)

"Please stop putting out junk."

Eric Johnson

One month into his new gig, Nexon CEO-elect Owen Mahoney has a plan for bringing the Asian gaming giant’s free-to-play games to Western audiences.

Nexon captured three of the top 10 spots in top-grossing PC games worldwide last year, but its profile outside China, Korea and Japan is fairly small. As Mahoney told Re/code in a Q&A at the Game Developers Conference earlier this week, not all of the company’s big-in-Japan games will work everywhere. But Nexon has made a series of investments in American companies like Shiver Entertainment, Rumble Games, SecretNewCo and Robotoki. Nexon’s latest game is Legion of Heroes, a Korea-only hardcore MMORPG for Android.

This interview has been lightly edited for length.

Re/code: What’s the first step toward finding a better foothold in the West?

Owen Mahoney: We think there’s a couple things. We’re going to make immersive games that are properly done free-to-play. Free-to-play does not mean “trick your customers into paying you money” or “give them something that is potentially free or supposedly free but, in fact, in order to really enjoy yourself, you have to pay money.” That is not free-to-play. Going after whales is a fundamental misunderstanding of what that really is. Our objective is to bring really good, immersive, synchronous online gameplay to the West. We have to have an infrastructure, an operating team that can execute that as well as we do in Korea, China and Japan, and also we have to have the types of IP that really resonate with Western users.

And that may be different from the stuff that clicks in Asia.

Exactly. There’s some IP that transfers well between regions, like Pokémon or League of Legends or Starcraft. And then there are some that don’t transfer well, especially if the back fiction is based off of Chinese lore or Asian fiction, stuff that you and I didn’t grow up with. We want to work with developers here who (a) are Western and (b) really appreciate free-to-play and want to study it the way that it’s done well in Asia. A lot of these guys have been to our studios and talked to our teams multiple times since we made our investments.

Will Nexon publish those studios’ games?

We haven’t released too much about the distribution arrangements, but yes. The idea is that we’ve got a big platform worldwide and can help ensure that a good game is very successful around the world, and also help them tune it to free-to-play so it can last a long time. A lot of our games have been around for five, six, seven, eight years, and still growing.

How much of the game needs to be “done” when it first launches? Is there a rule for what’s needed to hold people’s attention?

Usually we’ve got a game under development for two to three years with a team of five to 50 people, and then we launch it into the market and see how people respond to it. If the retention is poor, or we hear a lot of complaints, we’ll put it on a watch list and cut it off if we don’t think it’s going to come around. If we think we have a thesis to make it good, then we’ll keep on tracking it with live development. The good news is, when we introduce a game, we haven’t spent hundreds of millions of dollars with hundreds of people. Once it’s out the door, then we transfer it over to our live development team and they keep on building the game. Our new game development teams are trying to be as creative and different as they can, but our live development teams are doing a lot of the bulk of just putting content into the game.

They’re the ones reacting to the data of who’s buying what, how much time players are spending, and trying to get those numbers up?

They’re really solving not so much for revenue but for longevity. So they’ll build up the story, they’ll add characters and character classes. They’ll build items to sell.

Everyone says gaming, especially on mobile, is a rapidly changing industry. But how much do outside industry trends affect what you do with live game development?

A lot of what people describe as change, the changes I hear about a lot, are changes in platforms, changes in gameplay styles that people like and don’t like, and changes in marketing. Why is it in the game business that we insist on talking about everything but the game? Have you noticed that? It’s like, here’s the platform, and here’s Oculus, and here’s consoles, and here’s marketing on the iStore, and why are marketing costs going up? Why not ask, what’s the best game out there right now? What can I not stop playing because I love it so much? What kind of game do I want to build for myself and my best friends?

Maybe people don’t talk about specific games as much because the answer changes very quickly. The PS2 was around for nearly 13 years before Sony stopped making it, whereas my favorite game this week might be different from what it was last week.

I think the reason for that is, for some reason, on mobile devices, everybody insists on making casual games. Casual games, by definition, are easy to learn and easy to master. That’s why you have massive legions of casual gamers, but it’s also why casual games go up like a rocket ship and then drop like a falling rock from the stratosphere. We want to make the kind of games that you want to stick around for. We write novels, we don’t write comic books. We make feature-length movies, we don’t make five-minute YouTube videos or commercials. People don’t suddenly have a short attention span just because they happen to be playing with their device; they actually want to have a deep experience, they just want to have it with them more often.

Are you competing with more casual games, like Clash of Clans or Flappy Bird?

I think we’re proving that we’re not. What I want to do is build games that I want to play. The question for my studio is, “This game that you just showed me — do you want to play this more or less than Starcraft?” If the answer is less, then the question is, “How are we going to make it so you want to play it more than Starcraft?” If the answer is, “I can’t do it,” then let’s cut it off and move on to something else. I read that fully a third of all games being approved on the iOS app store in the last month or month and a half are Flappy Bird clones. What are we thinking as an industry? It’s embarrassing.

I guess the argument is that cloning something that’s already succeeded is a less risky content bet.

No, actually, making junky games is a risky strategy. Making great games is a much lower-risk strategy, even if you have fewer great games. If you’re confident in your ability as a creator, you make only stuff that you’re in love with. I used to get lectured by business development people saying, “No, you need to have a portfolio strategy.” Portfolio strategies are great when you’re applying physics to finance and you’re a know-nothing investor, but when you’re a know-something investor, as Warren Buffett will say, you want to put a few eggs into a few baskets, or all your eggs into one basket and then watch that basket. That’s true in finance, and it’s even more true in a creative field.

Does the existence of companies that copy others’ games poison the well? Even if they’re casual and you’re more immersive or whatever, even if it’s totally different types of games, does that hurt that perception of a free-to-play game from Nexon?

I think there is some danger to that. That’s why I say pretty often to people in the games business: “Please stop putting out junk.”

Good luck with that.

Well, you got into the business for a reason. You love games. You probably can get paid more in cloud computing or security. So, stop making junk and do what you love to do. And if you don’t like the company where you’re currently making games, make your own company, or go to a company that appreciates your talents. We could all get paid more in another industry. I think free-to-play is the best value proposition for customers. I can play a game for years without ever buying an item. If I want to get from point A to point B in the game world on a horse instead of walking, I can buy the horse, and I’m okay with paying a couple bucks for the horse. But I can also really enjoy the game without paying. Things like that are how you do free-to-play. The other thing that is so different about our space versus casual and badly done free-to-play is that people will stay for years on end, and you have to super-serve those users. You don’t get flashy numbers in the beginning, you don’t explode on the scene, but you build up this revenue base because you built up this user base. The stuff we introduce in 2014 won’t even make a dent in our P&L, in terms of our top line. But four, five, six quarters out, then you’ll really notice it. That’s hard for Western companies, especially venture-backed game companies, to understand.

And a lot of VCs don’t want to invest in games without a track record, right? They can’t see six quarters down the line, but they can see the last quarter.

Or it’s even worse if you’re a public company. You’re a public company in the games business, and you want to get into free-to-play. I’m going to put a lot of money into the development over the years, and then I’m going to see the outcome of that a couple years after launch. That doesn’t seem so appealing. All you’re doing in the meantime is compressing your margins. That’s a hard thing to explain to your public equity investor base.

To reach both a Western audience and preserve Nexon’s traditional core audience in Asia, is mobile the most important platform, or do you need to be on others as well?

We have a theory, but we’re not sure we’re right. How we think it plays out is: Your iPhone or your Android device becomes so powerful, it becomes your PC. If you want to type in it or use it as a productivity device, you can speak to it or use a keyboard that’s connected by Bluetooth — I do that with my iPad a lot. If you want to have a big game console experience, you have a hot-swapping Bluetooth that outputs on a TV so we could be playing a console-quality game on the TV, and it’s driven by a GPU that’s in your device. That’s absolutely where Google and Apple and Samsung and probably Amazon are all headed. We don’t think it’s going to be too long — we think it’s going to be like two years. Today, 20 percent of our revenue comes from mobile worldwide, but in the future we don’t think we’ll be counting the difference. If you’re Yelp or Facebook, the difference between PC and mobile matters a lot because location-based stuff really matters. In our business, we don’t think it really matters.

For free-to-play games that aren’t casual, do you see platforms like the PlayStation 4 and Xbox One as viable outlets?

I think when you’re talking about free-to-play on consoles, you’re talking about two different things: One is free-to-play, and one is consoles. Any time you’re talking about a platform, you’re usually talking about a walled garden. I think the likely installed base of a Sony device or a Microsoft device, it’ll probably hit about 50 million units, 60 million units. The rumor I heard, at least as of a year ago, is that there are about 60 million units of the Kindle Fire. And we know that we can make a very nice business out of a 100-million installed base of devices. It’s not a business that does well with small numbers. And it’s not a business that does well with a lot of rules and approvals and that sort of thing. The more open the platform is, the better off a well-architected game is going to do.

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