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Playing a New Game
South Korea's online gaming leader has discovered a way to get people to pay for an Internet-based amusement

A visit to one of Seoul's online game rooms might make you wish you had invested in a PC game company instead of that dying dotcom. Inside the rooms, called "PC Baangs," young, bleary eyed South Koreans duel with each other late into the night in mock-combat games like Diablo, Quake, and Starcraft. Talk about brand loyalty. Any company selling something that could inspire such single-minded dedication ought to be worth a forture, right? Well, not quite. The problem with the PC games business plan is the same faced by most software companies. You can only sell one game to a customer, and the only thing saving you from eventually running out of customers entirely is the occasional software upgrade. The situation is even worse in online game rooms, because one copy of each title gets loaded on one machine where it is accessed over a local network by scores of non-paying devotees, over and over again.

One Korean game maker, NCsoft, has a business model that even Bill Gates might envy. NCsoft figured out a way to get people to pay to play. Instead of selling its games in boxes, NCsoft puts them on the Internet and charges a subscription fee to access them through a website. The first three times are free — gotta get them hooked — but after that it will cost you $27 a month to get your game fix.

The jewel in NCsoft's crown, say analysts, is its two-year old Lineage game, which holds 35% of the market for domestic game software. The website has three million registered users who have at one time or another played Lineage. At the moment there are over 85,000 concurrent users who are on different monthly, quarterly or even annual payment plans. What most analysts seem to like about NCsoft — besides the fact that they have figured out how to generate renewable Internet revenue without depending upon advertising — is that the company is fast developing new variants of its game so that bored youngsters won't lose interest and move on to other sites. It's a formula that seems to work. NCsoft is one of the few Asian Internet companies that actually make money. Analysts project NCsoft will rack up $48 million in revenue this year and $92 million in 2001. With gross operating profit margins of nearly 50%, the company is expected to turn a $19 million net profit this year.

That's not a lot. But it's not bad for a three-year-old Internet company. Founder and chief executive Kim Tack Jin started the company in his small apartment and, since he owns about one-third of the company's outstanding shares — NCsoft listed on South Korea's Kosdaq bourse 12 weeks ago — he's estimated to be worth about $150 million. That's more than the top brass of some of the once-powerful old-economy chaebol.

Kim's wealth, like that of most Netrapreneurs, is an ethereal thing. Until October, NCsoft shares had been outperforming those of most other Internet companies, particularly the dotcoms. The IPO was priced at about $62, and shares subsequently rocketed to $134 despite a global loss of appetite for anything related to the Internet. NCsoft has been hurt by the recent wholesale selloff of technology, and by new problems brewing for the company. The Korean government's Information Communications Ethics Committee has been investigating whether its games are corrupting the minds of the country's youth. And copycat gaming websites are multiplying quickly.

Still, having seen my own portfolio of blue-chip Nasdaq tech stocks beaten down in recent months, I'm wondering if I couldn't do better with a network game company. NCsoft shares are selling for less than 12 times next year's earnings. That's an old-economy valuation for a company that is proving it's possible to make money in the New Economy. All NCsoft has to do is make sure those rabid fans continue to want to pay to play.

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