"Underestimated" by investors, the South Korea mobile games market is expected to grow at a double-digit rate well into 2017 with the uptake of smartphones and opening up of appstores by operating system (OS) vendors.
According to a report Monday by Nomura, the research firm said it was "bullish" about South Korea's mobile game sector and predicted the number of smartphone game users in Korea would grow at a compound annual growth rate of 34 percent, from 10.2 million in 2011 to 33.1 million in 2015.
The domestic mobile game market would experience double-digit yearly growth from 2011 to 2017, with the "growth stage" stretching the first four years. This year, the local mobile game market was expected to increase by 60 percent year-on-year to reach 344 billion won (US$305.5 million), Nomura said.
The yearly growth in 2013 was predicted to be at 38 percent year-on-year, reaching 475 billion won (US$421.8 million), while the market in 2014 would grow at 26 percent year-on-year to reach 600 billion won (US$532.8 million), the research firm noted.
From 2015 to 2017, the Korean mobile game market would enter its "maturity stage" growing at 18 percent, 15 percent and 12 percent in 2015, 2016 and 2017, respectively.
According to Nomura, investors had underestimated the potential of South Korea's mobile games market because of the late introduction of smartphones into the market. However, the country had "rapidly caught up" with the world's smartphone ecosystems, Nomura said, pointing to the growth of Samsung and LG's smartphone portfolios. It added that South Korea boasted the world's "fastest ramp up of long-term evolution (LTE) service".
The mobile phone game market also had taken off in Korea much later compared with overseas markets because of government regulation. Korea's regulatory board was in conflict with mobile OS vendors, such as Apple and Google, over prescreening content in their appstores. Mobile users were only able to access the "games" category on appstores maintained by carrier-based appstores.
However, this issue was resolved in November 2011 following months of discussion, said Nomura. Apple was allowed to operate its App Store starting Nov. 2, while the Google Android Market did likewise on Nov. 29.
Shift from PC to mobile games
The research firm also noted a shift from PC games to mobile games in South Korea. Based on its projections, mobile game playing time had now reached 19 percent of PC game hours from almost zero two years ago.
In 2011, spending in Korea's mobile game market was at 215 billion won (US$190.9 million) which was about 10 percent of the size of its PC online game market, said Nomura. Spending on mobile games was expected to increase to 710 billion won (US$630.5 million) in 2015 to account for 26 percent of the modestic PC online games market.
Nomura noted that the South Korean mobile game market would also see "rapid transition" to a freemium business model in smartphone games. Local mobile game developers were moving away from paid downloads to in-game microtransactions, it said.
Using Korea mobile game developer Gamevil as an example, the report said feature-phone game revenue for the company dropped from 71 percent in the fourth quarter of 2010 to 13 percent in 2011 during the same period. In contrast, the developer's in-game item sales grew from 48 percent of total revenue in fourth-quarter 2010 to 80 percent of revenue in fourth-quarter 2011.