Auto Assault Brings Down NCsoft Earnings

August 04, 2006 | By: James Brightman

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Crash and burn. Poor sales of the MMO Auto Assault took a toll on publisher NCsoft in the second quarter as the company swung to a loss. Sales were up, however, and the publisher seems to have achieved a nice balance with its sales on the global market.

Seoul, South Korea-based NCsoft has reported its second quarter fiscal results, with sales up but earnings way down. The leading online games publisher saw sales increase 10 percent sequentially from the last quarter to KRW (Korean Won) 85.5 billion ($88.6 million). However, operating income was KRW 1.7 billion ($1.8 million) and pre-tax income came to KRW 4 billion ($ 4.1 million), a sequential decline of 81 percent and 61 percent, respectively. On a year-over-year basis, sales increased 7 percent while operating and pre-tax income declined 90 percent and 79 percent, respectively. The result was a net loss of KRW 200 million ($207,000) for Q2.

The main drag on the company's bottom line was attributed to sluggish sales of the vehicular combat MMO Auto Assault, which was released in both North America and Europe during the second quarter. The game's poor performance led to a one time write-off of approximately KRW 12.6 billion ($13.1 million).

While the Auto Assault experiment clearly failed, NCsoft's other MMO properties continued to do well for the company. Second quarter sales at the company were driven by the launch of Guild Wars Factions and the continued stable sales base from NCsoft's Lineage and Lineage II. Thanks to Factions, in Q2 the Guild Wars franchise surpassed two million account activations worldwide and became the number one game in both North America and Europe. (You can read more about Factions and the success of the Guild Wars franchise in our recent Chart Toppers.)

Unlike most publishers, NCsoft has provided a revenue breakdown on a game-by-game basis. Lineage and Lineage II garnered sales of KRW 28.5 billion ($29.5 million) and KRW 28.4 billion ($29.4 million), down 5 percent and 3 percent respectively from the previous quarter and unchanged year to year. City of Heroes/City of Villains generated KRW 5.5 billion ($5.7 million), a quarter to quarter decrease of 15 percent and down 5 percent year to year. Sales of Guild Wars were up an impressive 160 percent quarter to quarter, increasing to KRW 16.4 billion ($17 million), up 71 percent year-over-year.

Finally, looking at the company's sales by region, overseas sales have seen strong growth while domestic sales have declined slightly. Domestic sales amounted to KRW 52.9 billion ($54.8 million), a 4 percent drop from the previous quarter and 3 percent year to year. Sales in North America and Europe were up 39 percent and 144 percent to KRW 15.7 billion ($16.3 million) and KRW 9.3 billion ($9.6 million) respectively. In fact, almost half of NCsoft's sales have been overseas. Korea had 55 percent of total sales, while North America had 18 percent, Europe had 11 percent, and Japan had 9 percent (royalties were responsible for 7 percent).

Currently, NCsoft is getting ready for a simultaneous global launch of the third campaign in the Guild Wars franchise, Guild Wars Nightfall, which is slated to hit the market sometime later this year. NCsoft also expects to start closed beta testing within the year for its next huge MMORPG project Aion.