Owen Mahoney is a gamer. The chief executive of Nexon, the Tokyo-based online gaming giant that pioneered free-to-play games, is unhappy with the state of the industry. He says that for the past five years, creativity hasn’t been rewarded.
Companies that clone other titles or figure out how to rip off gamers with free-to-play scams are getting rich, while those that are truly creative are getting lost. That’s one reason why Mahoney, who became CEO of Nexon in March, has been seeking out seasoned game creators. He has invested in Western game comapnies such as Rumble Entertainment, John Schappert’s Shiver Entertainment, and Brian Reynolds’ SecretNewCo.
Rather than backing console games, Mahoney is putting money into digital games such as mobile or online game startups.
We caught up with Mahoney at the Electronic Entertainment Expo video game trade show in Los Angeles last week. Here’s an edited transcript of our conversation.
GamesBeat: What’s your view of E3?
Owen Mahoney: I want to see more games that blow my mind with their differences. I love multiplayer games — we make multiplayer games exclusively — but every once in a while, I’ll see a single-player game that I really love. I was playing Transistor the other day and really just — I don’t know if you’ve seen it. It’s by the guys who made Bastion. It’s just beautifully done. It has great art, great music, great sound design, original gameplay. I didn’t like everything in it, but I liked most of it. I wish our industry would do more of that.
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That’s what we’re trying to do. We continue to do different things. You’ve seen our announcements. We’ve done more investments and publishing arrangements of the kind we did at the end of last year. We want to keep pushing that. The stuff that you’ll see us put out in the next few months—We’ve been fairly quiet. But it’s going to start to see the light of day in the last couple of quarters of this year, and into next year.
You may have noticed Legion of Heroes, one of our mobile games, doing very well in Korea. It’s in the top 10, which is a big deal there. It’s one of the only top-10 mobile games that’s not on Kakao. The only other one is FIFA Online Mobile, which is through our partnership with EA.
You’ll see us do more of those types of things. They won’t always be successful. When you push the line creatively and try to do new things, it won’t always resonate, but that’s what we’re trying to do. It comes from a consensus in our organization that we want to be fun and different. Those are the big things for us.
That’s the viewpoint from which we look at E3, which I’d say is very much as a consumer. I just wish we would try things that are very different.
GamesBeat: The investment strategy looks, from the outside, like putting money into Western developers that people will recognize. The names are familiar names.
Mahoney: That’s not the strategy per se. Not all the companies that we put money into or partner with are well-known companies. We’ve passed on some that are well-known. Our desire is to look at what they’re working on, look at the philosophy that guides them, and ask if that philosophy is consistent with ours. If it is, we’ll want to lean into it.
Again, our philosophy is that if you’re trying something different from what’s out there now, and if the gameplay you’re going for is fun, then we get interested. From there, we go through an iterative process that simplifies down to asking ourselves, “Is this a game we’re going to care about in five, 10, 15 years?” If the answer is yes, we’ll invest and want to make it happen.
GamesBeat: With the investment timing, it looks like you can do this with a little more confidence, knowing that something good will come out. For a while mobile seemed a little too much like the Wild West. It seemed unpredictable where the hits were going to come from. Some things have stabilized now. The top 10 grossing companies on mobile are staying the same. The top downloads are changing, given certain viral successes, but who’s making money is becoming more static.
Mahoney: That may be the case. We’ll see how that goes over the upcoming months. My belief is that we’re coming out of what I’d consider to be five very bad years in the games industry. The bad years started around 2007. There was this false dichotomy in the business. You had the big established publishers – not just in the west, but also in Japan – where they had a hard time understanding what the impact of online would be on their business. Even when they were forward-thinking and pushing into online, they had a hard time learning a new set of skills and how to make a synchronous online game work. To way oversimplify what happened, they put a lot of resources into graphics fidelity.
On the other hand, you had a lot of people coming out of the Facebook world and into the mobile world who didn’t care about games at all. They were on record as not giving a damn about gameplay and game quality. The founders of these companies were not game players themselves. We all know who those were. What they never tried to do was ask themselves, “What’s a good game? What inspires me? What’s fun to do?” They might have asked, “What’s addictive?” But that’s different from what’s fun.
Then they thought that they could reskin the same gameplay into five different games. They thought they could copy someone else’s game and bring a large audience to it. They found that their revenues skyrocketed, but they were hitting the afterburner the whole time. They fell to earth when people got sick of dumbed-down games. In private conversations they’ll admit that those are the kinds of games they made.
As a consumer, you were caught between one and the other. Some companies went right down the middle, in various parts of the world, and did things that were fun and different. They focused on fun. We put out several games along those lines in Asia. We didn’t do as much in North America. In the west, Minecraft is an example of a game that was very different and very fun. But there weren’t a lot of those. The real money, the things that everyone paid attention to at trade shows, went into this dichotomy.
Back at EA, I used to get lectured by business development people about how we have to have a portfolio strategy of games, because we have no idea what’s going to do well. I said, “You have no idea what’s going to do well because you’re not a gamer and you don’t care about games. You have no confidence in your ability to make good games.” How did we let our industry get taken over by the BD people? I was a BD person at the time, but at least I played games.
I feel like maybe there’s light at the end of the tunnel. A few of us in-game companies are really focused on gameplay. That’s where we’re focused.
GamesBeat: When you say “five bad years,” you don’t mean about profits or revenues, I take it? There was a lot of interesting growth in that five years.
Mahoney: The core of our business is a creative business. We make our money by making art. You have to ask yourself, in this industry, are you making good art? When I say five bad years, I think there was precious little good art coming out of the industry. Not across the board. There was some awesome stuff. But that’s not where the majority of the people you would see in these halls were focusing their time and attention.
It’s certainly not what the investors were asking about. They weren’t asking, “Where is the creative, good art coming from? Where is the next beautiful game coming from?”
GamesBeat: Creative people weren’t being rewarded?
Mahoney: I’d say so. They certainly weren’t being appreciated, in the halls of a lot of companies. I’d also argue that a lot of the big traditional publishers, on the one side of that dichotomy, they struggled. They went through multiple rounds of layoffs. They had moribund revenue growth, if any.
On the other side, the Facebook social game crowd, there was a lot of growth, and then it flamed out and crashed. Of the game companies that were big on that side of the fence five years ago, how many of them exist today in any form? One, I think, and that’s Zynga. The others were purchased and shut down, or purchased and radically stripped, or they went out of business. Those hot up-and-coming companies of a few years ago did not end up having sustainable businesses at all. That indicates to me that our industry lives or dies based on the quality of its creative output. That’s the lesson of the last five years.
It’s hard to do that, right? It’s a lot easier to talk about buying revenue, about trends, about what game is popular this month. What’s exceptionally hard to do, and what our industry has to give a lot of respect for, is the creative person, the game developer who is not asking those questions. Instead, they’re asking, “What is fun? What’s a neat idea? What’s something I can go explore and turn into a game that all my friends in the industry will love?” A few companies are doing that.
GamesBeat: What do you think about global competition? When one company tries to out-think another, moving from one stronghold to another. On a broad level you guys are an Eastern company trying to move into the West, and an online company moving into mobile. Activision has done a good job moving into the toy business. Everyone’s trying to expand into the MOBA genre. How do you apply some of that thinking about the artist to what then becomes a good direction to put a company’s resources toward?
Mahoney: Talking about east versus west, there are certainly gameplay taste characteristics that are different. In many cases that exists. In some cases it doesn’t exist at all. What we’re trying to do, when we think about the west, is to merge what we know about online games and creating a user base and building it up over years, and doing free-to-play in the right way. We want to bring that knowledge and do free-to-play right in the west. There are terribly few examples of that being done well in North America and Europe. That’s an opportunity.
In terms of mobile versus online PC, ultimately we think the platforms converge. We’ve thought this for a couple years now. Two years from now, your mobile device is your PC. You choose your input – keyboard and mouse, screen, voice, whatever – and you choose your output, whether it’s a small screen or a big screen or Google Glass or Oculus. You have a la carte input and a la carte output, but your computing device is the mobile device.
There’s no necessary difference between a mobile device and a PC in terms of what you do. The computing power is almost there in the mobile device, to be able to deliver and render a really good game with thousands of players in a synchronous environment.
GamesBeat: Tell us some details.
Mahoney: Even a few months ago, there was a strong belief that if you’re on a mobile device, you have to deliver a different type of game. I used to hear – this is from game publishers – that for some reason, even hardcore PC gamers, when they pick up a mobile device their IQ drops 50 points and they want to play a really simple game. We’ve never felt that way. In fact, we think we’ve proven in Korea, with FIFA Online Mobile and Legion of Heroes, that you can deliver a deep, rich experience that you might want to sit on your couch and play for hours and have very few concessions, if any, to the screen size. You can just deliver a really good role-playing game.
I did this exact thing with Legion of Heroes. I was playing in a traffic jam on the way to Incheon airport from my office in Seoul. It took me two hours to get there, and I was playing Legion of Heroes the whole time, on a Samsung Galaxy. That’s where we intend to go.
On competition, I believe that when I get more engaged in playing a game that I really love, it makes me a lot more likely to play another game. This gets borne out all the time in the numbers in Korea and around Asia. If a great new game comes out that’s not from us, net, we’re helped, not hurt.
That gets recapitulated in my own individual behavior. When I played Hearthstone, I really liked it a lot. I thought it was really well-done. The Blizzard guys executed beautifully on it. But it also made me want to go play Magic: The Gathering again, the physical card game, just because I became engaged in how I was playing. I really enjoy it when that happens. I think most people who enjoy games as an art form react the same way. We’ve seen this in the numbers for our individual games.
I’m sort of a history fan. I was playing Europa Universalis IV. I found it so hard to play, but I was coming off Civ V, which I play with my son. I really love Civ V. Now I’ve turned the corner, and I really like Europa Universalis. But the fact that I was playing Civ V a lot with my son was what drove me to it. That happens a lot in the games business, I think.
GamesBeat: Do you think there’s a lot of that kind of multigeneration game-playing happening? The whole Halo: The Master Chief Collection game from Microsoft reminds me of that. You could play Halo with your … let’s say your older-than-13-years-old kids.
Mahoney: This will date me, but I just got an Apple IIc in Japan. Nexon’s founder owns something called the Nexon Computer Museum. The buyers at the Museum got me an Apple IIc and an original NeXT cube, 1.0, with the optical drive and all that. Anyway, on the Apple I just got Choplifter, which was this great game that I played as a kid. It’s still one of my favorite games.
GamesBeat: They’re coming back, games like that.
Mahoney: Some people love the look of 8-bit. Choplifter wasn’t even 8-bit. It wasn’t even color. But if you look at something like Fez, that was an awesome game.
GamesBeat: What happens when a gamer gets to be the CEO?
Mahoney: You get to decide that you care first and foremost about game customers and game makers. Everyone on my staff, everyone who’s a direct report to me is a heavy gamer. It’s a quid pro quo for working in my company. We spend a lot of time talking about game quality. When I have studio reviews, the game teams talk about—we do very little, if any, Powerpoint. We do a lot of talking about whether a game is good and different, how it’s going to be fun, how we’re going to care about it in 10 years. We do very little talking about everything else.
The other aspect is that we need to be very clear with our investors. We are a public company. Our investor base is very important. You’ve probably seen our investor site and our communications with them. But they need to be on board with that as well. If they’re looking for a company with a business model where you copy games or a business model where game makers and game consumers don’t really count, we’re not their stock. Sadly, it’s relatively rare to see that in our industry, to see a company that’s that emphatic.
When I look at companies that we admire in the creative industry, they’re very clear about what they are and what they’re not. I had a conversation a few months ago with a group of developers in our company who were talking about the need for fast follower and the need for copying games that were done by other companies. We shut off that conversation very quickly and said, “If you’re not making a game that’s about the opposite of fast follower, about doing something very creative, this isn’t the right company for you.” That’s helped everyone who’s an employee understand what we stand for. It’s not for everyone, but we think it’s the way you make a good game company.
GamesBeat: There are few examples of companies that make hit after hit.
Mahoney: If you look at Pixar, I would posit that what made them a great film studio was this absolute insistence that they are an art form. You can’t just shovel out junk. That might work for one or two movies, but it’s not going to work consistently over a period of decades.
I think the point for us is just to be really clear about what we will and will not do. If we meet next year at this time, hopefully you’ll have seen a series of games coming out that reflect that insistence on quality.
What you have to do in our business is be okay with failing financially, but not okay with failing creatively. My message to my team has been, if you try something and we all like it internally, but it ends up failing financially, I’m okay with that. If you put out something that’s junk, then it’s going to be a very hard discussion.
GamesBeat: What do you think about the mixture of old game companies and new game companies these days? What’s going to work with the combination of these two groups?
Mahoney: In M&A, do you mean, or in the industry in general?
GamesBeat: There are these combinations that are likely to happen. Stats show that Asian game companies were the biggest buyers of game companies for the last two years.
Mahoney: The thing that people forget about M&A in our business is that, more than anything else, it’s a cultural exercise. It’s not a finance exercise. There’s a big area of finance, but what you need to think about first and foremost is compatibility of cultures. That doesn’t necessarily mean Asia versus U.S. culture, east versus west culture. It’s what your cultural beliefs are about games. You can have a game company in Palo Alto and a game company in Los Angeles that are practically next door in terms of geography, but they have vastly different cultures. That happens just within the San Francisco Bay Area.
The real question in the games industry is, what do the people who are responsible for the company believe about their industry? What do they want to do? What we get on the lookout for is people who have a lot of passion about making great games. I sound like a broken record here, but sadly it’s not said enough in our industry.
Making great games, delivering those great games in a reasonable time frame — you get a lot of people who want to make great games, but they aren’t able to finish it and deliver it – and caring deeply about building something you’re going to be proud of. There’s not a lot of them, but those companies are all over the world.
What gets tricky in big M&As, you end up dealing with big prices, but then you also deal with folks that are—A lot of those big companies have cultures that are effectively left over from a long time ago. It depends on how they pursue the industry, how they think about it, how they think about the future of their company.
GamesBeat: The whole idea of free-to-play and how well it plays here at E3 is interesting. For one game, the publisher said it’s going to be affordable, but nobody could commit themselves to saying it’s a free-to-play game. Then Sony said, “We have 25 free-to-play games, and you’ll see them all in one minute!” It doesn’t seem like free-to-play and the console game business are mixing much.
Mahoney: It’s interesting. You don’t get those kinds of conversations in the east, where there’s a lot more gamers. They’re not confused about what free-to-play is at all. They’ve been doing it for more than a decade – China, Korea, southeast Asia, our big markets. We were talking before about those five bad years. One of the things that happened in those years is, quite literally, some of the companies on the Facebook side said, “I’ve been to Korea once. I know what free-to-play is. It’s that thing where you trick people into paying for stuff, but you call it free.”
Again, they came at it from a perspective of, “How do I make a whole ton of money in a short period of time?” Not, “How do I deliver a great game experience?” As a result, they found out that consumers aren’t stupid. I wish they didn’t need to be taught that lesson, but they did. Consumers were unhappy to find out that they’d been effectively bait-and-switched.
That’s not free-to-play as we look at it. We’ve made mistakes like that in the past, but that’s not the way we look at it now. We’re going to give you a really great experience, and it’s free. If you want to improve that experience in some way, make it even better, then you can optionally buy stuff. That’s why we’re completely happy having 90 percent of our active user base not spend any money in our games at all. Those that do end up spending, on average—I think it was about $30 a month last quarter, per paying user. The point is, the other 90 percent are really important to us. We like having them there. We want more of those people.
GamesBeat: Peter Molyneux, the maker of Godus, Fable, and Populous, was making this point. He was very critical of free-to-play, but what he was saying was that he’d like to do free-to-play in the way that people think about their hobbies. When they buy something in pursuit of their hobby, they love to spend that money. They’ll spend as much as they want on whatever hobby excites them, and if you can bring that to free-to-play gaming, it won’t be a bad word anymore. It sounds like you’d agree with that.
Mahoney: I think Peter’s got it nailed. As a matter of fact, if you go to the top 10 in Korea, which is where we were founded, and look at the games that have been in the top 10 for the last year or two or three, like our games, he’s basically describing those games. I’ve played several of our games without spending anything for years on end, like Maple Story. I really enjoy those games. Part of the game, for some people, is not buying anything and still doing really well at it. That’s part of the challenge for them.
Free-to-play, by the way, is much easier to do in a multi-user environment. Synchronous multiplayer games are much harder to make than single-player games. But executing on a free-to-play model makes a lot more sense in a multiplayer environment.
In game after game that calls itself free-to-play in the west, the difficulty curve goes way up – almost exponential – and it becomes almost impossible to play the game after a certain point without buying items. I don’t consider that our model. We made those mistakes before. Every free-to-play company that’s experimenting and trying new things will continue to make mistakes like that, but it’s a tiny minority of what a good free-to-play company will do. Tuning and learning how to do that while still paying all your developers is where the art comes in.
We just finished our Nexon developer’s conference in Korea. We have a lot of discussions about that within Korea. But if you come to Korea and look at what’s very popular there, it’s something very similar to what Peter’s talking about.
Founded in Korea in 1994, Nexon is the worldwide leader in free-to-play games. Nexon pioneered the free-to-play business model with the concept of microtransactions, revolutionizing the online video games industry by offering users com... read more »
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