Netmarble Takes Stake in SGN, Extending Asia’s Reach Into U.S. Mobile Games

Photo "It was time for us to think in much more global terms," said Chris DeWolfe, chief of SGN. Credit Peter Bohler for The New York Times

Nowhere are mobile video games more popular — or lucrative — than in Asia. And now Asian companies are making big bets that they can spread some of their expertise in mobile gaming to the United States.

In the last year, some of China and Japan's largest Internet companies and game makers have pumped tens of millions of dollars into American mobile game companies. Tencent, China's giant Internet conglomerate, invested $126 million in Glu Mobile and $60 million in Pocket Gems, two American game studios. Alibaba, China's biggest online commerce company, put $120 million in the San Francisco-based Kabam. And Sega, a Japanese company, acquired Demiurge Studios in Cambridge, Mass., and took a stake in Ignited Artists in San Francis co.

That is expected to continue on Thursday, when SGN, one of the largest mobile game studios in the United States, announces a $130 million investment from Netmarble Games, a mobile game publisher in South Korea. The investment, one of the largest in mobile gaming since 2013, is the latest in a string of moves by fast-growing Asian gaming and Internet companies to invest in American mobile game studios.

While this east-to-west migration of capital and mobile games has been picking up steam since 2010, it has intensified significantly in the last two years. In part, the rush is fueled by flush Asian companies and investors. But it is also happening because Asian companies see the gaming market as less crowded in the United States, giving the m an opportunity to try some of their games in America.

"They see an opportunity to bring their content over to the West," David Kaye, founder of Gaming Insiders, a professional network for gaming industry executives, "so it makes sense for them to invest in U.S. companies."

As smartphones have quickly emerged as top platforms for video games, Asian countries have led the way in spending on those games. Japanese gamers spent $6.1 billion in 2014 and Chinese players spent $4.2 billion, according to SuperData, a New York City-based market research firm specializing in interactive entertainment. Mobile game revenue for all of North America last year was $4.2 billion.

Tim Merel, managing director of Digi-Capital, an investment bank that specializes in games, said Asian developers were 12 to 18 months ahead of Western game makers at finding ways to make money from games. The majority of successful mobile games are free-to-play at a basic level, with enhancements available for a cost.

But Asian publishers have also had a hard time getting a foot on the ground in the United States. Less than 10 percent of their revenue comes from outside Asia, said Joost van Dreunen, chief executive of SuperData. To change that, Asian companies have begun investing in smaller mobile gaming studios in the United States and the West generally, as they look to build games that will resonate with Western players.

Matthew Wong, research analyst for CB Insights, a research firm that tracks private companies, investments and acquisitions, said Asian corporations were trying to establish a presence in the United States and gaming was one area where experience in Asia could be transferred to America.

"In addition to that, a lot of mobile gaming companies here want to move into the Asian market," he said, "so finding strategic partnerships is important for both countries."

That was the thinking of Chris DeWolfe, the hard-driven but soft-spoken chief executive at SGN. The company, which started in 2010, will have revenue this year of about $280 million, he said. For each of the last two years, Mr. DeWolfe said, revenue has grown about 300 percent a year.

Among the six most popular games SGN makes for smartphones is Cookie Jam, a puzzle game where players strive to get three of the same game pieces. Juice Jam, another matching puzzle game, features fruit, rather than cookies and cupcakes. And in the game Panda Pop, players work their way through increasingly difficult levels to rescue baby pandas.

Mr. DeWolfe, a co-founder and former chief executive of Myspace, the once high-flying social networking company, said about 55 percent of the company's revenue came from North America. Since about 75 percent of all mobile game revenue is generated from outside the United States, he said, he felt the company would benefit most from a strategic partner that would help it penetrate Asia.

"We love the West," Mr. DeWolfe said, "but it was time for us to think in much more global terms. That meant looking to the East." The money, h e said "will help to fuel continued international growth and scale needed for us to be one of the largest mobile gaming companies in the world." That growth, he said, would help prepare the company for a potential public offering, which Mr. DeWolfe estimates is about three years away.

Netmarble Games, now the largest shareholder in SGN, has more than 35 percent of the market for mobile games in South Korea and is growing at a fast pace. The company's revenue in 2014 was $580 million and Seungwon Lee, Netmarble's president of international business, said he expected the company's annual revenue to be $1 billion this year.

Netmarble established an American subsidiary in the Bay Area in 2013 to help market its mobile games and ready them for American use rs. Its deal with SGN will support Netmarble's entrance into Western markets and help SGN penetrate Asian markets.

"The opportunities for collaborating in the future are huge," Mr. Lee said. "It could start with a marketing collaboration and lead to pursuing co-developments down the line."

Some Asian companies are trying another route to travel east-to-west: modifying their existing games with the help of consultants in the United States to make them more American-friendly. Legend Gaming, a publisher based in San Francisco, helps Chinese companies bring mobile games to the United States — remaking them to fit American culture.

"It's n ot just translating to English, it's making changes to the art, the user interface, the mechanics," said Baruch Levy, co-founder and chief executive of Legend. The company, said Mr. Levy, has had so much interest in its services it is scrambling to keep up.

"We can't build the company fast enough," he said.

Correction: July 23, 2015

An earlier version of this article misstated Sega's interest in Demiurge Studios. Sega acquired the whole studio; it did not just take a stake in Demiurge.

Source: Netmarble Takes Stake in SGN, Extending Asia's Reach Into U.S. Mobile Games