User blog:ZeroTigress/GRAVITY S.E.C.

I discovered a recently-released SEC report for GRAVITY and decided to point out some things that were of interest to me.

"'Revenues from our principal product, Ragnarok Online, accounted for 41.5% of our total revenues in 2015, compared with 40.1% of our total revenues in 2014.'" Well, look at what a bit of tender-loving care for RO can do for it. :U

"'Ragnarok Online has been on the market for fourteen years and has reached maturity in most of our principal markets. The life cycle of an online game generally lasts between four and seven years, and online games typically reach their peak popularity within the first two years following their introduction, after which time the game’s usage gradually stabilizes and begins to decline over time. The number of users of Ragnarok Online worldwide reached its peak in the first quarter of 2005 and has declined since such time. Our failure to maintain, improve, update or enhance Ragnarok Online in a timely manner or successfully introduce it in new markets is likely to lead to a continual decline in Ragnarok Online’s user base and subscription revenues and royalties. This will likely lead to a decline in our overall revenues, which would materially and adversely affect our business, financial condition and results of operations.'" No surprise there. Little investment equals little return.

"'None of our other online games to date has proven to be as commercially successful as Ragnarok Online, and none of our mobile games to date has achieved comparable commercial success.'" No surprise there, none of the developers they hired since could match the ingenuity of the original development team (who left to form IMC Games).

"'A game’s commercial success largely depends on appealing to the tastes and preferences of a critical mass of users as well as the willingness of such users to purchase the game and/or in-game items, and to continue as paying subscribers, all of which are difficult to predict prior to a game’s development and introduction.'" Difficult to predict?? How about actually reading the feedback you get on failed games??? Maybe you might've picked up some hints on what works and what doesn't!

"'Our competitors in the online and mobile game industries vary in size from small companies to very large companies with dominant market shares. Many of our competitors have significantly greater financial, marketing and game development resources than we have. As a result, we may not be able to devote adequate resources to develop, acquire or license new games, undertake extensive marketing campaigns, adopt aggressive pricing policies or adequately compensate our game developers or third-party game developers to the same degree as many of our competitors do.'" More like you guys have been complacent about actually improving RO until IMC Games came along with Tree of Savior. << Don't think we didn't notice that you didn't start making all those updates to the game's UI and content until after IMC announced Project R1 in 2011.

"Our current and future games may contain programming errors or flaws which may become apparent only after their release. In addition, our online and mobile games are developed using programs and engines developed by and licensed from third party vendors, which may include programming errors or flaws over which we have little or no control. If our users have negative experiences with our games related to or caused by undetected programming errors or flaws, they may be less inclined to use our games or recommend our games to other potential users.

While we have not experienced any material disruptions to our business from such errors or flaws in our games or in the programs and engines that we use to develop our games, these risks are inherent to our industry and, if realized, could severely harm our reputation, cause our users to cease playing our games, divert our resources or delay market acceptance of our games, any of which could materially and adversely affect our business, financial condition and results of operations." MAY contain errors or flaws?? MAY CONTAIN ERRORS OR FLAWS??? I oughta smack you guys with Mjolnir for your idiocy!! >8U

"Since the commercialization of Ragnarok Online in August 2002, we have discovered that the server-end software of Ragnarok Online has been unlawfully released on a consistent basis in most of the countries and markets in which Ragnarok Online has been offered. This enables unauthorized parties to set up local server networks to operate Ragnarok Online, which may result in the diversion of a significant number of paying users. We designate certain employees to be responsible for detecting such illegal servers. In Korea, we report offenders to the relevant enforcement authority for possible prosecution relating to crimes on the Internet. In markets outside of Korea, we cooperate with and rely on our licensees to seek enforcement actions against operators of illegal servers.

...

In December 2007 and June 2008, Gravity Interactive, Inc., our wholly owned subsidiary in the United States which manages Ragnarok Online game operations in the United States, petitioned the Federal Bureau of Investigation for remission or mitigation of forfeiture of the property of two illegal server operators of Ragnarok Online, which property was deemed proceeds of copyright infringement violations by the illegal server operators, and US$154,674.73 was returned to Gravity Interactive, Inc. in April 2011. We may incur considerable costs in the future in order to remedy software piracy of our server software and to enforce our rights against the operators of unauthorized server networks." So you went after pservers for a little bit and then gave up. Good to know.

"'The online and mobile game industries are subject to rapid technological developments and changes in market environment, which could render our online and mobile games under development and commercialized games obsolete or unattractive to users. Any resulting failure to recover capitalized development or licensing costs and the recognition of impairment loss for such costs may materially and adversely affect our financial condition and results of operations. For example, in 2015, we recognized an impairment loss on intangible assets for capitalized research and development costs of Won 4,605 million for Ragnarok Online II and have recognized other similar impairment losses over the last several years.'" So they recognize that RO2 wasn't developed for the current market, but did nothing to rectify it.

"We've been idiots, but we're not going to change what we're currently doing to get better!" :B

Thanks, GRAVITY.

"'We obtained an exclusive license from Mr. Myoung-Jin Lee to use the storyline and characters from his cartoon titled “Ragnarok” for the development of games including for animation and character merchandising. We paid Mr. Lee an initial license fee of Won 40 million and are required to pay royalties based on a percentage of adjusted revenues (net of value-added taxes and certain other expenses) or net income generated from the use of the Ragnarok brand through January 2033.'" Too bad the Ragnarok brand is basically dead, as I've articulated in a previous blog entry.

"'Unlike Ragnarok Online and Ragnarok Online II, which do not emphasize violent themes, we designed Requiem to showcase user-to-user combat.'"

Wait, what? Killing cute monsters with oversized weapons is not considered a violent theme? Okay, GRAVITY. :U

"In order to optimize the commercial opportunities presented by our games and their characters, we and our licensees have been marketing dolls, stationery, food and other character-based merchandise, as well as game manuals, monthly magazines and other publications, based on our games. We currently have arrangements with GungHo to license Ragnarok Online’s game characters in Japan, and with AsiaSoft Corporation Public Co., Ltd. to license Ragnarok Online II game characters in Thailand.

The amount of revenues from game character merchandising represented less than 1% of our total revenues in each of 2015 and 2014." With such oddball marketing for Ragnarok merchandise, it's no wonder you're not making much money off of it, GRAVITY.

"'Gravity Entertainment, our Japanese subsidiary, entered into an agreement with G&G Entertainment Inc. and three other Japanese media and entertainment companies for the production and distribution of a 26 half-hour episode animation series based on the storyline and characters of Ragnarok Online in October 2004. The series was produced by Gravity Entertainment and broadcast on television in nine countries from 2004 through 2007. The animation series of Ragnarok Online has been sold in DVD and VOD (video on demand) formats in North America since March 2006, and it has also been distributed in Europe. Our revenues from our animation business represented less than 1% of our total revenues in each of 2015 and 2014.'" THIS IS STILL RELEVANT???

"The Premium Service model was initially applied to free-to-play servers in July 2008 and became available on all the servers in November 2010 when we ceased to apply the subscription-based fee model for individual PC users in Korea. We offer only one rate for the Premium Service model of Ragnarok Online in Korea and charge 5,500 RO Points for 30 days of use. Premium Service users may further choose to use additional services as options, such as faster accumulation of experience points, higher rates of item drops, lower death penalty or a combination of such additional services for additional fees.

...

Our licensee in Japan offers only one rate for Ragnarok Online and charges JPY1,500 per 30 days of unlimited use. " So Korea and Japan are the only regions that have premium servers. Don't see why Gravity Interactive dropped ours when it's still in use elsewhere in the world. I'd gladly pay to stay on a premium server as opposed to a free-to-play one. And before you say anything, this is the same company that launched another server after consolidating all the premium servers into one server (iRO) and launched another server after merging another region's data into the existing server (iRO2). So apparently they don't have a big issue with running multiple servers with small populations.

"'To prepare for the commercial launch of a new online game, unlike most mobile games, we conduct closed beta testing for the game to fix technical problems, which is followed by a period of open beta testing in which we allow registered users to play the game free of charge. During these testing periods, users provide us with feedback and our technical team seeks to address any technical problems and programming flaws that may compromise a stable and consistent game playing environment.'" TOO BAD YOU DIDN'T MAKE MUCH USE OF THAT FEEDBACK.

"'As of December 31, 2015, we employed a total of 105 game developers.'" Could've fooled me with how many bad games you guys have been churning out.

"'We compete primarily with other online and mobile game developers and distributors in each of our markets.'" How's trying very hard to be inferior to your competitors working out for ya?

"'For the year ended December 31, 2015, the aggregate amount of compensation paid by us to all directors and executive officers was Won 615 million (US$526 thousand). At our general meeting of shareholders held on March 25, 2016, our shareholders approved an aggregate amount of up to Won 1,400 million (US$1,197 thousand) as compensation for our directors for 2016.'" So the executives increased their salary from $526,000 to $1,197,000 to reward themselves for doing a terrible job of upkeep for the company. Well done, shareholders. /sarcasm

* The number in {} is the number of employees (who are included in the total number) seconded from us. So Gravity Interactive has been receiving sponsored employees from GRAVITY. Lot of good that's been doing them.

"'In October 2014, we entered into a non-exclusive merchandising license agreement with Gravity Interactive which grants Gravity Interactive the right to commercialize the characters of Ragnarok Online and Ragnarok Online II in the United States, Canada, Australia, New Zealand, India, Singapore and Malaysia, and to globally commercialize the characters of Requiem.'" That explains why they haven't opened a merchandise shop until now.

"'In September 2012, we extended a loan in the amount of US$1,500,000 to Gravity Interactive at an annual interest rate of 4% payable monthly in arrears. In October 2014, we extended a loan to Gravity Interactive for US$500,000 at an annual interest rate of 4% payable monthly in arrears. In October 2015, we extended another loan to Gravity Interactive for US$500,000 at an annual interest rate of 4% payable monthly in arrears, US$500,000 of which has been transferred to Gravity Interactive as of April 15, 2016. As a result, the aggregate principal amount of the loans extended to Gravity Interactive was US$2,500,000 as of April 15, 2016.'" That's quite the debt you got there, guys.

Rest of the report just goes into details about net losses had in the past few years, which isn't really shocking. Some of this is surprising while others cause me to raise eyebrows. It mentioned games that I've never heard of, such as Requiem Returns W (sounds like a mobile game title), Steal Fighter (the heck?) and H.A.V.E. Online (I don't even...).