Foreign capital swallows K-gaming: How years of lean times sealed the fates of Kakao Games and Wemade

Concerns are growing over the creeping takeover of South Korean game companies by foreign capital, after Kakao Games and Wemade fell in quick succession into the hands of Japanese and Chinese investors.

Industry insiders say the years-long slump that has gripped the entire gaming sector ultimately changed who owns some of the country's biggest game companies. Additional foreign capital could flow into other domestic studios that have yet to recover, they added.

Large game companies including Kakao Games and Wemade have seen a surge of foreign investment, with the prolonged industry downturn widely cited as the root cause. The extended slump has served as a stress test that exposed stark differences in financial resilience among companies — and this year, those differences decisively determined their fates.

The gaming industry entered its lean years around 2022 and 2023, as the pandemic-era boom faded. Both Kakao Games and Wemade, which recently passed into foreign hands, failed to weather the downturn.

Kakao Games peaked in 2022 with annual sales of 1.1 trillion won ($708 million), but failed to produce a follow-up hit after its popular title "Odin," and growth fell sharply from 2023 onward. Two consecutive years of weak performance followed, and the company swung to a loss last year, posting an operating loss of 39.6 billion won.

Wemade faced a similar trajectory. A string of setbacks — including the delisting of its blockchain token Wemix — drove operating losses exceeding 100 billion won annually for two consecutive years from 2022 to 2023. The company narrowly returned to annual profitability in 2024, but posted operating profit of only 8.1 billion won, reflecting razor-thin margins. Last year, sales fell to 614 billion won from 712 billion won in 2024 — a decline of roughly 100 billion won — and the company recorded a net loss of about 28 billion won.

The consensus in the industry is that both companies' inability to fully shake off their earnings slumps left them open to foreign ownership. In April, Kakao transferred a 33.43 percent stake in Kakao Games to L Triple Investment, a special-purpose vehicle of Japan's LY Corp., as part of a broader effort to shed non-core businesses. Separately, Wemade Chairman Park Kwan-ho sold his entire stake in the company for about 920 billion won to NeoPulse, an investment platform with ties to Alibaba and major Chinese game companies — effectively handing Wemade over to Chinese capital.

The industry views the years-long lean period as a stress test that exposed each company's underlying financial strength, ultimately determining their fates this year. Further inflows of foreign capital into other struggling domestic game companies are also considered likely. "The prolonged slump in the gaming industry has not been a simple downturn — it has become a test that revealed the financial gap between companies," one industry official said. "For Chinese and Japanese investors, it looks like an opportunity to acquire major game companies at a bargain."

The contrast becomes stark when compared with NCsoft and Netmarble, two domestic game companies that staged a comeback after the prolonged slump. NCsoft struggled with weak industry conditions from 2023 and posted its first-ever annual operating loss in 2024. Aggressive restructuring last year, combined with the commercial success of new title "Aion 2," allowed the company to return to annual profitability.

Netmarble also recorded annual losses for two consecutive years from 2022 to 2023, but returned to profit in 2024. Last year, it posted sales of 2.84 trillion won and operating profit of 352.5 billion won, a significant improvement in profitability.