Korea was long a powerhouse in online games based on the strength of its well-established IT infrastructure. But now domestic game makers seem to be losing their glory in the face of tough regulations and the growing challenges from foreign rivals.

Early this month, ruling Saenuri Party chairman Hwang Woo-yea defined online games as one of four social evils along with alcohol, gambling and drugs. The ruling party also introduced a bill identifying online games as harmful.

Korea Internet and Digital Entertainment Association issued a statement last Thursday saying, “This is in fact an attempt to pronounce the death of the Korean game industry.” It added, “The game industry accounts for 60 percent of Korea’s content exports and hires some 100,000 employees. Regulating this as a ‘harmful industry’ is considered an outdated, closed-door policy.”

At one time global giants, Korean game makers have faced challenges in recent years. Today, foreign companies take up almost half of the nation’s online game market. According to a local game research company Gametrics, California-based Riot Games’ “League of Legends” ranked top with 43.35 percent, and Blizzard’s “Starcraft” and “Warcraft 3” accounted for 3.01 percent and 1.62 percent, respectively, as of Oct. 26.

“The popularity of ‘League of Legends’ will see continued growth for some time. Local companies must fiercely compete for the remaining half of the market,” an industry source said.

Even in the mobile game market, foreign companies are beginning to win market share. Games like King.com’s “Candy Crush Saga,” Kunlun Korea’s “Legend of King,” and Gumi Korea’s “Jingeok 1942” are in the top 10.

According to a report published by the Ministry of Culture, Sports and Tourism, the total sales of the local game industry dropped 5.5 percent to 4.79 trillion won ($4.52 billion) in the first half of this year from last year’s 5.7 trillion won in the same period.

“Because of game regulations, it is difficult for the companies to get high-quality personnel and to attract investment,” said Kim Sung-kon, secretary-general of the Korea Internet and Digital Entertainment Association. “The companies do not want to make new games by taking risks because of government regulation.”

Korea has implemented a law which forbids children under age 16 from playing video games from midnight to 6:00 a.m. since 2011. Last July, it passed another law which allows users’ parents to demand game companies to block access for a designated time.

Game makers have to invest an additional 1 billion won-2 billion won per game to abide by the laws, according to the Korea Internet and Digital Entertainment Association. The number of local games newly listed with the state-run Game Rating Board decreased from 1,525 in 2009 to 966 last year, and to 476 this year.

“As the government is biased against games, even high school and college students also see the industry negatively,” Nexon’s vice president Kim Tae-hwan said. “This fosters a climate where students shun working for the industry, ultimately widening the technology gap with foreign companies.”

While G-STAR 2013, the nation’s largest game exhibition, is a few weeks away, only two large local companies ― Nexon and Daum, will participate NHN Entertainment, Neowiz and Wemade have opted to stay at home. Instead, a record number of foreign companies including Blizzard, Microsoft, Sony and Nintendo are expected to take part in the event.

By Shin Ji-hye (shinjh@heraldcorp.com)