What was once a world of elves, dragons and power-ups is now giving rise to one of South Korea’s most unexpected tech revolutions, with game studios taking their place alongside Big Tech in the race for AI dominance.
The country’s gaming heavyweights are increasingly shedding their image as pure entertainment companies and positioning themselves as AI-first tech firms, expanding far beyond the virtual battlegrounds into sectors such as fashion, media and even robotics.
Facing a slowing gaming market and rising development costs, game developers and publishers such as NCSOFT Corp., Nexon Co. and Krafton Inc. are leveraging their proprietary AI tools and massive gameplay data troves to build new growth engines, applying gaming-derived machine intelligence to real-world industries.
“We’re no longer just competing for players’ time, but for a stake in the future of applied AI,” said an executive at a domestic game firm.
FROM MMORPGs TO 3D MODELS, FASHION AI
Few illustrate this transition better than NCSOFT, which in February spun off its AI division into a standalone subsidiary, NC AI.
The unit is set to launch Varco 3D at the end of July – a software tool that can generate high-quality 3D characters using nothing more than text or image prompts.
The product will be offered via a software-as-a-service (SaaS) model and targets users far beyond traditional game development, from virtual influencers to digital fashion brands, according to company officials.
The move follows NCSOFT’s development in 2023 of Varco, Korea’s first large language model (LLM) developed by a game company.
The company now provides Varco Art Fashion, an AI-powered tool that generates apparel designs and visual prototypes. The tool has already been adopted by 10 leading fashion firms, halving new product development times, according to NCSOFT.
“We see an opportunity to disrupt the fashion and content production pipelines using tools originally built for game development,” said an NC AI official.
The company also provides generative engines to media firms, allowing for automatic content production and editing.
PREDICTING THE NEXT BIG HIT, OR MISS
Nexon, which owns game-developing studio Nexon Games Co., is taking a different path: using AI to forecast the commercial success of upcoming games.
At the Nexon Developers Conference (NDC25) last month, the firm unveiled its Game Success Prediction AI, designed to sift through early gameplay patterns and metadata to identify breakout potential.
“Sometimes, high-quality games are overlooked,” said Oh Jin-wook, head of Nexon’s Intelligence Labs Group. “AI can help uncover hidden gems, allowing us to take more creative risks.”
His argument is backed by data.
According to global gaming platform Steam, 84% of titles released on its platform last year failed to even register meaningful sales.
Nexon said AI can help de-risk game development by offering early signals from pre-launch user testing.
TAKING AI INTO THE PHYSICAL REALM
Krafton, best known for PlayerUnknown’s Battlegrounds (PUBG), is taking AI into the physical realm.
In April, Krafton Chief Executive Kim Changhan met with Nvidia CEO Jensen Huang to discuss collaboration on humanoid robotics, building on their previous partnership to co-develop non-player character AI.
Krafton recently launched a Physical AI team, tasked with adapting in-game character AI for robotic applications. The goal: to use virtual intelligence as the foundation for real-world robotic “brains.”
Unlike software AI such as ChatGPT, physical AI focuses on decision-making for physical tasks such as picking up or moving objects.
ESCAPING THE GAMING RUT
Analysts said at the heart of this AI pivot is a strategic response to a cooling domestic gaming market.
Rising development costs and a lack of global blockbusters have dragged down growth.
According to the Korea Creative Content Agency, the nation’s gaming user rate fell to a record low of 59.9% in 2024.
The threat isn’t just rival games – it’s YouTube, TikTok and other attention-gobbling apps.
Nexon Games CEO Park Yong-hyun named non-gaming platforms as the biggest threat to the gaming industry.
According to mobile analytics firm Mobile Index, Koreans spent over 140 minutes a day on YouTube as of March, outpacing daily game playtime by a wide margin.
Experts say Korean game developers are uniquely positioned to scale into the broader AI economy.
The industry has accumulated years of player behavior data and developed highly advanced simulation environments – ideal conditions for training AI.
“Games are structured, interactive ecosystems with clear rules and goals, perfect for developing and testing AI models,” said Wi Jong-hyun, president of the Korea Game Society and a professor at Chung-Ang University. “It’s only natural that these companies are now leading Korea’s AI transition.”
By Young-Chong Choi
youngchoi@hankyung.com
In-Soo Nam edited this article.
