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Champion Rising

Fri 29 Jul 2011 7:00am GMT / 3:00am EDT / 12:00am PDT
BusinessPublishing

Riccitiello's EA is taking huge risks - but so far, they're paying off. Can the winning streak continue?

When I last wrote about the EA acquisition of PopCap two weeks ago, the reaction was interesting, to say the least. In comments and even more so in emails, the deal has clearly polarised opinion between those baffled at the huge risk EA is taking - "Riccitiello is going to destroy shareholder value with this," one analyst opined bleakly in an email - and those who think it's a bold, important move that'll quickly prove its value to EA.

Personally, I'm still on the fence about the PopCap deal - but in the spirit of that polarisation, I think it's worth taking a look at exactly what's going on at EA, which remains one of the most fascinating companies in the industry. With John Riccitiello's hand on the tiller, EA has steered an extraordinary course - turning around its strategy, its reputation and its commercial performance.

That's something which is perfectly underlined by this week's first quarter figures from the company, which saw revenue rising to within touching distance of a billion dollars, while profits doubled to $221 million. Crucially, that improvement in the figures was reflected across the company's business; both digital and packaged goods saw solid revenue rises, reflecting strong performance in both traditional and emerging markets.

EA has managed to engage with new markets without ever lessening its focus on the core markets from whence it came

After spending over a decade as the most hated company in the core games market, standing accused of milking franchises at the expense of quality, of swallowing excellent game developers and destroying them, and of churning out endless low-quality licensed games - accusations of which the company was indeed guilty on all charges - EA is now one of the most beloved. That's partially due to some very intelligent PR - whoever decided to set the EA legal department on copyright troll Tim Langdell deserves a handsome payrise, for example. Five years ago I might well have believed that gamers would learn to love EA again, but that they'd learn to love EA's lawyers? Solid gold genius.

However, for the most part, it's just down to the company's output, and the financial results underline that perfectly. What are the stand-out successes listed in the report? Dead Space 2, Dragon Age 2, Crysis 2, Portal 2 and Battlefield: Bad Company 2 - all sequels, yes, but sequels to recent new IP launches which reviewed extremely strongly and enjoyed widespread praise from gamers. More success is on the horizon, too, with Star Wars: The Old Republic and Battlefield 3 pre-orders soaring - another pair of titles that will delight the core market.

Even the company's sports games, once utterly derided by the core market, have attracted significant respect in recent years. The report singles out FIFA 11 as a success story, with the football game having reached (appropriately enough) 11 million sales. A few years ago, that would have been met with rolled eyes at the willingness of the masses to buy anything with the FIFA name on it - this time out, it's been met with remarkable critical acclaim, with a Metacritic average of almost 90 per cent.

Outside the core market, EA has enthusiastically embraced new platforms. It's got a significant presence on iOS and Android, is increasingly keen on tablets, and is going head to head with the PC digital distribution platform, Steam, with its own online store, Origin - which it claims it will shortly open up to third-party content, potentially creating a real rival for Valve's dominance.

What Riccitiello has done, in essence, is a twofold strategy. Firstly, he has carefully charted a central course for the publisher, striking a careful balance between its traditional business in core PC and console gaming and its interest in emerging, mainstream markets. Where Disney, for instance, has hacked off its core gaming interests entirely in the pursuit of the emerging social market, and Activision has stubbornly ignored everything but top-selling core franchises, EA has managed to engage with new markets without ever lessening its focus on the core markets from whence it came.

Secondly, Riccitiello has adopted a strategy on product development which focuses on the two things that gamers always say they want from publishers, but which most publishers seem unable to actually pursue - a focus on developing original, self-owned IP, and as a corollary to that, strong processes aimed at bringing through quality in the company's products. EA has become a company unafraid to pursue original IP and willing to invest the time and money required to make the calibre of products required for that IP to become successful.

Of course, that's the positive spin. Looked at from another angle, Riccitiello's strategies are both risky in the extreme. By continuing to develop the company's core business while expanding into the casual market, he risks spreading EA too thinly across markets which arguably don't have many economies of scale between them. By working on original IP and investing heavily in development for the sake of quality, the company takes creative risks that could end up costing heavily in the event of a flop - and of course, it bets a great deal on its own ability to assess "quality", which has not always been a surefire skill of publishers in the past.

Yet that's exactly what makes Riccitiello into one of the most interesting and successful business leaders in the games industry today - arguably the top of that elite list, in fact, since Satoru Iwata's star is presently in (hopefully temporary) decline. He takes risks, engaging in strategies that much of the rest of the industry is willing to pay lipservice to but unwilling to actually back up with money and manpower.

If you look at EA's risk profile, the extraordinary thing about it is that every major risk facing the company right now is a calculated gamble - with a precipitous downside but an equally steep upside. Other companies in the industry are exposed to external risks, factors outside their control which could damage them seriously if they turn in a contrary direction. EA, however, has knowingly entered into each of the biggest risks it faces, girding itself for the challenge and expecting to reap huge rewards in the end.

Riccitiello into one of the most interesting and successful business leaders in the games industry today - arguably the top of the elite list

What are those key risks? There are four, as I see it at present - two product risks, and two strategic risks, all four carrying with them the potential for great rewards should they turn in EA's favour.

The product risks, first. All new IP is risky, of course, and all core product launches carry with them a heavy degree of risk, but in EA's case, this year it is challenging two of the largest and best-established products in the industry. Sensing blood in the water after Modern Warfare's developers defected to form a new studio at EA, the company has openly relished going head to head with Activision's Modern Warfare 3 with this year's Battlefield 3 release, repeatedly talking up the rivalry in the press. It's less keen to position Star Wars: The Old Republic as a direct rival to World of Warcraft, but the comparison is there nonetheless.

The rhetoric around the two launches makes sense. With Battlefield 3, EA has an opportunity to steal Modern Warfare's crown outright, and it's determined to capitalise on that. It's a big if, but if it can perform as well as it hopes, by the end of this year EA could be the publisher of the world's biggest-launching game franchise - quite possibly retaking the third-party publishing crown from Activision on the way. With The Old Republic, however, the race is a marathon rather than a sprint. A strong launch will be an excellent indicator, but we won't have a clear idea of whether the game is going to overtake, coexist with or be steamrollered by Blizzard's World of Warcraft for several months to a year after launch. For now, managing expectations by talking sweetly about WoW and positing healthy co-existence is a sensible strategy.

Then there are the strategic risks. Firstly, there's Origin - an attack on Steam which starts to make more sense if Riccitiello is really serious about actually turning it into a major open distribution platform, rather than just an EA-exclusive store. Even so, there's a fairly solid chance that the coming year or two will see EA's content crawling back onto the Steam portal - it's hard to overestimate just how absolutely vital to PC game distribution Steam has become in recent years, and striking out on its own just ahead of two huge game launches, while daring, is also risky even by EA's recent standards.

Secondly, of course, there's PopCap. I maintain that this is the biggest risk Riccitiello has taken yet - a massive, expensive step into a sector which, while profitable and rapidly growing, is still in its infancy and hugely open to growing pains, not least as a result of being buffeted about by policy changes from the companies in charge of it. Even if Battlefield 3 can't displace Modern Warfare at the top of the military shooter genre, it'll sell well. A flop from The Old Republic would be damaging and financially painful, but EA could absorb it. Origin could be a disaster and EA forced to run back to Steam with its tail between its legs, but it would lose a lot more face than anything else in that eventuality. If PopCap, however, fails to perform to expectations - well, EA will survive, but it's unlikely that shareholders would countenance Riccitiello remaining in charge.

But that's exactly the kind of management style that a company like EA needs, I believe. Far too many firms in the games business are run in a way that's more suited to commodity industries than to a fast, dynamic media industry - focused on safe, incremental growth without recognising that in this kind of industry, that's a recipe for steady decline. Without risk-taking - measured, intelligent risk-taking, but regular, significant risk-taking - no business will get far in videogames. One can question EA's purchase of PopCap; one can argue that The Old Republic will struggle against WoW, or that Origin is merely tilting at windmills; but these risks are the result of the same culture and strategy that has turned EA around so far, and on the strength of recent results, I think Riccitiello has earned some benefit of the doubt.

12 Comments

Raf Keustermans CEO, co-founder Plumbee

28 2 0.1
The problem with EA is not their strategy, it's the execution. It's still a very slow moving, complex and political organisation, with only a handful of execs who truly understand digital. Because of this, they're still bleeding talent, especially in digital. I struggle to see how they are going to compete with the Zynga's and Blizzards of this world.

Posted:3 years ago

#1
re: Origin - I don't think it's as risky a move as you make out. The PC audience will go wherever the big games are, and don't care if they have accounts on different platforms. e.g. I have League of Legends, HoN, BF play4free, Steam etc etc

BF3 is one of those games that's bigger than the channel it's being distributed through, and is the *perfect* product to launch Origin properly.

Posted:3 years ago

#2

Klaus Preisinger Freelance Writing

1,161 1,231 1.1
Zynga and Blizzard both build a huge fanbase of players to whom nothing offers more bragging rights than a number on their spreadsheet, which they had to meticulously grind for months. It remains to be seen if TOR can really supplant Blizzard's "bragging currency". Because gameplaywise TOR is still very low-risk and very formulaic. It might not offend existing players by sticking to most conventions. For the moment, it might even be able cover up a lot of its flaws by being advertised with CGI movies. But without its license nobody would dare to release this game. The one to watch at EA is Kindom's of Amalur, because its alleged iteration "God of War + Oblivion + MMO" is by far the more original formula. Especially since the PC is still a platform where there are virtually no good God of War clones.

Posted:3 years ago

#3
I think the insight into EA with this article is spot on.

Posted:3 years ago

#4

Lucas Seuren Copy Editor, Only Network

26 2 0.1
Nice article, a view on EA and Riccitiello that is surprisingly close to my own. Though I think the risk with Origin may even be bigger than you think it is. The initial feedback I see from gamers is very negative, 'another expensive download platform', 'no competition, because EA games aren't available on Steam'.

I personally love Steam. Not because of the mainstream titles and the hardcore games, but because it's wide offering of older and indie titles. Original IP's that try to bring something to the gamer that you can't find anywhere else and usually for less than $10. Combining that with the sales during summer and christmas and it's a platform that is very hard to compete with.

EA will need to offer everything Steam already has and than some. They have a terrific collection of classic games that they could patch so they work on Windows 7 and sell for a few bucks. Basicly the same service GoG already offers. At the same time they'll need all major titles at competitive prices, achievements (it really works) and of course the indie line-up. It'll be hard to get all that in a short time.

Posted:3 years ago

#5
@ Lucas - good points. I'd like to add Origin needs that extra element of a social network. Kind of like a reason to trade/chat and cyber squat within the Origin zone i.e FaceTubeSteam - digital arcade paywall with largely free areas and access only areas

Posted:3 years ago

#6

Mary Hilton Community Manager, Reclaim Your Game

38 20 0.5
"Origin could be a disaster and EA forced to run back to Steam with its tail between its legs, but it would lose a lot more face than anything else in that eventuality. "

The biggest problem right now is that if Origin does not properly become self-sustaining, the chances that Steam will allow EA to come back are slim to none without a lot of concessions from EA about DLC, their support system and the quality of their patches, etc.
It's a known fact that Steam has been removing EA games from their roster due to various 'issues', and that alone could make it difficult for EA to return to Steam without some major loss of face.
It's 'make or break' time for EA. They've got to make Origin work in all respects and to be a true 'alternative' to Steam for EA Games.
I used to hate Riccitiello not that long ago-but the more I read of him, the less he is a 'evil genius' and more a very tough, smart executive who is not afraid of a few challenges. God knows more companies could use his style.

Edited 1 times. Last edit by Mary Hilton on 29th July 2011 12:45pm

Posted:3 years ago

#7

Klaus Preisinger Freelance Writing

1,161 1,231 1.1
Origin will do fine, even if it is by virtue of being another copy protection, this time dressed up as an 'useful' community feature. Friendslist fragmentation is certainly not the thing I am looking for.

Posted:3 years ago

#8

Graham Simpson Tea boy, Collins Stewart

219 7 0.0
@ Stephen Gaffney "The PC audience will go wherever the big games are, and don't care if they have accounts on different platforms. e.g. I have League of Legends, HoN, BF play4free, Steam etc etc "

This is so wrong. They do care about where they go. Especially if its forced upon them. PC Gamers can be stick in the muds when someone comes along and tells them how they are going to play games in the future.

Posted:3 years ago

#9

Marcelo Martins President, Clefbits

6 0 0.0
Congratulations for this very nice article! I agree 100% on the risk-taking strategy, as long as it is done with responsibility, as Fahey pointed out. Risk brings innovation which is the one of the main drivers of any entertainment business.

Posted:3 years ago

#10

Matthew Green Producer, Solar Studios Inc

36 0 0.0
crank up origin and get exciting original 3rd party on there ( like our products of fucking course!) :p

Posted:3 years ago

#11

Nick McCrea Gentleman, Pocket Starship

215 441 2.1
+1 to Lucas. The Steam offer is so compelling, it leaves the other digital download sites looking decidedly second-rate. The suggestion of a Windows-friendly and cheap back-catalogue service, together with the big releases (cheaper than Steam) and a ton of indie-fare is about the only way I can see them making any headway whatsoever.

Posted:3 years ago

#12

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