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EA: "Becoming the leading pure-play digital entertainment company"

EA: "Becoming the leading pure-play digital entertainment company"

Tue 08 May 2012 8:30am GMT / 4:30am EDT / 1:30am PDT
Publishing

Steve Peterson looks at the publisher's progress as it transforms away from packaged goods

Electronic Arts had an excellent fourth quarter of its fiscal year, performing at the high end of its previously announced guidance. Some of the key highlights: earnings per share improved over 20 per cent from last year, and digital earnings improved by over 60 per cent. EA showed revenue growth with improved margins with improved cash flow. It was an excellent performance all around, although EA's stock price hasn't reflected investor confidence yet.

Reading between the prepared lines of earnings calls it's pretty straightforward: EA is rapidly moving to, as they themselves stated, "become the leading pure-play digital entertainment company." Even though over $2.5 billion of its revenue comes from packaged goods right now, John Riccitiello said he can see that EA will derive more than half its revenue from digital in the near future. That's easy to believe, when EA is telling us that packaged goods will continue to decline in sales over the next fiscal year, while it projects digital to continue a torrid 30 to 40 per cent growth rate.

"EA has gone from 67 packaged goods in 2009 to about 14 today, while increasing to 25 different online offerings"

John Riccitiello

Of course, this is a tricky thing to manage, and there will be casualties along the way. EA admitted as much when ity talked about a "slight restructuring" that will mean some job losses, though it didn't specify how many. Still, EA noted that headcount stood at 9,200 in March, with 70 per cent of that in R&D, and it expects to grow to 9,700 by end of FY13. While EA didn't say specifically, it seems a pretty good bet that the jobs lost will be in packaged goods, while digital goods gains more employees.

EA is well on the way to making its transformation into a mostly digital company, which will bring its margins up to the lofty ranges enjoyed by companies who don't worry about shipping boxes to stores. One of the figures EA noted was that it's gone from 67 packaged goods in 2009 to about 14 today, while increasing to 25 different online offerings. EA's brands are in the process of transcending their original platforms, to the point where EA no longer thinks of something as an Xbox game or an online game; the game is its own entity, and each platform just happens to be where one instance of the game can be found.

1

When the transformation of EA is complete, it will look a lot more like Zynga in some ways, earning most of its revenue from digital sources. Both companies have similar amounts of cash on hand. Zynga is still far smaller in terms of revenue, but it's trying to catch up. EA still has a huge advantage over Zynga in that EA's revenue is diversified over so many different platforms. Zynga, right now, is completely at the mercy of Facebook. Of course, this does give Zynga much greater focus; it doesn't have to worry about all the dozens of different platforms that EA does.

Next gen console investment was singled out in the earnings call by stating a commitment to spending $80 million on the development of next-gen titles over the course of the fiscal year. That may sound like a lot initially, but it's the equivalent of a couple of mid-range console titles, ignoring for the moment that next-gen consoles may have higher development costs due to higher resolution. EA noted that this is the first time in its history it will be able to go through a console transition and still grow sales and earnings... because this time the digital goods are more than making up for the costs of new console development. Really, too, it's a function of the scale of new console development; it's just a much smaller part of EA's overall business now, so the costs don't hurt very much.

"EA still has a huge advantage over Zynga in that EA's revenue is diversified over so many different platforms"

It will be interesting to see how Activision compares its progress in digital revenue to EA's. Activision seems to be more firmly wedded to revenue from console games, though they are hoping Blizzard will change that with its lineup of new games starting with Diablo III. EA is clearly gunning for Activision's World of Warcraft audience, and promises a renewed effort to increase Star Wars: The Old Republic subscribers. Still, 1.3 million paying subscribers is a far cry from WoW's 10 million. EA seemed a bit sensitive over the falloff in SWTOR subscribers, being careful to point out that the game isn't in the top 5 moneymakers and represents a small part of its overall profits. Despite that, there seems to be a great deal of effort in the works for new content and marketing efforts to expand the audience.

E3 promises to have some interesting head-to-head comparisons in product and marketing strategies between the industry giants. As EA goes digital, can it hang on to solid sales in packaged goods?

9 Comments

Morville O'Driscoll
Blogger & Critic

1,536 1,335 0.9
EA's brands are in the process of transcending their original platforms, to the point where EA no longer thinks of something as an Xbox game or an online game; the game is its own entity, and each platform just happens to be where one instance of the game can be found.
That's a good concept, but it's hampered by poor game design and planning. If you're trying to tie brands together irrespective of their platform, then having things like 360 pad controls appear during a PC game is holding you back. ME2 and 3 on the PC used less than a dozen keys, because the original control scheme is console based. Commo-rose in BF3 may be good for console players, but key-bound radio keys work better on a PC keyboard.

Not to single EA out (though they are one of the worst companies for doing this), but reminding consumers that they're playing a game that's essentially a port is not helping the brands "transcend their original platforms" in the eyes of the group that matters most.

Posted:2 years ago

#1

Steve Peterson
West Coast Editor

108 73 0.7
Yes, too many games still reveal their origins on a particular platform. That's something many publishers need to work on.

Posted:2 years ago

#2

Tim Carter
Designer - Writer - Producer

562 311 0.6
Let's hear more about talent, less about companies.

Posted:2 years ago

#3

Christopher Garratty
Trainee Solicitor

80 92 1.2


Not to say that there has never been a bad PC port by anyone, but Battlefield 3 is not a good example of "consolefied" PC titles or of "lazy porting".

Edited 1 times. Last edit by Christopher Garratty on 8th May 2012 5:13pm

Posted:2 years ago

#4

Morville O'Driscoll
Blogger & Critic

1,536 1,335 0.9
Mmmm... Personal experience, maybe? I don't know any PC gamers who wanted commo-rose, and plenty (myself included) who want radio-buttons. Though that in itself is a point - just because there exists one thing on console, does not mean that an alternative can't be created on PC, to go alongside the original. *shrugs*

Also, I would definitely argue that BF3 is now (even if it wasn't at release) a "consolefied" game (in a way). Just the fact that the Close Quarters DLC is exclusive to PS3 for a week shows that EA firmly acts like its brands are on separate platforms, even if it tries to believe otherwise. Or, to put it another way, it's not "Close-Quarters DLC is part of the BF3 experience" it's "Close-Quarters DLC is part of the BF3 experience on PS3 first".

Edited 1 times. Last edit by Morville O'Driscoll on 8th May 2012 5:59pm

Posted:2 years ago

#5

Hugo Trepanier
Senior UI Designer

156 144 0.9
@Morville: I actually really enjoyed using the commo-rose on PC in various Battlefield titles. It makes many common actions more accessible than having to remember specific keys, especially in the heat of battle.

Nowadays I mostly game on X360, primarily because of the comfort of my living room versus sitting at a desk, but also because I usually prefer the simpler controls. Also there's no installation required and patching is done very quickly and easily, etc.

Posted:2 years ago

#6

Morville O'Driscoll
Blogger & Critic

1,536 1,335 0.9
Mmmmm... That's fair enough. It is personal experience/preference, which is different for everyone. :) Personally speaking, I rarely use commo-rose because it requires moving the mouse through a menu; it takes time, and I'd rather just spot and shoot. On CS:S, though, I use radio-buttons all the time, because I know keyboards like the back of my hand. :D

On-topic, I think my problem is that forcing certain controls on a player is bad, and this is especially relevant when companies are trying to build brands irrespective of the platform. To me, the Mass Effect series will always be a 360 games, not because of the exclusivity of the first game for an extended period, but because the controls are 360 controls, regardless of if you're playing on PC or 360. (This is made even worse, actually, when you realise that the PC port of Mass Effect 1 was done by a serperate studio, and actually works really well). When you have the option of a PC keyboard+mouse, to disregard them entirely does you no favours.

Edited 1 times. Last edit by Morville O'Driscoll on 8th May 2012 7:08pm

Posted:2 years ago

#7
Regarding this one: EA: "Becoming the leading pure-play digital entertainment company". I don't think EA is even close to Steam. Yeah, there is a little a grow in sales on EA's digital platform Origin, but that's part of the retail, too. And don't forget that at the same time Steam is growing much faster so "becoming a leading digital entertainment" is not something EA can achieve let's say in the near future. Moreover other digital services like OnLive or Gaikai could possibly take the lead in the next 5 years if the competition stops to inovate other ways of distribution. I think that Valve should start working on their own streaming service that would be part of some Steam premium accounts or they will end up like Microsoft few years ago, when Google came in the game.

Posted:2 years ago

#8

Morville O'Driscoll
Blogger & Critic

1,536 1,335 0.9
@ Michal

The key part of that sentence is "as they themselves stated". It's pure PR, as there is no way that Origin is even remotely close to Steam either in selection of titles, or in number of user accounts.

Edited 1 times. Last edit by Morville O'Driscoll on 9th May 2012 11:08am

Posted:2 years ago

#9

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