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Stock Ticker: Why EA's Market Valuation Has Crashed

Stock Ticker: Why EA's Market Valuation Has Crashed

Thu 21 Jun 2012 6:45am GMT / 2:45am EDT / 11:45pm PDT
PublishingFinancial

EA's market valuation is down 50 per cent since November. What's gone wrong?

Two stock market stories have captured the attention of the games industry in recent months - the weak post-IPO performance of Zynga, and the dramatic bellyflop of THQ, whose shares have lost 80 per cent of their value over the past 12 months. Against that backdrop, few people seem to have noticed what's happening to Electronic Arts' valuation - yet a quick glance at EA's performance reveals a worrying situation and suggests a tough time ahead for the company which used to be the industry's biggest third-party publisher.

"This fluctuation represents billions of dollars moving out of the company's valuation"

Electronic Arts' stock has lost almost 40 per cent of its value since the start of this calendar year - and in fact, since the middle of last holiday season (around November 2011) the company's stock has been in a steady decline which has now wiped close to 50 per cent off EA's valuation. It's not a decline as sharp as THQ's, but it represents a much larger loss of value - THQ's market capitalisation is only around $50 million, whereas even after this enormous loss of value, EA is still capitalised at around $4 billion.

To visualise EA's share price decline, let's look first at a simple graph of its performance over the past 12 months.

1

The decline I'm talking about is clearly visible - starting last November and carrying on almost uninterrupted right up to this week. From top to bottom, that slope covers 50 per cent of EA's valuation, from a high of just over $25 in November down to a low of $12.29, recorded just last week. While it's not unusual for small companies' share prices to fluctuate this strongly during times of trouble, EA is not a small company. This fluctuation represents billions of dollars moving out of the company's valuation, and the fact that it's a trend which has persisted for six months suggests that investors are genuinely concerned about EA, rather than simply being spooked by rumours or speculation in the short-term.

To get a clearer picture of where EA stands and what the problem might be, it's important to isolate the company's performance from wider economic factors. The most straightforward way to do this is to graph the firm's share price against the performance of the NASDAQ, the New York based stock exchange which lists most of America's high-tech companies. This next graph shows the NASDAQ's overall performance in red, alongside EA's stock in blue.

2

This graph is useful, because it pinpoints the start of the problem - and also reveals that EA's performance is even weaker than it seems at first glance. As you can see, EA's share price pretty much tracked the performance of the NASDAQ up until the end of last November - meaning that market sentiment around the firm was basically neutral, with investors considering it no stronger or weaker than its peers on the stock market. Then, while the NASDAQ itself saw fairly solid gains in the first half of 2012, EA went into free-fall. To the 50 per cent loss of value in the stock itself, we now have to tack on around 10 per cent of additional losses - since EA's stock should reasonably be expected to be 10 per cent higher, if it had only managed to perform on the same level as its peers in the NASDAQ.

Something has gone terribly wrong for EA, at least in the eyes of stock market investors. There are several plausible explanations for this - each of which is likely to be true to a certain degree, since it's unlikely that any one factor alone is responsible for driving the price down so far.

"For SWTOR to fail makes Riccitiello's entire strategy look dodgy to investors who were already deeply concerned by the slow pace of progress"

Firstly, there's Star Wars: The Old Republic. EA's stock price went into decline after The Old Republic's launch, and hasn't recovered yet - and that timing is unlikely to be a coincidence. Expectations among investors for SWTOR were extremely high, given the game's much-publicised high development costs (which probably make it the most expensive game project ever), the strength of the Star Wars license, the track record of developer Bioware and, crucially, the tantalising possibility of building an ongoing MMO revenue stream for EA which would match the one enjoyed by rival Activision Blizzard from World of Warcraft. While it would be unfair to characterise SWTOR as a complete failure, it has certainly not been a success on the level which EA or its investors would have wanted. The game has lost 400,000 subscribers since February, and it seems inevitable that the company will be forced into an embarrassing (but probably commercially sensible) transition to a free-to-play model sooner rather than later.

For many investors, the disappointing performance of SWTOR is almost certainly seen as the "final straw" in terms of the second factor in this decline - John Riccitiello's leadership of EA. Riccitiello has been CEO since 2007, and arrived to the job promising to turn the company around - outlining a transformation plan which would see EA focusing on quality, controlling costs, embracing digital business models and improving the company's tarnished reputation. In some respects, his successes are undeniable. EA's digital business is booming compared to most of its commercial rivals, and while the company still attracts brickbats from vocal fans on the internet on a regular basis, titles like Mass Effect, Dead Space and Battlefield have also earned it a reputation for creating high-quality "core" titles.

In other respects, however, Riccitiello's transformation of EA is clearly struggling - not least in terms of timescales. When he arrived in 2007, it was anticipated that the process he wanted to bring the company through would take three years. In mid-2012, there's still no end in sight. It's unsurprising that the stock market would be extremely wary of a business which, to quote another industry watcher, is presently in year five of a three-year transformation project that's actually going to take seven years. SWTOR was almost certainly being used by many investors as a test of Riccitiello's strategy. It's a hugely expensive title, created by a studio with a reputation for quality (which Riccitiello himself added to the EA group as one of his first actions on becoming CEO), and focused strongly on digital business objectives, not least of which was being the flagship title for Origin, EA's Steam competitor. For SWTOR to fail makes Riccitiello's entire strategy look dodgy to investors who were already deeply concerned by the slow pace of progress.

"Investors would like to see some kind of exit for EA, which means that they're not confident in the firm's future"

Not convinced that investors have lost faith? Look how quick they were to spread the frankly barmy rumour that Japanese-Korean free-to-play gaming firm Nexon was going to buy EA - an incredibly unlikely proposition from the outset, yet one which was widely reported and discussed both within the games business and within the investment community. That tells you something important; firstly, it illustrates how far EA has fallen within the market (despite having a healthy slate of titles and pretty solid financials), and secondly, it tells you that investors are very, very keen for something like that to happen. They'd like to see some kind of exit for EA, which means that they're not confident in the firm's future.

Although the overriding factors in EA's valuation collapse are internal, it's important to look at wider factors within the industry as well - because the reality is that this is not a situation that's confined to EA. Many games publishers face a tough transition, not merely to next-gen console hardware next year (which is tough enough in itself), but also to a world of new business models and new competitors. Several of them probably won't make it unscathed, and the stock market knows it. Here's a graph showing EA alongside its two main US competitors, Activision Blizzard and Take Two.

3

As you can see, EA is underperforming its rivals by a pretty significant margin - but look at Take Two's numbers by comparison. It starts declining later in the day than EA, only seriously dropping off in March of this year, but the decline itself is even steeper than EA's. Since March, Take Two has lost over 30 per cent of its value, which strongly suggests that many of the same concerns which are depressing investor confidence in Electronic Arts are also being applied to Take Two.

"The games industry's most bankable company in the USA right now is only just managing to keep up with its tech industry peers, while the other top two publishers are rapidly spiralling down the plughole"

The outlier here is Activision Blizzard, which is keeping its head - and its valuation - well above water. Since EA's fall from grace, Activision Blizzard is absolutely dominant in terms of market capitalisation - it's now worth over three times more than EA according to the stock market, which suggests a much higher degree of confidence in Activision than in any of its rivals.

That confidence is based on a few factors. First, there's Blizzard - a company which has demonstrated an unmatched ability to break away from the hit-driven structure of the games business and instead create games that keep paying for themselves years after launch. The steady revenue stream from World of Warcraft may be slowly dropping off, but it's still the single most valuable product in the games industry, generating strong revenues month after month and making Activision Blizzard vastly more bankable than any other company in this sector. Secondly, there's Call of Duty - a franchise which has reliably produced the biggest-selling games of the year, every year for the past half-decade. That goose won't keep on laying golden eggs forever - in fact, it's probably already in decline - but it's another factor which investors see as reliable and bankable, at least for now.

Even so, it's not all roses in the garden - even for Activision Blizzard. This final graph adds the NASDAQ composite to the picture, showing how the big three US publishers match up against their peers on the stock market.

4

In this graph, the problems facing EA and Take Two are even more starkly revealed, as both of them are veering sharply away from the red line (which you can think of as a kind of average of the performance of American tech companies). Activision Blizzard, meanwhile, is just about managing to hug the line - slightly underperforming it in the past few months, if anything.

In short, the games industry's most bankable company in the USA right now is only just managing to keep up with its tech industry peers, while the other top two publishers are rapidly spiralling down the plughole. The overall picture is not encouraging. Investors are clearly deeply worried about the games industry's biggest companies - they're cautious on Activision Blizzard, and downright negative on EA and Take Two. EA needs to focus on convincing the markets that Riccitiello's plan is going to work out, of course, but it's also clear that there's a wider challenge here for the entire games industry. The next transition, which has already started, is going to be the toughest one the industry has ever faced - the stock market knows it, and until the industry can show itself to be ready to cope with that transition, investors are going to steer well clear of videogame-related stocks.

42 Comments

Bruce Everiss
Marketing Consultant

1,692 594 0.4
The elephant in the room here is profit. Or, more precisely, the lack of it.
EA try and do everything. Every genre on every platform with every business model.Hoping that something will stick.
Activision pick winners using the superb commercial judgement of Robert Kotick.

Personally I am amazed at how the EA share price has held so high for so long.
Also SWTOR was just over egged from the start and needs a radical rethink if EA are ever going to get some of their money back.

There is light at the end of the tunnel. Senior EA people I know are very happy to have Kristian Segerstrale around and Peter Moore now seems to be singing off the same hymn sheet. The industry is undergoing massive change, the retail console model is in its death throws but digital distribution is a whole different business. EA are showing signs of understanding this.

Posted:2 years ago

#1

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
Take Two's decline will be based around GTA V's probable 2013 release, as well as, to a lesser extent, Bioshock Infinite being pushed back to the same year. They don't have enough strong IP - that is, large selling IP - to push back their most famous franchises, and not take a hit in investor confidence.

EA, meanwhile, just don't seem to do much right. The release of ME3 should have helped their price plateau, but TOR is a money sink, and even moreso with subscribers drifting away. The move to F2P will hurt, but it means they can, reasonably, move BioWare staff to other projects, since they won't have to appease paying customers with new content so quickly. This in turn might (should?) speed up development of DA3, for a 2013 release.

Beyond that, there's not a lot of IP that investors will regard as helping the company stabilise. The injection of cash from BF3 Premium is good, but they're just cannibalising sales of future DLC with that, to an extent.

Posted:2 years ago

#2

Darren Stewart
Videogame investor

52 17 0.3
Popular Comment
Another excellent article but I am going to disagree with your emphasis. Far and away the biggest single reason for EA's share price collapse is the corresponding collapse in video game industry revenues and, specifically, sales for this generation of consoles.

The figures given out by NPD (for the US) and Charttrack (for the UK) show an industry which is, quite frankly, falling off a cliff. Looking at the most recent month (May) and you had UK sales down 38% year on year and US sales down 28% year on year. This, despite the fact that we had Diablo 3, Max Payne 3 and Ghost Recon: Future Soldier all out in May. (Note that Diablo 3 sold something like 1.2m units in the US in the physical channel so they are all counted in those numbers).

Xbox 360 sales (in the US) were down 41% year on year. UK industry sales are down 33% year to date (as of last week).

It is very difficult to argue with the suggestion that this console generation is dying on its feet and we are still a long way away from anything to replace it.

Whichever way you cut it, that means the publishers are going to make far less money. Yes, there are lots of other factors specific to the individual publishers which make them more or less attractive to the investment community but you can't argue with an industry which is contracting at that rate. Investor simply aren't going to be attracted to a company which is within such an industry because the prospects for growth are limited.

That explains why you've seen collapses in the Take Two, EA and Ubisoft share price. THQ are a bit different (they've fatally wounded themselves with uDraw) and Activision is different because of Skylanders, Diablo 3 and World of Warcraft. Those things aren't as affected (if at all) by the end of this generation and so their share price hasn't collapsed. However, despite the huge success of Skylanders and Diablo 3, the reason their share price hasn't extended is because of worries about the Call of Duty franchise (given the industry numbers we've seen above).

Just one last thing to reinforce my point. The start of this growing awareness about the health of this generation was in "holiday 2011". The release schedule was the best for year and many, including myself, believed that this would arrest the multi-year decline that we had been seeing in the industry. It was therefore a huge shock when the numbers came though which showed that, despite the release schedule, sales were down double digit percentages year on year.

I think that was the start of a dawning realisation that the industry was in trouble and, not surprisingly, the reason why the stock prices started sliding from then on.

Okay, I could go on but that's enough. Hopefully I've made my point. There is lots of discussion about video game stocks and the industry on www.bougafer.com and some interesting threads in the forum about EA, Activision, Take Two, Ubisoft, the industry in 2012 and others.

Posted:2 years ago

#3
"The industry is undergoing massive change, the retail console model is in its death throws but digital distribution is a whole different business."

Bruce, I knew you'd be first to comment, and what you'd say!

Posted:2 years ago

#4

Anthony Gowland
Lead Designer

176 559 3.2
Popular Comment
I'm pretty sure at this point that Bruce's comments are just auto-generated based on keywords in the article and a very basic script.

Posted:2 years ago

#5

Bruce Everiss
Marketing Consultant

1,692 594 0.4
@Anthony Gowland

Rumbled.
I will get our programmers to write a better script.
:-)

Posted:2 years ago

#6

Raf Keustermans
CEO, co-founder Plumbee

28 2 0.1
EA's problem is not vision or strategy, but execution.
- mobile free2play: first big title (Simpsons) failed, servers couldn't handle load, game still not back 3 months after they took it down
- social: mixed story, but lots of failures and they're now #4 on Fb, after Zynga, King.com and Wooga, lots of painful failures, Risk: Factions anyone? SimCity is a big bet but very late to launch a city builder now, 2 yrs after CityVille
- MMO: SWTOR...

As long as they can't translate their vision into top notch execution, revenue and... profit, they're not going anywhere.

Posted:2 years ago

#7
@Darren Stewart - I broadly agree with your assessment, but there are a few points where we differ. Firstly, I'd point out that while Take Two and EA are declining sharply, Ubisoft and Activision are performing in-line with their respective local indices, which suggests that the markets are seeing this decline impacting some companies more than others. We know there's a collapse in boxed sales and a corresponding (but probably not equal) rise in digital revenues; some companies are going to struggle more than others to survive that transition, and it's clear that investors are incredibly wary on the sector as a whole, but outright negative on certain stocks.

That's why I think it's helpful, against a backdrop of overall neutral-to-negative sentiment on the sector, to ask what specific factors are hurting ERTS (or TTWO) while leaving UBI and ATVI largely neutral. I think we agree on the overall picture - I just want to emphasise that the point of this article was to focus in on the specifics with regard to EA and ask why they're the company worst-hit by this decline in investor confidence.

Posted:2 years ago

#8

Tim Carter
Designer - Writer - Producer

555 292 0.5
Popular Comment
The idea alone that game companies should be publically-traded is absurd.

Hello! These aren't mining or manufacturing ventures. It's not about (or shouldn't be about) cranking out product at a predictable pace.

This is entertainment. This making of this stuff moves at the pace of creative, not at the pace that investors want it to move. You can't force creativity.

Edited 1 times. Last edit by Tim Carter on 21st June 2012 4:24pm

Posted:2 years ago

#9

Darren Stewart
Videogame investor

52 17 0.3
@Rob - I don't think investors are more negative on EA than the other stocks. Looking at the forecast p/e ratios (based on the most recent forecasts) and you have (as I type):

Activision - 12
EA - 11
Ubisoft - 6
Take Two - 5
THQ - n/a

So, in fact, I would argue that investor sentiment towards EA is as high as anything else in the sector.

You've looked at how far they've fallen (over a specific timescale) and are suggesting that's evidence EA have done more wrong than everybody else. We could debate (and I do on www.Bougafer.com all the time) the relative merits of the individual publishers but I would continue to argue that the fundamental reason for EAs fall is the end of the world as we've known it, i.e. industry sales finally falling off a cliff having been in decline for the past four years.

In my humble opinion :)

Edited 1 times. Last edit by Darren Stewart on 21st June 2012 4:25pm

Posted:2 years ago

#10
I think if anything, EA are the biggest developer publisher ready to tackle the digital model, whilst still producing core titles IMHO. Stocks can fluctuate, but I guess we shall see after a year or more, proof in the puddin kinda thing

Posted:2 years ago

#11

Thomas Eidson
Senior System Designer

18 0 0.0
The holiday season had a huge barrage of deals on Steam. Much of the public is shifting to cheaper games and EA is now following a very risky development process, due to more competition.

EA and other large publishers must reinvent themselves to produce smaller products with lower price points. Microtransactions are already seeing a backlash from customers.

Indie studios are chipping away with lower cost software, smaller and more nimble teams, and innovation over large product stagnation.

Posted:2 years ago

#12

Craig Page
Programmer

382 218 0.6
So anyone with $3,897,000,380 sitting around could buy EA and own all of it's games and franchises? That seems like a bargain considering you get all of their sports franchises, Mass Effect, Battlefield, The Sims...

If Microsoft or Sony were to buy EA, and make their future games platform exclusives, or even release them a year later on competitors platforms...

Posted:2 years ago

#13

William Usher
Assistant Editor

41 29 0.7
Tim is absolutely correct.

Everyone is looking at this from a business financial point of view (i.e., why aren't they performing well based on output and reception?). Gaming has little to do with output (game releases) and reception (general review scores/market value).

The big debate going on right now is how core gamers are actively and willingly moving away from EA, spreading negative word of mouth and generally setting up a bad precedent of sales for upcoming titles and sequels. It's the same reason why there will be continued decline in Call of Duty sales...a lot of people recognize it's the same thing each year and are getting the hint.

Tim is absolutely right, though, this is a creative industry and if you find the right balance of a fun entertaining game with the right market saturation, you can have a hit success and still profit (i.e., Portal 2, Skyrim, Assassin's Creed).

The problem is that EA is trying to measure their success in the gaming industry as a business and not as a pioneer of electronic entertainment and interactive creativity. SWTOR was such a massive sink-hole with an obese budget that just never should have been. $200 million dollars for a WoW-clone with Star Wars textures and a whole lot of talking? If gamers recognized this and dropped their subs due to a lack of interest (including my cohorts and most of our readers) I don't see how that could raise EA's value in the market.

But a lot of their decisions are like that, and I think how a lot of people perceive them in the gaming community is starting to affect how they perform on the market.

Posted:2 years ago

#14

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
Indeed. Investors react to profit margins and sales. But EA seem to go out of their way to antagonise the very market they need - that is, people who buy games. The upshot of this is that sales go down, and investors get wary.

As some examples:

Peter Moore says shockingly arrogant things, both about monetising IP, and about EA's products. David DeMartini's interview of two weeks ago was wrong on so very many levels - giving consumers cheap games cheapens IP? wtf mate? And you follow that with the Origin deep-discount sale that was only available in the UK/Europe, and you have a laughing stock of a man, who's openly derided on forums. It's fairly well acknowledged that BioWare has gone downhill since EA bought them, and the BioWare forum mods are meme-fodder.

To investors and business-people, this is nothing. But all this impacts how consumers view EA. And, past a certain point, non-sales of products - because people hate EA, because they want games on Steam, or just "because" - become large enough that they affect EA's bottom line.

I know I come across as a Valve fanboy sometimes, but at the end of the day, Gabe Newell has a deep understanding of his target market. By contrast, I don't feel like anyone at EA understands me, the consumer, as anything but a walking wallet.

Edited 1 times. Last edit by Morville O'Driscoll on 21st June 2012 6:52pm

Posted:2 years ago

#15

Spencer Franklin
Concept Artist

93 124 1.3
@Tim Carter "This is entertainment. This making of this stuff moves at the pace of creative, not at the pace that investors want it to move. You can't force creativity"

^^This. this is why the industry is failing. Games aren't created by gamers for gamers. It's created by men in suits and their metrics and spreadsheets, who still don't have a clue. They don't make "FUN" games, they make games that attempt to manipulate specific behaviors in order to squeeze every last penny from the consumers they supposedly adore..the "Whales" as Mr. Moore (of EA) put it. this transition to digital isn't about gaming either, it's about finding ways to turn that 60 dollar boxed game into a 100+ dollar game by fooling the uninformed that it's "free-2 play" and nickel and diming them for access to what would once have been considered a normal part of the game. Those unlockables, and hidden characters, now DLC, Day One DLC even.

Yeah, none of what's in this article is surprising. What's surprising is that people are just taking notice.

Posted:2 years ago

#16

Greg Wilcox
Creator, Destroy All Fanboys!

2,156 1,073 0.5
As someone gaming since 1972 (1968 if you count failed attempts at pinball while standing on an orange crate), I'm sickened by the near total LACK of more core gamers running game companies in high level positions. If all you have are stuffed suits (some of whom don't even know the correct names of the games they publish)and bean-counters projecting and fussing over metrics and other stuff that, while important to investors, almost always FAILS to be a good barometer of how a game should be made (or marketed), it's no wonder why things are so bad in about every sector once you look past the usual chest-puffery when a few titles or a particular segment of gaming does well.

Yeah, yeah, it's a business and blah and blah, but as Tim, Spencer and others are noting, there's enough annoyance about the way things are running that there needs to be a shift away from so much focus on making games first and foremost for investors, high Metacritic averages (this, in particular is STUPID to the extreme), simply to micro-transact users to death or other things that end up not making many of the end results actually fun to play once you take them at a basic level.

It's not just EA, but every major publisher that's trapped in this cycle that's just eating up and spitting out studios once a project is completed (particularly if the sales figures aren't making whatever targets are set in too short a time). I can recall when games were given enough time to find their niche, not given a weekend or week to rake in big scores and big sales based on pre-orders, midnight launches, billion-dollar ad campaigns and other nonsense that's just good for keeping PR people working and speculators speculating. The games market is turning into the baseball card and comics market of this decade and it's going to crash (again) if it keeps going the way it's going.

We need to get back to better times by just concentrating on making GAMES, not just cash for people who don't care about them.

Posted:2 years ago

#17

Jamie Knight
International Editor in Chief

48 21 0.4
"we need more gamers making games" (??)

and you guys condone DD?? Really? I don't know any 'true gamers' who want the shift to full DD. Its just another cost effective way of control for the suits.

DD will see the core of gaming stripped by its inaccessibility for the millions of gamers who currently ( and will always continue to ) game offline, ( preferring the single player to the multiplayer experience )

but that in itself is part of this boom and bust games industry. Everyone wants the next CoD, FiFA or Halo for the online MP cash cow and forgets that the game istelf is why the majority of 'gamers' buy the product,

you want to sell games again? then remember that not everyone wants to game online, not everyone wants to run a high end PC to play, not everyone wnts to stream their games and only be able to play if connected to the internet, not everyone wants to sit in an FPS or soccer title all day long.

the majority of gamers we speak too want the ability to just pop in a disc and be lost in a campaign for a few hours. ( regardless of what the DD pushers will try to convince you )

Posted:2 years ago

#18

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
@ Jamie

There's so many games - mostly indie - which just would not be financially viable outside of digital distro. Everything from Flower and Journey on the PS3 - ah, yes, how many boxed copies of an esoteric game where you're a flower petal do you think you'd sell? - to Legend of Grimrock and Dear Esther on the PC would be financially questionable.

Remember, too, that DD works both as DRM and as a retail medium. How happy do you think your customers would be if they'd bought Neverwinter Nights 2 as a disc, and found that SecuRom stopped them from "the ability to just pop in a disc and be lost in a campaign for a few hours"?

I'm as true a gamer as they come - been playing since the early 80s, writing for I-don't-know-how-many-years, and go to a monthly gaming group where we talk about games and the industry - and I adore DD. Steam's Offline mode may be iffy, but the benefits it gives are too numerous to mention; not just from a consumer point-of-view, but from a developer pov too.

No, not everyone is like me. But then, not everyone is as you suggest. A happy medium is in-between. As I say above, though, some games just wouldn't be possible outside of DD, and it behooves us all to remember that.

(Edited for clarity)

Edited 3 times. Last edit by Morville O'Driscoll on 21st June 2012 9:06pm

Posted:2 years ago

#19

Andrew Goodchild
Studying development

1,235 396 0.3
The impression EA give with Origin is that the question they ask is "How do we most efficiently monetise consumers?" where Valve give the impression of "What can we do to make consumers happy so that they want to be our customers, spread the word, and hopefully keep spending as a result?". The monetisation may be the important bit to investors, but it grates at the consumer, and it seems arrogant to think that upsetting your customers constantly is a good way to run. The view on EA dlc strategies seems to only be beaten by Capcom in the vitriolic stakes, yet EA still purely seem to think how they can extract more, rather than way people are so negative towards their approach. Investors care about the money, but alienating customers doesn't seem to be working as a strategy.

Posted:2 years ago

#20

Paul Smith
Dev

189 148 0.8
The problem with EA is simple, They spend to much and don't make enough. A while back I read that (I think was in 2010) EA spent about 1.1 billion on development and 700 million on marketing, that is an outrageous amount of money to spent on marketing, Its not necessary and clearly isn't cost effective, When it comes to video games word of mouth is the best type of marketing you can get (and I mean the "real" word of mouth not EA paying people to viral on forums), The problem EA has of course is that it does everything it can to piss off "hardcore gamers" the people must likely to pre-order your game and then tell everyone they know if its good or not.

Aside from that EA really need to go back to basics when developing games and actually think what they want that game to accomplish, For instance a game like Dead Space should be "We want to create a sci-fi horror game which will gave the player a survival-horror-esque experience with small amounts of action, while telling a story" some how EA have ended up with "We want to give the player a cinematic experience" Pretty much every recent core EA game is just "We want to give the player a cinematic experience",

Now you might be thinking what's wrong with that? Well whats wrong with it is that creating that type of "cinematic experience" is incredible costly and stifles creativity I read awhile ago that Square-Enix couldn't make a game like Final Fantasy 7 anymore because It would take to much time and be far to expensive because of the amount of locations animations voice cast etc.



I read as well that apparently Dead Space 3 needs to sell 5 Million copies to make a profit....

Its been nice knowing you EA!

Edited 1 times. Last edit by Paul Smith on 21st June 2012 10:02pm

Posted:2 years ago

#21

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
I read awhile ago that Square-Enix couldn't make a game like Final Fantasy 7 anymore because It would take to much time and be far to expensive because of the amount of locations animations voice cast etc.
That's one of the reasons why TOR cost so much. There was an LA Times article in January saying that the budget for it was $200 million dollars. Now, either BioWare were going to Vegas every other weekend, or they spent the majority of that budget on voice-actors.

I definitely think you're right. Budgets for high-profile games seem to be on the rise, when they don't always need to be. Look at all the high-praise Journey has had - more critical acclaim than the new Modern Warfare and BF3, for a fraction of the cost. It's certainly something that needs to be slowed, if not stopped, else publishers are going to cost themselves out the market. It's already happened with 38 Studios, where the development costs for Kingdoms of Amalur meant they (allegedly) had to sell 3 million copies to break even. EA are one of the worst culprits, especially since (and I switch to speaking subjectively here) their more recent games seem to be at best motivated by money and sod-all else, and at worst creatively bankrupt.

(edited for typos. Definitely shouldn't speed-type after a glass or two of white wine. :) )

Edited 2 times. Last edit by Morville O'Driscoll on 21st June 2012 11:30pm

Posted:2 years ago

#22

Tony Johns

520 12 0.0
I do think that Nintendo's expected annually loss was expected when you think of the factors that played in the market last year, however the EA situation and their fall in the share price seems more to do with their over reliance on big budget titles that are somehow not selling as well as what shareholders thought, and looking at how times might be for them at the moment I would not want to be part of EA at the moment.

I hope they have had a big nest egg that they had build up over the last two decades.

Posted:2 years ago

#23

Bruce Everiss
Marketing Consultant

1,692 594 0.4
@Darren Stewart

"the fundamental reason for EAs fall is the end of the world as we've known it, i.e. industry sales finally falling off a cliff having been in decline for the past four years."

Precisely.

@Paul Trillo

"that is an outrageous amount of money to spent on marketing, Its not necessary and clearly isn't cost effective,"

This shows a complete lack of understanding of the video game business.

Posted:2 years ago

#24

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
"that is an outrageous amount of money to spent on marketing, Its not necessary and clearly isn't cost effective,"

This shows a complete lack of understanding of the video game business.
Care to elaborate on that? I may not be the target market for their recent games - I bought BF3 because I liked the beta, not because I'm a fan of CoD, I've steered away from TOR because I don't like MMORPGS - but I can't see how such a large marketing budget has helped EA, particularly. Or maybe it's just their marketing is constantly side-tracked by PR gaffs?

Posted:2 years ago

#25

Bruce Everiss
Marketing Consultant

1,692 594 0.4
@Morville O'Driscoll

It is quite simple. Zero marketing = zero sales.
Some people think that marketing will happen by word of mouth magic, all that matters is product quality. It is because of this attitude that the vast majority of iPhone apps have less than 1,000 downloads. Yet if Chillingo bring out any iOS game it is just about guaranteed to chart.

Posted:2 years ago

#26

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
@ Bruce

Oh, well, obviously something has to be spent on marketing, yes. Word of mouth is good for the random indie games - Journey springs to mind - but yeah, a marketing budget is definitely needed. However, "700 million on marketing"? (to quote Paul) That's a hell of a lot of money. And in some cases, they were just throwing good money after bad - NfS: The Run was an atrocious game - and in other cases, not even countering the negative publicity (Syndicate). I would argue it's not that they even spend so much money, but that they don't seem to spend that money wisely.

Posted:2 years ago

#27

Alfonso Sexto
Lead Tester

783 590 0.8
@Morville

I would also add, as a former EA employee, that their marketing is not only expensive but also senseless; as an example: Releasing "Need for Speed World" the EXACT same day as Starcraft II hit the streets.

@Bruce @Darren.

"industry sales finally falling off a cliff having been in decline for the past four years"

"Falling of a cliff" is a massive exaggeration, to begin with. As a second point you seem to forget that 2008 was a record year for the industry. As a third point we are in a period of worldwide economical turbulence and nevertheless the industry grew around 8% last year... you way see it very little compared to previous years of 15%, but is still a grow.

Less being a Zealot Mr Bruce and more keeping your information up to date.

Posted:2 years ago

#28

Darren Stewart
Videogame investor

52 17 0.3
@Alfonso, I'm going to repeat what I said above. What other interpretation can you make than it is falling off a cliff?
The figures given out by NPD (for the US) and Charttrack (for the UK) show an industry which is, quite frankly, falling off a cliff. Looking at the most recent month (May) and you had UK sales down 38% year on year and US sales down 28% year on year. This, despite the fact that we had Diablo 3, Max Payne 3 and Ghost Recon: Future Soldier all out in May. (Note that Diablo 3 sold something like 1.2m units in the US in the physical channel so they are all counted in those numbers).

Xbox 360 sales (in the US) were down 41% year on year. UK industry sales are down 33% year to date (as of last week).
As an aside, the industry didn't grow by 8% last year it (in the US) shrank by 8%.

Posted:2 years ago

#29

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
@ Darren

Videogames are a luxury. Do you live in the UK, or the States? Because, whilst the American economy is starting to gather speed, the UK one is shockingly bad.
UK sales down 38% year on year
With austerity measures still being introduced, rising unemployment, inflation either rising or holding steady (depending upon the month), wages for "the 99%" falling or holding steady, and the benefits system being overhauled.

No doubt there is a downturn in the industry. But, just like physical sales are down because people are moving to digital, so all sales luxury item.

I think the two largest gaming groups are students and the unemployed. The unemployed have little money and plenty of time; but worries over the new benefits system means they now have less money. Students, meanwhile, have less time, but more money. But they are no longer guaranteed a job straight out of university, so will be saving their loans so they can exist more comfortably until they get a job.

Edit:

Also, looking at these two stories in tandem

http://www.computerandvideogames.com/331208/uk-industry-revenue-down-13-in-2011/

http://www.eraltd.org/news/era-news/games-overtakes-video-as-uk%27s-biggest-entertainment-category-in-2011,-but-video-is-fighting-back.aspx

Seems to say that UK sales of home entertainment media generally are falling, but even so the videogame industry is performing better than DVDs and music. I would say this backs up my argument that luxury items are selling in less numbers.

Edited 1 times. Last edit by Morville O'Driscoll on 22nd June 2012 9:57am

Posted:2 years ago

#30

Darren Stewart
Videogame investor

52 17 0.3
@Morville, I'm UK based. I was just responding to the "sales aren't falling off a cliff" comment above because I don't think I'm being alarmist, just relaying the facts as they are.

In terms of why they're falling off a cliff then I think the economy has something to do with it, the collapse of GAME (in the UK) has something to do with it but I think mainly it's because the mass market is bored with what the games industry has to offer.

If the games industry gives consumers an exciting product (witness Diablo 3 6m+ sales in it's first week or so) then the money is there. But I think people have just had enough of the same old same old stuff on consoles that are 7 years old.

But my main point is that EAs problems are the industries problems. Yes they've made mistakes, yes the management team are taking the p!ss but if the industry wasn't back to 2004 levels of sales, EA's share price wouldn't be down to $12.

www.bougafer.com - investing in the video game industry

Edited 2 times. Last edit by Darren Stewart on 22nd June 2012 10:40am

Posted:2 years ago

#31

Mary Hilton
Community Manager

37 20 0.5
When your company spends $100 million dollars on an advertising campaign for a game that will attempt to overtake its' nearest rival, and then fails, you've got more than a few problems: http://bf3blog.com/2011/04/battlefield-3-launching-this-november-with-a-100-million-ad-campaign/
EA spent that money on Battlefield 3 last year. Did they get the expected returns on it? I rather doubt it. The share price has been falling like a rock because investors simply just don't believe EA has the vision right to make better games and a profit at the same time.
Oh, and about the new Sim City that's coming out? Look for a massive failure, because it will be on-line play only. Players do not want to be tethered to the Internet to play a game, and this one will flop when it's released for general sale. Not everyone has a stable connection.
Facebook games are one thing, 'always on-line' requirements are totally another, and gamers do not get easily confused.

Edited 1 times. Last edit by Mary Hilton on 22nd June 2012 12:10pm

Posted:2 years ago

#32

Murray Lorden
Game Designer & Developer

199 72 0.4
I left EA last November.

I think that probably explains the steady decline since then.

Posted:2 years ago

#33

Bruce Everiss
Marketing Consultant

1,692 594 0.4
@Mary Hilton

With that $100 million EA weren't trying to sell a game. They are building a brand and will get the return from the spend over the many years that the brand is available to consumers.

As for tethered to the internet. If we do a proper search here in our office in Leamington for WiFi signal we get well over 100 different sources. For a while my office computer, by mistake, was using the WiFi of the Pizza restaurant downstairs!

And how do you explain the success of Runescape with 200 million registered accounts, which requires an internet connection to work?

Posted:2 years ago

#34

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
@ Bruce

Well, you should talk to that pizza place about wi-fi security. :p

Seriously though, just because the internet is everwhere, doesn't mean people always want to connect to it to play a game. All you have to do is witness the D3 PR nightmare to see why always on connections are bad. Add that to EA's propensity for killing servers, and you have a game that the core Sim City crowd are shying away from.

Regarding your point about BF3, the Battlefield brand existed before BF3. Whilst money needed to be spent, I'm not quite as certain so much needed to be spent, especially when consumers remember little details from the marketing like Dice saying there'd be no CoD Elite-like package.

Posted:2 years ago

#35

Paul Smith
Dev

189 148 0.8
@Bruce

I admit that I have no experience in the industry nor do I think Im more qualified than the people running EA but I can read, I can see that EA's games are under selling and that EA are spending far to much money on marketing strategies which clearly aren't working. They need to stop that otherwise they will end up bankrupt or most likely being bought out.

I never stated that there should be zero marketing budget. There's some games out there which needed way more marketing behind them but I would never agree that a marketing budget should be 70% of the development cost that might work for films but It doesn't work for video games.

Posted:2 years ago

#36

Alan Ashby
Recruiter

9 6 0.7
The elephant in the room is EA SPORTS. But yet the article fails to mention anything about EA's largest revenue generating segment. Madden and FIFA come out this summer and should expand on EA's digital vision. I would suggest holding out judgement until then. In the meantime, call your local broker and ride the buy low, sell high wave.

Posted:2 years ago

#37

Richard Lyle
Principle Software Engineer

1 0 0.0
EA's problems are really about poor execution & rushing games to market to satisfy the stockholders rather than waiting until they are completely done.

Probably my last EA purchase was BF3 for the PC. The game itself was well done, but the browser based matchmaking and Origin was just plain horrible. I can only imagine the marketing department was responsible, so they can access players Facebook cookies.

Once your marketing department starts driving your game development you're doomed. Games need to be fun first, then figure out how to spend those marketing dollars to promote it. Do everything to make your customer happy first.

Nice knowing you EA..

Posted:2 years ago

#38

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
@ Alan

Possibly because only FIFA has a real fanbase outside of the US? Add that to the fact that sports is a very hit-and-miss genre with customers, I think, and you get people just forgetting their existence.

Also, recently it's been incremental graphics updates with roster changes, and one quite impressive PR failure (Tiger Woods 2012 PC. Which, as it happens, also appears to have been rushed out).

Posted:2 years ago

#39

Jason Sartor
Copy editor/Videographer

104 33 0.3
One important factor left out of the article is that it basis the argument that EAs price and valuation is based on logic and facts.
If logic and fact drove prices tickle-me Elmo's would not sell online for hundreds, the housing market would not have risen to ridiculous levels, Facebook would not have had an IPO of $100 billion on $1 billion in profit, etc.
Look at Microsoft: Here is their yearly income statements dating back to 2004:
http://www.microsoft.com/investor/EarningsAndFinancials/TrendedHistory/AnnualStatements.aspx
Despite the huge increase in revenue, operating income and EPS, its stock has basically been flat for that same period.
http://finance.yahoo.com/q/bc?s=MSFT&t=my&l=on&z=l&q=l&c=
How many companies would love to see operating income increase 300 percent in seven years when they are the size of MS and go from 2004 OI of $9 billion to 2011 OI of $27 billion. All of them, yet the stock just languishes.

Posted:2 years ago

#40

Robb Lewis
Director of Marketing and Consumer Products

5 0 0.0
Maybe to sweeten the pot for MMO subscribers EA could offer a number of titles as "included" when you subscribe to SWTOR. Is the game in decline due to buggy game play or a weak story line and quests?

Posted:2 years ago

#41

Eddie In
Business Development - Assistant Manager

2 0 0.0
@Robb
With SWTOR, EA chose to go big or go home and really tried to pull out all the stops to become the #2 MMORPG in the world. My guess is that they were expecting around 3 million subs and instead got less than half that number. The current level of subs is great if you spent what Rift or Blade&Soul is spending which is about a quarter of SWTOR's costs. For what it is, SWTOR is a solid game and is very fun to play. People are moaning about the lack of late-game content but this is the year when gamers clear Diablo in 6 hours. Turn back the clock and SWTOR has about the same level of late-game content as WoW Vanilla at launch.

In short, SWTOR is a very well-made game - it just cost way too much.

Edited 1 times. Last edit by Eddie In on 25th June 2012 2:47am

Posted:2 years ago

#42

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