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Why EA Will Stay On Riccitiello's Course

Why EA Will Stay On Riccitiello's Course

Fri 22 Mar 2013 7:30am GMT / 3:30am EDT / 12:30am PDT
BusinessPublishing

The shock is that EA's CEO lasted this long - but don't underestimate Riccitiello's successes

The word "shock" gets thrown around with fairly wild abandon by the media at large, with the games media being no exception, so it's no surprise that John Riccitiello's departure from EA earlier this week was quickly labelled a "shock" by plenty of commentators. For once, though, I don't disagree with this characterisation - there is indeed something shocking about Riccitiello's departure, but it's not what most pundits seem to think. It's not shocking that Riccitiello is going; it's shocking that he lasted this long.

"Controversy over aspects of game franchises like Mass Effect and Dead Space only highlight the fact that EA has created a significant number of well-loved games this generation"

John Riccitiello rejoined Electronic Arts in 2007, touting a turnaround plan for the giant but struggling publisher. He was going to change course, focusing the firm's resources on quality products and ensuring that it wasn't left behind by the rise of mobile, online and social gaming; internally, there were ambitions to overcome EA's deep-rooted structural problems, which often prevented teams from sharing technology and expertise effectively, denying the company the advantages its sheer scale should have afforded. In financial terms, this should all have afforded the firm better margins, a rising share of turnover from digital and other non-traditional revenue, and ultimately, rising income and profits.

All of these things were necessary, because EA's revenues had stagnated and its margins were in serious decline. Games were costing more to develop, but they weren't making any more money to cover those costs - a problem facing the entire industry, but one that was especially evident in EA's financials. Riccitiello's strategy for tackling the rot was touted, effectively, as a three year plan. EA was the games industry's publishing supertanker; it would be slow to turn around, but it could be accomplished in three years.

That was almost six years ago. The plan hasn't really changed - it's just taken a long time, and it's still not finished. By the time EA accomplishes what Riccitiello set out for it, seven or eight years will have passed - possibly more - and John Riccitiello, of course, will be gone. Even when his three-year plan was barely getting up to speed after three years (and I will always suspect that Riccitiello knew full well that it would take far more than three years to execute), the board and the markets still felt he was the right man to lead the company. Only six years down the line has patience run out and Riccitiello been forced to fall on his sword.

In some regards, the delay isn't really his fault. Remember that Riccitiello rejoined EA in 2007 - and the world's economies were hit by the worst financial crisis in almost a century in 2008. EA's share price graph falls off a cliff in 2008; it traded at between $45 and $55 in the years before then, and struggled to peak over $20 in every year since then. 2012 saw a big decline; 2013 so far was showing a recovery - but the company may never attain its pre-2008 levels again, which made restructuring very, very difficult, because a high share price was key to EA's power to acquire and retain companies, IP and talent.

"The Old Republic tanked. There are countless reasons for that but the buck stops with Riccitiello. This was his baby, and it was born ugly"

In other regards, though, Riccitiello's plan just didn't work out. His fate was probably sealed when Star Wars: The Old Republic failed commercially. This project was seen, perhaps unfairly, as the canary in the coalmine for Riccitiello's efforts. Its developer, Bioware, had been brought to EA by Riccitiello when he arrived as CEO. It was a digital product driven by subscription revenue, an expensively developed game designed as an exemplar of quality from a studio with a stunning back catalogue. It was the opening shot of two important battles at once - it would get Origin off the ground, putting EA head to head with Valve's Steam, and it would give EA skin in the MMO game, pitting it against Activision's World of Warcraft. In the world of simple narratives often preferred by investors, The Old Republic was the real-world test of Riccitiello's plan and EA's mettle.

The company failed the test; The Old Republic tanked. There are countless reasons for that, rooted in everything from design through to business model, but the buck stops with Riccitiello. This was his baby, and it was born ugly. That he carried on for a few quarters after TOR's failed launch, only resigning in the face of some (actually not so terrible) financial misses, is largely inconsequential - Riccitiello's P45 was stamped by The Old Republic.

It's important, though, to look past the headline and look at the sub-headings in Riccitiello's plan, because in some other regards, EA has made extraordinary strides in the past few years. The company is a major player in mobile and social games and has made serious inroads in tablet games. It has overhauled the FIFA franchise both in terms of quality, with the game widely beloved of football fans, and in terms of business model, with the Ultimate Team system introducing microtransactions in a way that's actually managed to please rather than horrify fans. Controversy over various aspects of game franchises like Mass Effect, Dragon Age and Dead Space only highlight the fact that EA has created a significant number of seriously well-loved franchises in this generation (although the ball was dropped on Dead Space at a corporate level; whichever management committee issued the instruction to warp the game into a shooter and yank it out of its much-lauded horror gaming origins would do well to keep their noses out of design decisions more complex than choosing curtains for their bedrooms in future).

"The ingrained culture of EA - bickering internal politics, jealously guarded fiefdoms and the whole lot - has improved but is by no means gone"

On these grounds, Peter Moore, hotly tipped in the press as the replacement for Riccitiello, is quite right to defend his erstwhile boss' honour online. This isn't mere misplaced loyalty - Riccitiello did come to EA while the company was in the wilderness, threatening to haemorrhage more and more money each quarter and utterly bemused by the rise of new business models and audiences, and while the company he's leaving isn't on the straight and narrow yet, at least it's got a road map and started to figure out the terrain. Remember, too, that for all the overblown rhetoric about EA being "at war" with gamers, this is a company that was roundly despised by gamers for most of the 1990s and early 2000s; perversely, it only arouses such renewed passion now because EA under Riccitiello went such a long way towards repairing its reputation.

Whoever replaces Riccitiello still faces a tough job. The ingrained culture of EA - bickering internal politics, jealously guarded fiefdoms and the whole lot - has improved but is by no means gone. The company still allows corporate interests to dictate to creative teams all too often, rather than fostering co-operative spirit between the two. Most of all, EA is possibly the worst company in the games industry at communication; its dealings with consumers and with media over the recent Sim City debacle, littered with legalese and robotic-sounding corporate jargon, are a jaw-dropping and deeply depressing example of an entertainment company that's forgotten how to speak with a human voice. One reason I'd like to see Moore as CEO is simply that he's one of the only public faces of EA in recent years who isn't a Stepford Wife, and that would go some way to pulling off the giant "Kick Me" sign that EA pastes on its own back every time a company spokesperson opens his or her mouth of late.

Be under no illusions, though - whoever replaces Riccitiello will continue Riccitiello's work. Smug expressions of triumph from soi-disant internet campaigners are misguided. Riccitiello isn't leaving because of microtransactions or social gaming; he's leaving because he couldn't get microtransactions, social gaming and all the rest of it up to speed fast enough (although there may be an element of disquiet at just how badly some parts of the market were being alienated by the way the strategy was being pursued, of course). His replacement will have to steer the ship through some rough seas - but the course he's setting is already plotted. Wherever EA goes now, it's Riccitiello's legacy it'll be pursuing.

13 Comments

Michal Korec Editor/Analyst

9 1 0.1
Finally, well-balanced opinion after "shocking" week :-)

I do think that last fiscal year offered like dozen reasons to let JR go, combination of SW: TOR, Medal of Honor fall (again), weaker sales for almost all titles (MoH, NFS MW, DS3, Crysis 3), NBA cancelling (again) and SimCity crash is horrendous.

I like the idea that JR went too late - although I think there would be no difference if he went out of EA 1 or 2 years later. From corporate view I do understand all the changes he made - and wanting to change company faster is almost impossible. Although that would be precisely what would have helped. SW TOR coming sooner to the market, NFS revitalizing sooner, NBA getting back etc. Partly, JR is to be blamed he didn't steer his teams to make changes quickly. Plus, I think that slashing all IPs from 30+ to 10+ is partly a mistake and this fiscal year showed it. One or two titles crash and burn, and the whole fiscal goes down.

But having only 2 CEOs in 22 years is not that bad, consistency must prevail. It would be interesting to see if JR's successor lasts at least 6 years too.

Posted:A year ago

#1

Magistretti Roberto journalist

6 0 0.0
Great article: thanks Rob.

R.

Posted:A year ago

#2

Alexandros Gekas Co- Founder, Editor, Ragequit.gr

15 19 1.3
A great read, thank you mr. Fahey. I have no doubt in my mind that Riccitiello's legacy will live on for years to come.

Posted:A year ago

#3

David Serrano Freelancer

300 272 0.9
Popular Comment
"Riccitiello isn't leaving because of microtransactions or social gaming; he's leaving because he couldn't get microtransactions, social gaming and all the rest of it up to speed fast enough."

As is always the case with large corporations, there is the pretense they would like everyone to blindly accept and there is reality. John Riccitiello is not leaving because "he couldn't get microtransactions, social gaming and all the rest of it up to speed fast enough." John Riccitiello is leaving because over the past several years, he engaged in development, business and marketing practices which severely undermined consumer confidence in EA's games, and in EA as a brand. Which in turn, negatively impacted the health, stability, integrity, and viability of the entire industry and market. John Riccitiello is leaving because EA finally accepted if they didn't make a change, he would have put the company and half of the development community out of business within 4 to 6 years.

And the truth is there's not an MBA, economist or business consultant who would in good conscience advise EA to continue to follow Riccitiello's business model or plan. Because it is simply unsustainable. If EA and other publishers continue attempting to generate all of their AAA revenue by exclusively catering to; then nickel-and-diming 1 to 2 percent of the active worldwide installed base, they will not survive. Because 1 to 3 million players cannot sustain a company as large as EA, let alone the entire core market. From what I've read, Larry Probst is a smart guy. So hopefully he will follow Yahoo's example and choose someone from outside the company who can come in and radically change the culture and development focus. But if Probst replaces Riccitiello with Peter Moore or Frank Gibeau, he will sign EA's death warrant.

Posted:A year ago

#4

Tom Keresztes Programmer

683 335 0.5
So hopefully he will follow Yahoo's example
That is probably not a wise idea. Yahoo is no longer dictating the trend, just following it.
The devaluation of EA brand actually started back in the 90s where they bought studios, then closed them. Their products just has no personality - or identity, no matter how well crafted they are. I've recently played their version of the Tetris on my iPad, and it was a very strange experience. I am not sure but it felt overdone and/or soulless, despite the polished nature of the game.

Posted:A year ago

#5

David Serrano Freelancer

300 272 0.9
@ Tom Keresztes

Yahoo handed Marissa Mayer the baton when they were in last place. So while it may be too late for her to bring the company all the way back, they still made a great choice. But they only made the choice after they acknowledged the need to radically change their culture and mentality.

And yes, EA's brand integrity problems began before Riccitiello, but back then they were isolated to the most knowledgeable players in the core audience. Riccitiello exacerbated the problem to the point where the average core player began to mistrust the company.

I do think EA still has a small window of opportunity to turn things around but it's unclear if they've acknowledge the need to radically change. Probst needs somebody who can come in and completely restructure a company which is dysfunctional on almost every level possible. And the people who could do it won't accept the job without a contractual guarantee they'll have the power to clean house with little to no interference from EA's executive board. So who they hire will be a Rorschach test for the board's state of mind.

If they promote one of Riccitiello's minions or hire another "money guy" who's never worked a day in the industry in a non-executive management position, they simply don't understand the nature of their problems or how much trouble they're actually in. But if they could convince a recently retired Bioware executive who was always infinitely more qualified to lead EA than Riccitiello to accept the job or to come in as a consultant, then they understand the problems and what it will take to turn the company around.

Posted:A year ago

#6

Andreia Quinta Creative & People Photographer, Studio52 London

224 590 2.6
David's comment is right on the money. The company is in need of radical change, they need fresh blood, uninfected by their own biased executives and investors.

Posted:A year ago

#7

Gareth Barry Student

2 7 3.5
Popular Comment
I refer to a recent comment Cliff Bleszinski made regarding EA, "It blows my mind that ... when Valve charges 100$ for an engagement ring in Team Fortress 2 it's somehow cool, yet when EA wants to sell something similar it's seen as evil."

This analysis is right on the money, Valve a company that has near a flawless reputation & image (who coincidentally don't really make video games anymore) have been trying & experimenting with these new business models for quite some time. They even brought in a world renowned Economist to evaluate & analyse their users & consumers in-order to better maximise profit. While I do think that EA has been unfairly judged by the gaming community, under Riccitiello their final product & execution missed the mark more times than they hit but the company is excellently prepared for the all digital future.

At this moment in time nearly all the big publishers & developers have adopted & implemented F2P & or micro-transactions, gamers seem to forget that video games are not only a hobby but a business first & foremost. Riccitiello did a pretty good job to completely re-align & re-focus (on the business side) a huge company like EA.

Right now EA needs an 'external' game developer & creator who will elevate their I.P's & finally deliver on their promise & potential. The question is, who out there is big enough to take it on? My money is on Peter Moore, though wouldn't it be interesting if say someone like Jason Rubin got the gig.

Posted:A year ago

#8

Aaron Brown BA Computer Science Student, Carnegie Mellon University

56 21 0.4
@Gareth Barry

They already have insomniac working for them as a new in house developer, so they really don't need another new 'external' game developer. Plus they have plenty of other strong development teams.
They just need to stop playing it safe and risk it for the biscuit. They have to invest in ground shaking new IP, and stick with the vision; instead of changing things up midway like they did in the case of Fuse, which now looks pretty abysmal in my honest opinion.

Risk taking and meaningful innovation separate Valve and EA. Electronic Arts has to take risks and make truly innovative titles, instead of playing the role of the profiting conservative copy cat. They have to try and revolutionize interactive media experiences altogether.

Electronic Arts has to much talent they just have to use it, hopefully downsizing the roster of games can accomplish this.

Posted:A year ago

#9

David Serrano Freelancer

300 272 0.9
Gareth Barry

"At this moment in time nearly all the big publishers & developers have adopted & implemented F2P & or micro-transactions, gamers seem to forget that video games are not only a hobby but a business first & foremost."

But there's a difference between the need to earn a profit and the desire to alway maximize profits by any means necessary. F2P, micro-transactions, pre-order DLC, etc... are not the problem per se. The problem is there's absolutely no balance between the desire to monetize everything and the need to maintain brand loyalty by showing some appreciation to the people who repeatedly buy and play the games.

Let's put it this way: if you establish yourself as a steady customer at a restaurant, the owner and staff will usually go out of their way to make you feel welcomed each time you come in. They'll greet you by name, they'll make special dishes for you, they won't charge to refill your beverage, etc... And to show appreciation for your repeated business, they'll occasionally give you free drinks, deserts, etc... They still earn a profit, but they understand the special treatment and the little perks add value to your experience. Once they start treating you in this way, you will in turn start recommending the restaurant to your friends and family, you'll be far more forgiving if they charge more for some dishes or if they make a mistake on your order.

In other words, when you treat customers with respect and show appreciation for the business 80 percent of the time, they'll be far more forgiving if you charge them a higher price for something 20 percent of the time. Or more importantly, when there's a problem with the product. And the business and marketing execs in the AAA game industry simply do not understand this.

Posted:A year ago

#11

Derek Fitzgerald Director, Quality Assurance, EA Canada

8 10 1.3
David, you are entirely entitled to your opinion. That said, as someone who works at EA and has good context on the organization's vision and objectives, I can say that literally none of what you highlighted as the reasons for JR's departure resonate. It's a nice narrative that JR is the reason for all the industry's travails; rationally, that's far too neat and tidy for an industry reality that is literally driven by the efforts of millions of people globally, and within EA 10's of thousands alone.

We also quite clearly fundamentally disagree on where this industry is headed and its business realities. You can choose to disregard what I say entirely, of course. But I can without contempt say the message externally is the reason internally from my point of view - misses on execution this year, when EA was obviously expected to move the needle upwards. The catalogue of underperforming titles this year is reasonably obvious, so I won't comment on specifics.

I'd also say Gareth's take on market perception is right on the money. What this company is doing is really not much different that the other strategies within the industry that are successful and can afford a sustainble future. Some of them are seen very differently, though. The reasons for that perception issue is another discussion entirely.

Posted:A year ago

#12

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