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Retail

EA: Digital revenues to overtake physical in two years

EA: Digital revenues to overtake physical in two years

Fri 21 Feb 2014 12:17am GMT / 7:17pm EST / 4:17pm PST
MobileRetailOnlinePublishing

Peter Moore cites importance of direct relationship with gamers, says EA's customer is now consumers, not retailers

In a keynote conversation with Entertainment Software Association boss Mike Gallagher at the Digital Entertainment World conference, Electronic Arts COO Peter Moore talked about industry lessons learned as the business transitions more to digital games.

For now, games remain a hybrid of physical and digital, and the quick sales of the new consoles are enabling the industry to coalesce around two great platforms that offer a tremendous competitive environment, which ultimately benefits the market. While he believes the console sector's in great shape, Moore does see mobile gaming thriving, and digital revenues should surpass that of physical game sales in just two years, he said.

Looking back at the music industry's transition to digital (which it still hasn't recovered from), Moore said that the games industry must embrace "creative destruction" - there's nothing an industry can do to stop a shift in consumer tastes and habits. The most important thing for EA - and much of the industry is headed this way with the digital transition - is that games are becoming live operations. That means they require a massive infrastructure with customer service and global billing. Moore noted that it's a completely different industry now, with a global network running live ops, and gamers deserve their games to be always up and available, and it's EA's job to provide this access. Moore acknowledged that EA is still learning a lot about what that takes.

The online environment has been incredibly valuable to EA in building a direct customer relationship. Moore said that EA's customers used to be the retailers, but now they're the gamers. In fact, EA has tripled its customer facing support staff resources in the last five years. It's changing how the publisher interacts with, and markets to, gamers. He eschews "marketing" and prefers "engaging". Social media has become crucial to success, and Moore noted that on Twitter a gamer will get a response from EA within 30 minutes to resolve a problem.

On the marketing end, Moore said that EA's TV spend is down 20 percent while the company has actually doubled its digital spend and engagement. Social media and community management are changing the rules. Don't spend tens of millions on TV to see if it lifts sales, Moore said; instead game companies can more effectively use digital channels and focus on performance-based marketing.

"TV ads today are chum in the water. It attracts customers, then reel them in with digital media so you can engage instead of pushing a message out," he remarked.

Thanks to Mark Friedler for reporting on this from Los Angeles

23 Comments

Curt Sampson Sofware Developer

596 360 0.6
Popular Comment
The irony here is that a couple of years ago I stopped buying any EA game I couldn't get through Steam (essentially a retailer) because working with EA directly has been so awful. They've never been able even to see their way to letting someone who lives in Japan use Origin in English. The speed of response to a technical support request was never an issue; the issue was the response itself, which was basically, "yeah, we in tech. support have thought for a long time to that this is dumb, but nobody listens to us."

EA has long said one thing and done another when it comes to responding to what their customers want, and I don't see any change here. Nor is criticism likely to change this, since EA has already demonstrated a strong corporate culture of dismissing criticism. The good point, for the investors at least, is that I think this is unlikely to change their bottom line, since they're a company that's already designed to handle alienating more than a miniscule fraction of their potential market.

Posted:9 months ago

#1

Alfonso Sexto Lead Tester, Ubisoft Germany

833 668 0.8
Been hearing this for the last few years. Will this time be for good?

Edited 1 times. Last edit by Alfonso Sexto on 21st February 2014 8:12am

Posted:9 months ago

#2

Anthony Gowland Lead Designer, Outplay Entertainment

211 733 3.5
I wonder who should sell customers this shiny boxes on which they should buy all those digital games, if companies are saying they want to get rid of retailers.
You'll notice the companies saying this are the ones who make software, not hardware.

Posted:9 months ago

#3

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
Perhaps they're looking at Valve/Steam and not seeing the complete picture? PC gaming has thrived with Steam, but without any large offline retail presence. That'll be because there's dedicated PC hardware stores where people buy the kit they game on. But the same approach can't be taken with console digital sales, because the same place that sells console games sells the console hardware. Kill one, and you make the other less profitable (by varying degrees).

Posted:9 months ago

#4

Klaus Preisinger Freelance Writing

1,157 1,219 1.1
If EA wants to sell games, they need to be where people buy games. If that is some mall, then EA games need to be sold there. If it is at home, there needs to be a channel as well. Even if the majority does it one way, you cannot "democratically" cut one option, since being a consumer is a state tyranny and not democracy. I do not put my purchasing decision up for vote in this community, or any other.

Video game entertainment transitioned from the arcades to people's homes not because somebody had a bright idea, but because consumers wanted it. In the same way consumers will nudge publishers into the right direction when it comes to digital sales.

And if the market of people wanting to have shelves filled with boxes proves to be very large, there is still the option of unlocking a game online at once and mailing some box for later enshrinement. For all we can guess about 2020, buying a "retro style box" for your games might be nothing more than a 10€ microtransaction games offer for old time's sake.

Posted:9 months ago

#5

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
If EA wants to sell games, they need to be where people buy games. If that is some mall, then EA games need to be sold there. If it is at home, there needs to be a channel as well.
I agree... But, EA obviously don't. They've already gone against this line of reasoning with certain games not being on Steam. The fact that EA found a contract with Valve so disagreeable that they'd rather not sell a fair portion of their games on the largest Digital Distro retailer out there proves that nothing is sacred. (Even good business decisions. :p ). If we consider their situation with Valve, we really shouldn't be surprised if one day in the near-future EA turns around and says No to producing retail discs.

Edit:

Speaking hypothetically, if EA were to go digital only, then it would likely be done for the same reasons as not working with Valve - They see the money lost from cutting out a middle-man as the lesser of two evils. Right now, I can purchase the Retail Disc of Battlefield 4 from Amazon for £23. That is almost half the price of the standard Origin download, but the Retail Disc has both higher costs, and less margin for EA.

Edited 4 times. Last edit by Morville O'Driscoll on 21st February 2014 10:48am

Posted:9 months ago

#6

Curt Sampson Sofware Developer

596 360 0.6
The fact that EA found a contract with Valve so disagreeable that they'd rather not sell a fair portion of their games on the largest Digital Distro retailer out there proves that nothing is sacred.
My guess would be not that they found the contract so disagreeable, but just that they wanted to get more consumers to pay the switching costs of setting up an Origin account, and selling certain of their "must-have" titles only through Origin helped a lot with that.

It would have even worked for me if they had put another language besides "日本語" in the drop-down box they show me on the site.

Posted:9 months ago

#7

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
My guess would be not that they found the contract so disagreeable, but just that they wanted to get more consumers to pay the switching costs of setting up an Origin account, and selling certain of their "must-have" titles only through Origin helped a lot with that.
Fair point... Thinking about it, it's probably a little of both, and so win-win for them (even if it's a pain in the behind for consumers).
It would have even worked for me if they had put another language besides "日本語" in the drop-down box they show me on the site.
Heh... So many people complained about this, it was just shocking. Though, perhaps it was all part of their Grand Plan - A way to stop people from gaming the system with regional price differences? I know the Mexican Origin store has far more (and better) sales than the UK one.

Edited 1 times. Last edit by Morville O'Driscoll on 21st February 2014 12:50pm

Posted:9 months ago

#8

Petter Solberg Freelance Writer & Artist,

67 45 0.7
I'm eager to see some concrete evidence of this new philosophy. It may be easy to forget that the gamers (and developers) are not the enemy in this day and age though.

Edited 1 times. Last edit by Petter Solberg on 21st February 2014 4:28pm

Posted:9 months ago

#9

Alan Resnin Journalist

19 15 0.8
I say no chance, not in terms of game sales

Retail vs Digital game sales are still like 75% to 25%

Posted:9 months ago

#10

Alan Resnin Journalist

19 15 0.8
I say no chance, not in terms of game sales

Retail vs Digital game sales are still like 75% to 25%

Posted:9 months ago

#11

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
Retail vs Digital game sales are still like 75% to 25%
Source for those figures? :)

Posted:9 months ago

#12

Klaus Preisinger Freelance Writing

1,157 1,219 1.1
Please consider that if EA manages to upsell players online, after they bought the base game at a store, the projected scenario will still be fulfilled. You look at Battlefield, FiFa, Sims and you notice that those core franchises all have enough online microtransactions in place so that the RPU of those games tilts in favor of online. Combine that with some EA games being only sold online, but no games being sold solely in stores and two years might even be a conservative estimate.

Posted:9 months ago

#13

Alan Resnin Journalist

19 15 0.8
Whenever a developer breaks down how many units sold Digitally and Physically the breakdown is always very similar to that. I have never heard of an instance where Digital actually outsold a physical copy of a game.

Posted:9 months ago

#14

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
Except in PC games, where retail-disc shelf-space essentially doesn't exist. I'm not sure where you're from, but in the UK, HMV has about a shelf's worth of PC games per store, as does Game and the local indie. Amazon has a vast quantity, but that's Amazon for you. Compare with Steam, Origin, even GMG. On PC, I'd guess digital sales are nearer 75%, to retail's 25%.

Posted:9 months ago

#15

Alan Resnin Journalist

19 15 0.8
True, PC is a different animal. But EA's biggest sellars in 2013 were not PC titles, there biggest flop was ( Sim City). I am in the US by the way :) and retail is potent.

Posted:9 months ago

#16

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
But EA's biggest sellars in 2013 were not PC titles, there biggest flop was ( Sim City)
And Sim City sold 2m in 4 months, on PC only. Not exactly a flop, no matter how much we wish it were. :p

Also,

http://www.digitalspy.co.uk/gaming/news/a501111/simcity-sales-exceed-2-million-units-reveals-electronic-arts.html
About 76% of our revenue this quarter was digital, not disc-based. We're off to the races.
Though that no-doubt counts mobile as well. As I noted in the other digital sales thread, it's all perspective. :)

Edited 1 times. Last edit by Morville O'Driscoll on 21st February 2014 10:32pm

Posted:9 months ago

#17

Alan Resnin Journalist

19 15 0.8
It sold 2 million, but I doubt the game made profit after a complete redesign.

Key word, Revenue. That is not made up of Digital and Physical game sales. That includes DLC and microtransactions, which I hate to admit it, people buy.

Posted:9 months ago

#18

Morville O'Driscoll Blogger & Critic

1,611 1,473 0.9
@ Alan
Roughly 54 percent of those sales [Sim City] have been of digital versions of the game, downloaded directly to players’ PCs via Origin™ or other digital download services.
( http://www.businesswire.com/news/home/20130318006318/en/SimCity-Sells-1-Million-Launch#.UwhzFIW-YYQ ) And SC isn't even a particularly "core gamer", game. I'm sure BF4's digital sales vs retail have been higher. :)

@ Christian

This is slightly off-topic, but, anyways... Just like EA don't crow about how many Origin users they have now, I wouldn't read too much into them not crowing about extra Sim City sales. In any case, success is measured by cost of development, and they're going to have another bite-of-the-cherry when the offline mode for SC is enabled. Even with dev costs, I imagine that they'll gain quite a bit with selling the game with the promotion of "Now with offline mode!"

Posted:9 months ago

#19

Mark Friedler VP Sales, Cubeyou.com

11 20 1.8
When I spoke to @PeterMooreEA after the talk (I covered it for @GIBIZ for my former teammates) it struck me that he is comfortable with the transformation EA has made from a CPG company to a digital, on-demand "always live" services company. It will be interesting to see if the big publishers can leverage their scale in the F2P mobile market.

Posted:9 months ago

#20

Craig Page Programmer

386 220 0.6
Origin and Steam are both just as bad as viruses, and I'm pretty sure they both meet the definition of "malware".

Posted:9 months ago

#21

Nick Wofford Hobbyist

180 190 1.1
Pretty much all developers hate how they have to give a cut of their sales to the retailers. Especially since those retailers do whatever they can to screw them over (namely, really selling the used goods at the expense of the new copies). It's a cut that Steam has saved PC devs from, because Steam doesn't have that difference in profit margin.

Once the platform makers align with the publishers, it'll be the ax for GameStop and the like. We'll switch to dedicated stores like MS/Apple Stores for hardware, or just order it online. It'll be delivered on the launch day, with digital titles pre-loaded before their release day.

Posted:9 months ago

#22

Roland Austinat roland austinat media productions|consulting, IDG, Computec, Spiegel Online

138 80 0.6
@Alan:
Whenever a developer breaks down how many units sold Digitally and Physically the breakdown is always very similar to that. I have never heard of an instance where Digital actually outsold a physical copy of a game.
Here's a task for you: check the sales of the original BioShock on Steam via in-store. ;)

Posted:8 months ago

#23

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