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EA and Activision need to show us something new | Opinion

The industry's biggest publishers now focus on pumping old franchises for incremental growth rather than honing their ability to create the next big thing

Something is amiss at the industry's biggest third-party publishers. Both Electronic Arts and Activision Blizzard reported their results and forecasts in recent days, and while there's a fair bit of difference between the two companies' performance, the commonalities are also striking.

Both of them had a rough year, to say the least. Neither of them is forecasting an immediate recovery either, with guidance for the upcoming quarter being fairly unimpressive, though EA at least is sounding a note of optimism (hopefully not misplaced) in its predictions for the back half of this year.

Okay, sure, this happens sometimes: companies don't always get the results they want and product launches don't always go your way. But there's something striking about two gigantic publishers who have regularly duked it out over the years for the title of the industry's biggest and most important third-party firm, both seemingly struggling to find significant growth opportunities. Often, this would be a flashing warning light for the industry as a whole, suggesting that the entire sector is slowing down or even facing decline.

But that's not the case at all, and in many ways the games industry as a whole has never been healthier. There's growth pretty much across the board; we may be past the initial boom years for mobile gaming, but there are developing opportunities in new genres, new play styles and new markets, both geographic and demographic. Alongside this, console and PC gaming are both in pretty rude health.

"If a big games company can't find a way to grow its business in this environment, well, the problem lies with the company"

If a big games company can't find a way to grow its business in that environment, well, the problem lies with the company. You don't have to dig too deep to see the issue with both Activision and EA in this regard; both of these firms are leaning incredibly hard on big, long-established franchises to drive their growth. Call of Duty, FIFA and their ilk are great, no question, but they're deeply saturated into their respective markets, and while growth for those products is important and plenty profitable, it's also organic and pretty slow, even when it's executed well. This is the kind of strategy you get from a very mature company that's got a pretty solid, unchanging product line-up; a consumer goods company, effectively.

The problem is that game publishers aren't consumer goods companies -- or at least, that's not how they present themselves to the market. They're presented not as stable, low-risk, dividend-yielding firms, but as growth companies, investing heavily in research and development in order to create the next major hit, the next gigantic franchise, rather than sending that cash out to shareholders in the form of dividend payments (which are low for Activision and non-existent for EA). Even after their share prices tumbled last year, they both trade at an above-average Price/Earnings ratio, meaning that investors are expecting them to grow at an above-average rate.

Even more intrinsic than their dividends and market fundamentals, though, is the fact that publishing games is a business that exists at the intersection of cutting-edge technology and media -- two of the hottest sectors in the market. And EA and Activision are expected to act like it, not like firms selling shampoo or baked goods, no matter how well-managed and consistent the slow growth of such a firm may be.

At present, EA has the best hope of recovery thanks to its acquisition of Respawn Entertainment

At present, EA has the best hope of recovery thanks to its acquisition of Respawn Entertainment

It's not just expectation, either; it's risk management. The shampoo and baked goods markets won't go away entirely tomorrow, so there's a hard limit to the downturn those sectors can experience. Call of Duty, though? Any number of factors could rip the rug out from underneath a franchise like that in a relatively short space of time. Even EA's licensed sports franchises aren't entirely immune to that possibility. Searching for the next big hit and honing the company to be an effective, creative R&D machine isn't just a nice-to-have for a publisher -- it's how you make sure you're diversified enough to avoid a major franchise taking the company down with it.

"You can really sum up the most important difference between EA and Activision in a single phrase: Respawn exists"

Of course, executives at both EA and Activision would retort that they absolutely are working on the next big thing as well. At issue isn't that they're doing so; it's how much focus they place on it and how good they actually are at it. Both companies, bluntly, have a problem that stems right from the top of their leadership; nobody ought to question the actual management skill of Robert Kotick or Andrew Wilson, but you'd be quite right to ask whether either of them is best-suited to the role of articulating and implementing an innovative vision and direction for a company that desperately needs a creative, insightful and visionary hand on the tiller.

Below top management, no doubt, lies some degree of the malaise that stifles creativity at many (but not all) large companies of all kinds. Bad decision-making, internal politicking and the associated poor cost control that would destroy a smaller firm but is able to metastasise within a large company because it's protected by the sheer size of the host. Ultimately, though, the buck stops at the very top.

There are key differences, of course, though you can really sum up the most important difference in a single phrase: Respawn exists. EA's decision to acquire Respawn at the end of 2017 is currently the main thing that stands between the company and the more grim financial outlook of its larger rival; its forecasted growth is heavily reliant on good revenues from Apex Legends (which has yet to prove itself commercially and could either outperform or underperform those estimates dramatically, though there's some suggestion EA has tried to be conservative in its estimates) and on very strong performance from Respawn's Star Wars game at the end of the year. Of course, a cynic could easily point to the current ascendancy of Respawn as being only the opening stages of a cycle whose closing moments we can see with Bioware.

Ultimately, it's worth reiterating that there's nothing intrinsically wrong with a business built on established, heavily saturated properties. The question is what kind of company these firms think they are and what they prioritise. One wonders if all the excitement around games-as-a-service hasn't gone to the heads of some business leaders; allowing them to wander back into the comforting embrace of the kind of management they learned on their MBA programs, and leading them to forget that the beating heart of the companies they run is still the intrinsically risky, scary and difficult task of inventing brand new things and making them successful, not pumping a meagre couple of percentage points of annualised growth out of a decade-old product.

Until EA and Activision can both show that they're firmly in the business of building the future and not pumping the past, investors -- and everyone else -- should remain wary.

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Latest comments (4)

A simple answer is WHY.
Respawn exist, but the rest of the corpus does not

One only has to look at various governments and power sof authority to realise, maybe its ok for them to fade into obscurity and let the new and relevance exist.
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Activision and EA already have terrible reputations, and declining franchises a d confusing structure and branding unlike Take-Two Interactive parent company of Rockstar Games and 2K. Even privately held Epic Games is better than these two plus Activision's Infinity Ward/Treyarch Studios and EA's Bioware/Respawn are all in danger of being take down with respectively owners if they continue on this destructive path and post-Lootbox World.
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Klaus Preisinger Freelance Writing 2 months ago
Neither Activision/Blizzard, nor EA ever had reason to invent the wheel in the past. You could describe a large portion of their catalog and all their big games today as 'copy this, but with a higher budget', or 'copy this, but as a cleaner experience' and especially 'copy this, but more regularly'. On top of that, both were publishing other developers, buying out those which produced medium sized hits and were up for sale.

There was hardly ever negativity surrounding it, until studios were axed left and right and this whole process came to a halt. I can only assume that by 2008 few people were looking forward to becoming the next Westwood, Bullfrog, or Origin System when big publishers wanted to buy them. Plus there was a slew of new competition when it came to buyouts, from platform holders such as Sony and Microsoft to new publishers big and small from emerging markets (e.g. Tencent, Bluehole, NC) who offered deals other than, embrace (fund & publish), absorb (buyout), extinguish (retire brand, scatter developers internally across projects).

Between greenlight, kickstarter and early access, both EA and Activision also lost their ability to get in on the ground level and build relationships with studios which lead to their eventual buyout. Again, that does not mean EA and Activision have trouble getting people, but while expanding by buying up studios was a highly visible process before, the process today is far less visible. EA publicly acquired 24 developers between 1998 and 2008. Since then it were 9 more, none of which were known PC or console developers. Such things do not come out of nowhere and they will affect core audience perception; a PR problem.

The second change to this process is, that if publicly visible acquisitions happen, they happen to companies who are at the top of their field, such as Popcap, or King. Minecraft is the perfect example of how big western publishers today buy studios when they are at the top, not when they are at a small indie expo. Gone are the times when EA would buy a relatively successful company, such as Bioware, and one would wonder what they would come up with now that they are part of EA.

To a degree, the first traditional yardstick of Activision and EA has become how fast they can react to trends and offer better products in those segments. When it came to Mobas, the resounding answer was zilch. When it comes to Battle Royale, the answer is not too good either.

The second yardstick is whether EA or Activision could even resort to the old strategy of 'this, but better'. Because there certainly are quite a few games out there, which neither EA nor Activision/Blizzard could do equally good versions of, if they tried. 15 years ago, you could have made any game and ask the question which company can do it at least as good and EA and Activision/Blizzard would have made the top of the list. Today we know better, which is shifting the renown of EA and Activision from good at everything, to good at certain things.

The third yardstick is that even if Activision and EA are in the right spot at the right time (e.g. Guitar Hero, Toys2Life), they have trouble transitioning the product into the type of evergreen some other of their other products have proven to be. This has raised concerns that all of their products may end up as some sort of fad. Which is strange, since both companies have something exceedingly rare with their evergreen franchises and the both try to build on top of it. But here we are now, entertain us, people are relentless when it comes to that.
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Show all comments (4)
Benjamin Solheim Sole Shareholder, ESPN2 months ago
The issue is that games have to go really big to succeed or go really small and have it be a moonlighting issue. Working a forty hour week and then spending all weekend coding or building assets usually results in worker comp issues that the day job has to pay for. Then when the developers try to use it to develop new content and the people start getting colds due to not getting enough sleep or working long hours during the night it causes mistakes. Those mistakes show up in the code more than in the art assets as you can usually see the mistakes in the art and fix it before launch in polishing.

Blizzard and EA games were built mostly when the compile time and finding syntax errors was the worst issues. As the game engines are finally getting away from 8 bit operands and 16 bit code to run as native object oriented code, with the variables existing as parameters of external functions, the code runs faster and the memory is used and released to windows as it needs it. No more parsing text files to find where the memory is stored and use a pre charage and ras statements to copy everything to the hard drive swap file and rewrite in a different order as windows and even linux to a certain extent struggles with calls to the operating system to find out what memory cells are in use and to pause those programs, while the active window changes which program can control the memory manager.

So many new ip are struggling with how do you rebuild the game engine so that bad code or a change at the vendor level does not ruin six months of work. Epic gets around it by allowing multiple run times so the engine version you start with can continue to compile the game and testing out new versions is as simple as installing two clients of the engine. This still results in a single point of failure as more companies give up on maintaining their own game engine. Dice(EA) in Sweden is largely building and maintaining frostbyte. Activision has been trying to maintain two versions of their game engines one for future looking games and the other to make sure the game their end users installed the day before keeps working even as they try to bring the quality of life and eye candy to the point that people are not bored with the game because it it is too low a poly count.

Some thing to think about players in mmo want to have continuity with their game accounts to get credit for having worked through glitches, through badly written quests, to have spent money over the years with that company, and that is usually seen as we have to keep updating the game engine, they have to keep larger and larger database cells to reassure players that they are playing the fun game when the balance issues are more negative than the gameʻs fun elements are positive. People laugh at me for calling the leading edge of players that burns through five months of content in the first week the game is out, lemmings. I know why players do it, the content is usually easy with a thousand people running through it and it gets harder as the numbers drop off making it look like the player that misses the first week of an expansion is not as good a player. The joke is that the content balance teams usually mistake numbers for ability. The balance teams are usually made of the guys and gals that have struggled to keep games on the market so do not even think to use an outside perspective to verify that the metrics they are using actually work. Most of the grind comes from thinking that if you put enough boring content in front of players it equals good content. The reverse is true. The more you see content that does not make you happy the more the quality falls. The more you see content that makes you happy the more you are certain that it is good but boring content.

What is going to happen is that our environments are going to end up procedural or match HGT data from satellite images, and the content that the players see are built on top of these. Players want to see what is beyond that next mountain, and they do not want it to be an image plane or locked behind a pay gate. So games are going to have to start scaling to massive sizes while trying to figure out how to fit it on a hard drive. Games are looking into trying to make the games look like realism every where but for the cartoon violence. Realistic violence makes people uncomfortable, while an avatar that looks like someone else breaks the fourth wall in the story.

Going forward companies are going to have to figure out how to pay enough employees to make that possible or stay at indie costs and that means indie profits, and peopleʻs budgets for games is only so much, if you expect people to suddenly go out and get a second job to make their budget go from fifty, one hundred or two hundred dollars a month per family and that often includes buying new games and expansions, it is bad way to hope that the dollars keep coming in. Impulse point is where to target the sale of entertainment. Aim for that and if you can figure out what target markets enjoy paying to do, you can make more money.

One of the biggest problems in the industry is that it made of three view points, the gamers playing the games, congress writing the laws, and the developers building the games. People want to be entertained and they want those dollars to go as far as possible. Congress wants people not to be exploited. The developers have as many view points as both other groups combined. What works today, may not work tomorrow, yet if you fail to plan for both, someone else already has. Famous quote by President Hover, I think, yet the concept while being correct often forgets people are not in biz against everyone else, only on if their product is good enough for the dollars that are available when the person goes to buy something they have not yet budgeted for. The budgets may screw up and then food comes first, bills a distant second, and everything else takes months for normal people to fix. Which also breaks the numbers for people who have to make or break by reporting dates. If you do not report what is going people are leery of investing and if you miss your mile stones they become dead lines. You still have to guess four years out what the culture and the economy is going to look like and plan for some flex in release dates, yet players stop caring five minutes after they close the game and if the game is not currently fun, it is twice as hard to get them to log back in. So while the investor shave to be very careful not to bet on every red square as if it is a different bet, the game developers have to continue to bet the number they are on, not the color they are on, say if red means video games they are a different bet than other studios and their publisher is a different color, yet it is all interrelated. Big successes fuel development, aand big failures cancel successful games. Studios have to plan to explain why they are on track and who cares what was wrong at the failures.
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