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D.I.C.E. 08: says Riccitiello

As rising development costs lead to consolidation, publishers need to consider a new business model says EA CEO John Riccitiello.

"While consolidation may be an unpleasant topic, it is not something I believe you can ignore," he told the audience assembled at D.I.C.E. Summit 2008.

Riccitiello proceeded to discuss "Game Industry Economics 101" based upon his experience as both a gamer and a business person, making some simple points which he called "pretty darn obvious and pretty darn disturbing."

First, the rising costs of development are putting pressure on everyone. Second, those rising costs are leading to industry consolidation.

"Perhaps the thing that I would decry most, that I would find myself most afraid of and frustrated by, in way too many cases, is that it's leading to creative failure," he said. "Our consumer has every right to believe that their USD 59 will be well spent."

Riccitiello said that the ideal of two guys in a garage creating a bust-out game, financing it on their VISA card, is not reality or even a possibility in the current market.

A decade ago, a team of 25-50 people could create a game. At the time, EA published on three platforms — today, they publish on over 12 platforms, not counting hundreds of different mobile handsets.

"I would posit today that that number is in the 200 range for creating a AAA franchise. There is a collective of people that is much greater today, and paying those salaries is a much greater cost."

Geography and localization is also a factor in rising costs. Riccitiello used FIFA 2008 as an example, which was published on eight platforms across 16 countries in 20 languages and a total of 94 SKUs.

"The developer today - in all but the rarest of circumstances - is right at the edge. In many ways, it is create a hit. Or else.

"Smaller publishers are under enormous pressure and many of them are not viable even if they are remaining on public markets," he said.

Riccitiello thinks that there are going to be fewer publishers in 2010 than there are today, and that the secondary players in the market are going to thin out considerably.

"There are risks in consolidation in any business. In our industry, creative failure stands at the very top of that list of risks."

He mentioned Bullfrog, OSI and Westwood as examples of creative failure: "We at EA blew it. To a degree I was involved in these things, so I can say I blew it."

He explained the problem was that EA had a "one size fits all" approach. It thought that the developers could be happily assimilated into EA's culture, and had a top-down approach to creativity that led to the developers becoming buried and stifled under bureaucracy.

On the other hand, he pointed to Distinctive (EA Canada) and Maxis as examples of creative success. "In both cases, the creative leaders had their careers enhanced subsequent to the transaction."

Why did these acquisitions succeed where others failed? The developers themselves "kept the baton" and remained financially responsible, while EA did not meddle in culture and creative process. "In a way, instead of enslaving them, we empowered them."

Riccitiello proposed a new 'label model' based upon the concept of a city state. "When we are doing it right, we are not synchronized swimmers.

"We are more like the NFL with a collection of teams, each with its own culture, each with an independent drive, each individually seeking to win the Super Bowl."

Riccitiello discussed his company's recent acquisition of BioWare and Pandemic under this model, and although he recognized the jury was still out, he remained optimistic.

"It seems to be working. I think we are on a good track."

He also recognized that EA was not alone in championing this model, referring to Rockstar, Blizzard and Valve as examples of "city states" operating in an independent way.

In closing, he said that the old "command and conquer" model no longer works.

Companies who think they can buy a developer and "take their name off the door," putting their own name up and taking the credit for the work, and getting the developer to do what they want them to do are making a big mistake.

"Find people you trust, give them the keys, empower them, let them do the heavy lifting."

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