Eric Brown, chief financial officer at Electronic Arts spoke at a Lazard Capital Markets Technology & Media Day presentation yesterday, detailing his company's strategy on a number of issues, including social and mobile media, new MMO Star Wars: The Old Republic and microtransaction versus subscription models.
Here, in a selected transcription of a Q&A with Lazard's Colin Sebastian, Brown discusses the most relevant digital formats for EA, including some interesting stats on revenue generation, The Old Republic beta, and why the publisher is top of the charts on smartphones.
Well, this is a market which didn't really exist three years ago. Today we peg it at about a billion dollars in the Western world, so US and Europe in terms of the aggregate amount of money generated in smartphones.
We see it growing at around 20 per cent per annum getting to $1.8 billion over the next couple of years or so. So it's a big market and it's growing rapidly. The characteristics of the market are pretty interesting.
Number one, there's the low average revenue per application - a negative you could argue. A positive that you could argue is that the barriers to entry are pretty low, so the dev costs for applications are pretty low.
What we'd like to do is get the next six to eight biggest franchises along and get tens of millions of digital revenueEric Brown, CFO, Electronic Arts.
You see a pretty robust app eco-system, especially on iOS enabled devices, and we think you'll start to see that increasingly on Android, as they tune their marketplace and improve their discoverability.
So the entry barriers are lower, there's tens of thousands of apps out there, so the question is: how do you drive ARPU? If you're an independent developer with one hit, I think that's pretty difficult. It's not difficult to generate the app, launch and get some sales, but it's difficult to scale and extend.
Where we've had success is to take existing EA brands, Need For Speed, Tiger Woods, Madden etc, and creating an iOS version of it. So it's not the same experience, given the different form factor, but it provides a different window into the content and the experience so what we're able to do is to aggregate users across brands, so people who try the console version see the iPhone version, they know it's high quality, they've had a great experience, so they're much more likely to try our version of the app versus someone who's creating an app for the first time with no pre-existing brand recognition.
So we've taken that brand leveraging approach. The other thing we've done is to create a community technology to bind together applications on the iOS devices which maybe come from different franchises, different genres. Sports versus racing for example - so we stitch it together with an iOS community platform which we refer to as Crystal.
So you can refer in friends, earn achievements etcetera. That also drives ARPU and stickiness and referencability from app to app. So I think that's the way to respond to a market where the barriers to entry are lower in terms of dev cost. To create scalability and efficiency you have to leverage brand and or platform and userbase, or some combination of those.
That's the approach we've taken and to date we're at the top of the charts across all of the smartphone enabled devices.
In some cases. We like to use the expression that in many cases the user experience starts with the physical disk but ends up being digital. So we have franchises that have originated on the traditional high-definition platforms, so the 360 or the PS3 or the PC and we've digitally extended that off the disk into digital media. Either DLC extensions direct to console hard drives or digitally delivered smartphone variants.
We have franchises with digital attach rates well north of ten per cent of the aggregate franchise revenue. I can cite FIFA as an example. We're just over $40 million of digitally derived revenue for FIFA - that's a combination of console DLC, full game downloads, mobile extensions and free-to-play microstransaction based games.
Battlefield we similarly have around $40 million of digital revenue. Again, that starts with the disk and extends out in these different ways. So we've had success thus far. What we'd like to do, we have these two franchises at plus $40 million digital extensions, what we'd like to do is get the next six to eight biggest franchises along and get tens of millions of digital revenue.
So we've started to crack the code, we're not quite satisfied with the outcomes. We view the smartphones as being one avenue of digital expansion, with full game downloads and console DLC being others.