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Jens Uwe Intat - Part One

The EA Europe senior VP on piracy, digital distribution, second-hand game sales and how the music industry's business model is changing.

Dr Jens Uwe Intat is senior VP and general manager for European publishing at Electronic Arts, and was fortunate enough to spend some time with him at Games Convention last week.

In the first part of this fascinating interview, Dr Intat talks about piracy, digital distribution, second-hand game sales and offers an insight into how the music industry's business model is changing - and how that influences EA's overall strategy. What are your thoughts on the legal action taken by a couple of publishers over filesharing recently?
Dr Jens Uwe Intat

On piracy we, as an industry and a company, are definitely not trying to sue normal consumers of our games. But I think it's actually in the fair interests of the industry to chase people who are pirates and are stealing intellectual property. You can always discuss the order of magnitude, and what the right measures should be in that context - but we're not talking about consumers who are consuming games in the normal way, we're talking about people who steal intellectual property. The music industry tried it, and it didn't really work...
Dr Jens Uwe Intat

To put into a solution context, what we're trying to do as an industry and a company is move away from old-fashioned business models - so rather than acknowledge that we have piracy with the copying of digital products, all we can do is put up more laws and more enforcement.

What we're actually trying to build is a different connection to our consumers - so going forward what we want to offer is more online capabilities for our services, download opportunities. So in exchange for offering more content and services we'll require people to be registered for our games, which we think will be a much fairer way to be with each other, rather than the more confrontational, traditional way to deal with pirates.

I think that's something that the music industry has actually failed in establishing - we definitely want to do better there, and we have much better opportunities to do that. How many more services can you offer for a song? When it comes to the concept of people buying a license for a game, rather than the game's IP itself, do you think that subscription models for things like MMOs have helped people to understand the arguments a little more?
Dr Jens Uwe Intat

I think what people are becoming more and more aware of is what they're actually buying is a right to use intellectual property - the physical disc is just a carrier that physically enables you to use the product - what you're actually buying is software, an intellectual property that somebody has put together. Dave Perry told recently that he thought the free-to-play model was a brave move on EA's part, given the company's long-standing relationships with retail. What are your thoughts on that?
Dr Jens Uwe Intat

Well in fact it's a huge step for a company like EA, to move into that new territory, and we're actually very proud that we allow our creative talent to go in that direction, rather than just tell people to stay in their old fields and keep doing what they've been doing for the past twenty years. So we're proud of those initiatives.

Secondly, regarding our relationships with retail, I don't see that as black and white, as a trade-off. What we're trying to do is leverage the retailer base in order to promote those games better - that's true for Battlefield Heroes, it's true for Warhammer Online.

With Warhammer we'll actually distribute the discs through retail, and we're in the process of setting up game time cards for retail - so we're using the retail installed base. And with Battlefield Heroes we'll be selling physical products which will allow you to download the game, that could have some micro-transaction value for redemption later on.

So what we're seeing online as a distribution channel - it's additional - it's not replacing retails, it's an additional channel that we're pursuing ourselves that's actually helping retailers to pursue it more and more. So I don't see it as a conflict, I think we're all finding ways together to new and existing consumers. Most specialist retailers offer used games to customers now - do you see that as a reaction to digital distribution, in order to protect their revenue streams? Even if EA is continuing to work with retailers, a lot people talk more and more about digital distribution exclusively, which surely is a huge threat?
Dr Jens Uwe Intat

If I look at what actually started when, I'd say that retailers - much earlier in North America than in Europe - had actually started to do second-hand sales, so I wouldn't see it as an action-reaction pattern. At the same time I'd actually make the point that for us second-hand sales is a very critical situation, because people are selling multiple times intellectual property.

In our understanding of the business model we are actually giving away the rights to play, and if you just pass it on, pass it on, pass it on, that is not comparable to second-hand sales in the normal physical goods area where you have physical wear-out - second-hand cars, second-hand clothes, second-hand books... they're all physically wearing out, so you have an inferior quality product.

But digital goods is not actually becoming inferior in quality, so people passing that on is actually very challenging for us. What we're trying to do is build business models that are more and more online-supported with additional services and additional content that you get online. So people will see the value in not just getting that physical disc to play at home alone, but actually playing those games online and paying for them. It's going to be hard to persuade retailers to stop those sales though. Have you had conversations with retailers about that? They'll want to protect their revenues...
Dr Jens Uwe Intat

Yes, and it's in their interests, and there's obviously nothing we can do right now. We can't stop them from doing that, but again we're trying to solve it with the product offering rather than with the legal battle or other confrontational activities. Conflict probably isn't in anyone's best interests...
Dr Jens Uwe Intat

Absolutely, and it's actually also a very interesting discussion to ask how much cannibalisation do you really have on second-hand sales? That's such a complex subject, we're not going to be overly confrontational, we're going to solve it with better, more interesting and online offering going forward - and that should actually solve the whole current dilemma. Looking at the way the music industry has change, iTunes had a huge impact on retail, and while a music file is much smaller than a game, are there parallels? Will packaged goods ever die out, will bricks and mortar ever become obsolete?
Dr Jens Uwe Intat

That is one of the questions for the industry overall, and I do have my personal opinion on that one. But to come back to the comparisons to the music industry, I see a couple of large differences there.

Firstly as you rightly said, the actual file size of even music video is actually limited, and that's not going to grow any more. The file size of a videogame is growing every year - and keep that in mind for my point on packaged goods in a moment.

The other point, I think the music industry in terms of music publishers - that's actually an important distinction: there are music publishers, and then there's the music industry. The music industry, if you even take it up to hardware, today there are two parts of the value chain that earn money. One is the appliance manufacturers like Apple, which is mostly devices but a little bit on the distribution system - and I think that the distribution system is only there in order to sell devices.

And then it's event organisers, and I find it almost ironic to see that event organisers are making contracts with artists like Madonna. So for them the business model is really changing - one day music will just be a marketing tool for people to come to concerts, and the charging has totally changed. You used to pay USD 20-30 to go to a concert... now you pay USD 200-250, and it's herds of people that do that. So the music industry is still generating a huge amount of money, it's just the publishers that are left behind because they missed the train.

What we're trying to do, as a company and an industry, is to be a bit smarter about the overall industry - and that's why we are building models that are much more than just a physical game in order to offer more. And we will play with the pricing model, so who much the initial game be, how much can you charge for services later on, how much can you charge for additional content, how much can you charge for sequels...

So we're trying to take a much broader picture on the overall industry, and where we could lead it, in order to have ideally as big a part of the growing cake as possible.

On the specific question of where packaged goods will go - there are two factions, but I'm clearly in the camp that doesn't think it's going to go away before I retire. So that's hopefully another 20 years or so...

The reason why I'm so convinced is that I've always been saying our softare developers eat up storage space so much quicker than telcos can build distribution. You can always see technological quantum leaps in terms of digital distribution capacity, it's all true, but if you see how those guys increase the size of games... it's just unbelievable.

I mean, we used to be below 1GB, but we're now building games that have 8, 9, 10GB - and if broadband distribution is going to allow 10GB to be distributed in half an hour, we'll have games that are 100GB. Because the graphical resolution increases, The content size of games, say Need for Speed, the size of the open world that you can use increases - so you just need more and more storage space, which is going to, again, make the pipeline a big bottleneck.

So I think there will still be a need for a physical distribution starter, and then services and additional content can be distributed online.

Dr Jens Uwe Intat is senior VP and general manager for European publishing at EA. Interview by Phil Elliott.

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