IndustryGamers - Informing the Games Industry

EA CEO: Betting on PS3 Put Us in a Position of Weakness

Posted December 9, 2009 by James Brightman

EA's arguably had a very challenging year, but that's not how EA CEO John Riccitiello sees it. Despite weak Wii sales on certain titles, the closure of Pandemic and a plan to axe 1,500 employees, Riccitiello views EA's first half as a success, and he's extremely confident in his vision to transform EA into a direct-to-consumer business. This transition could be very painful for the company in the near-term, and in our recent conversation with Riccitiello, we made the comparison to a baseball team looking to the future – how do you rebuild for the next season and win at the same time? EA's investors seem to be losing their patience and might be losing confidence in the publisher.

“Well I'm not sure I buy into the baseball metaphor; I'm not sure it captures what we're doing,” Riccitiello began. “... I think there are a lot of measures of success – one would be market share, one would be revenue, one would be profit, one would be share price, one would be quality. There are lots of things to look at. Some facts worth revisiting is that the company gained four market share points in the first half of the fiscal year, we were the #1 publisher overall (just the packaged good business), and the #1 publisher on PS3 and Xbox 360. We are bigger than Microsoft on Microsoft's platform and bigger than Sony on Sony's platform. And we have a 19% share on Wii, which is second to Nintendo. Nobody ever thought we'd see a third-party publisher with a share in the teens, let alone a 19. We are also the #1 publisher on iPhone and on mobile. We were profitable over the first half of the year, although some people get confused over revenue recognition issues related to GAAP.”

He continued, "Our leading competitor shipped 3 or 4 titles rated 80 or better, and we shipped 18 or 17 depending on when you cut it off. I do believe quality and innovation is ultimately what matters for long-term profitability. Yes, we've been investing for a transition towards a future that we see that we're very clear about. When I look at the bums and heroes of American business, I see companies that were faced with pretty significant industry transformation. I look at the music industry and I think they dropped the ball and the auto industry dropped the ball. I look at Apple, and they successfully transformed their company into something very different than a pure PC company. I look at Amazon when they were criticized for selling anything other than books. ... So I don't really have a hard time coming up with what the right answer is for EA, which is by and large, we have a low to mid single digit share of digital, and digital is growing at 20% a year and in the next couple years will be larger than all the packaged goods industry. And we have a leading share in the best packaged goods business out there, and we want to maintain that. What we've said is that it's possible to create better revenue and greater profitability on the packaged goods side with fewer titles and more investment in those titles, hence the reduction of resources and personnel in that arena. It's a painful call, but the right one. And we're now funneling these resources pretty aggressively into our digital consumer services. ... Our digital revenues are up 30% year-to-date, and as a standalone business this would be nearly a $600 million highly profitable digital direct-to-consumer business. It would be sort of like everything a Netflix is combined with everything a Zynga is. It's growing rapidly and is increasingly more important, and utterly important from a strategic perspective.”  

Also see: John Riccitiello on Morale at Electronic Arts

James Brightman has been covering the games industry since 2003 and has been an avid gamer ever since the days of Atari and Intellivision. He was previously the EIC of GameDaily Biz.