On a conference call following the holiday fiscal results, EA indicated on a conference call that it's planning on paring down its EA Partners distribution business. It's not shutting it down - EA does still plan to publish Crysis 2 and the unannounced Epic shooter - but the company would rather focus on its own internal games, which yield higher margins. An internally-developed PC game can have a profit margin of up to 90 percent, while internally-developed console games usually see margins of 60 to 70 percent, EA said.
"While we have great relationships with our partners, we are modeling a reduction in our distribution business as we concentrate on higher-margin EA owned titles and digital initiatives," said COO John Schappert. The scaling back on distribution will result in a $450 million year-over-year drop in distribution revenue for EA. That said, headcount at EA is expected to remain stable.
Of course, one of the bigger brands to come out of EA Partners is Rock Band. It's worth noting that EA's 2011 fiscal product slate makes no mention of any Rock Band games; moreover, EA's contract with Viacom ends this year. Considering that EA is looking to transition more into digital (a component of the Rock Band business EA has no part in) and the packaged goods side of the music game space seems to be dwindling (down 46% in the U.S. last year), it may be for the best that EA leave the music in the hands of MTV Games. “As you can see from our modelling, we have not included a lot of revenue for distribution next year, but we continued to have talks with them and hope that maybe there’s an opportunity to continue the relationship beyond that,” Schappert said of the Rock Band partnership.
The folks at Harmonix have always had a much bigger focus on improving Rock Band through more downloadable content, as opposed to the Guitar Hero method of flooding retail with SKU after SKU. With the recent launch of the Rock Band Network, that digital focus seems to only be getting larger, leaving little room for EA's involvement.
2 Comments
February 9, 2010
This seems like an acknowledgement that packaged goods are a lower-growth area than digital downloads, social or mobile games. EA has an amazing ability to put packaged goods into the channel; if they're scaling back, it seems either they expect channel sales to not be so good, or they don't see many good distribution partners ahead, or they have better places to put their resources. Though I don't see how reducing their packaged goods sales force helps them make more in-house product, unless salespeople are learning to program. The whole idea behind distributing other people's products was that EA had to have the sales force for their own goods, and the marginal cost to distribute other products was very low, so why not? This has worked out very well for them over time... I really don't see how reducing their distribution of non-EA titles helps save EA a lot of money.
June 18, 2010
True, but if they make money doing it, and they have the resources to effectively do it... why not. Not to mention from a public image standpoint, both those games are high quality top in there genre and had a huge part in turning the EA name around from Evil empire to the positively received game company they are today