During the E3 Expo, we had the pleasure of sitting down to chat with EA Chief Operating Officer John Schappert, who was quite excited about his company's renewed focus on quality over quantity. We discussed EA's continued shift into the digital world as well, and we also talked about the new 3D and motion technologies primed to make a big splash in the gaming world. Here's our full Q&A.
IndustryGamers: Let's start with your impressions of the new technologies out there: the 3D push from Sony, the 3DS from Nintendo, motion controls with Sony and Microsoft. How do you size up the market with all these new technologies?
John Schappert: I think it’s a great E3 for the industry. Normally, you come here and there’s one hardware surprise, and I can’t think of another E3 where everyone’s surprising in a positive way. And they’re positive surprises. It’s not like, “Yeah, they did that but I don’t know about that.” Every one of [these new technologies] is cool. The 3DS is just incredibly cool. The 3DS is magical. You put that in your hand, you look down, and all of a sudden it’s in 3D without glasses. That’s an amazing experience. I’m a huge fan. I think that device is going to sell like hot cakes. I think it’s going to do incredibly well, and in typical Nintendo fashion they have re-energized the industry, yet again. I give them nothing but credit and we are excited to be supporting that platform with Madden, FIFA, and The Sims that we announced.
I think, likewise, if you look at Sony and 3D and the Move controller, and you look at the Xbox with their new form factor and Kinect… I think it’s a great year for the industry. I think all these devices are cool. I think they’re all giving the industry a big push, which is great. You look at the Cirque du Soleil event that Microsoft sponsored to launch Kinect. You think about what it’s going to look like this holiday when Sony’s pushing 3D, they’re pushing Move; Microsoft's pushing their new form factor, they’re pushing Kinect; Nintendo, at some point, is going to be pushing the 3DS. And then you’ve got all the standard core games which are great, too, on top of this. And of course, bring it back EA, we are very happy too because we’ve got presence on all of these devices. We’ve got Active for Kinect with the heart rate monitor, so that's true exercise with real world interaction and feedback on your heart rate while you exercise. We’ve got Tiger Woods, which we showed on the Sony stage with the Sony PlayStation Move control, which is way cool. And we had our own press conference where we said, “Hey ten great games, here they are,” and I think that went well. What did you think?
IG: Yeah, great stuff. I think you could tell, as John [Riccitiello] has talked about, the emphasis on quality and it looks like it is working. I’m curious, though, from the transition standpoint from packaged goods to games as services… how do you feel about where you are in that transition now? You’re putting the emphasis on these sort of triple-A games on the retail side, with, you know, Dead Space 2, Crysis 2, etc., and at the same time, you have this big push with digital platforms and turning games into services and the online pass and Project Ten Dollar. How is it sort of split up?
JS: I would say, first, it’s not an either/or. So it’s not going to be like we go to sleep tonight, we wake up tomorrow, and the world’s changed and we don’t buy discs anymore. It’s an evolution, and I think that we are well positioned for the evolution that’s coming and the change that’s coming and I think in many ways we’re actually leading the change that’s coming. If you want to look at packaged goods, we can all read the headlines: NPD data is down, the industry is down; I can slice that four different ways and paint a realistic positive picture. Let’s layer in digital; let’s layer in the revenue that comes from digital downloadable content there. That’s not captured in the official report. When I layer that in, I’m in a growth industry. [And although] the music category has been down year-on-year, it’s transitioning from a hardware and software business to a software-only business with lower price points. That’s not a fair comparison. That’s like looking and saying, “gosh, the PlayStation 3 sold for $600, now it’s $300; they’re not making as much money.” That’s not the case anymore. That’s not an apples-to-apples comparison when you look at a hardware bundle versus a software bundle for music.
When you kind of extract all that out there, we’re seeing a healthy Xbox business and an extremely healthy PlayStation 3 business right now. The PlayStation 3, GameStop had on their earnings call, they said they were out of stock in 85% of their stores. The Wii was out of stock in 50% of their stores. Those are two great metrics, which speak to the consumer demand for these products. Xbox has done well; while they’ve been in stock, they’ve done well. PlayStation 3 has done very well while they’ve been on allocation and out of stock. Now, we come along and say, “gosh, imagine Sony getting their supply issues corrected,” which I have no doubt they will shortly. Then you’ve got the new Xbox coming in there, to breathe even more life into the Xbox, and you’ve got the new Wii bundle that’s there. I start getting really excited, actually.
The cool thing is, we’ve got downloadable content for packaged goods, we talked about how that is a growth business and then we talk about all of the non-physical goods business. The iPhone, the iPad, the Smartphone, Android, Facebook gaming, and that’s where I think we are leading the pack, because we recognized that as a meaningful part of the business years ago when we acquired Jamdat. And at the time, when we acquired Jamdat, they were doing things like Jamdat Bowling, which was their number one title right behind Tetris actually. So it was Tetris, it was Jamdat Bowling, it was Jamdat Boxing, and most of these titles don’t exist anymore, not because we took away the Jamdat title, but because they’ve been replaced by titles like Madden and The Sims, and Need For Speed and FIFA, and Scrabble. It’s because big brands emerged there. And so we’ve got a great bevy of brands, strong IP that are doing very, very well on the mobile segment. And they’re doing very well on the iPhone, Smartphone segment, the iPad segment, and now we’ve just launched FIFA Superstars a couple of weeks ago, and we’ve got high hopes that we’ll do well there too.
