IG: Tying into this digital distribution discussion, piracy has been a big problem for this industry and EA has wrestled with the DRM issue, most notably on Spore. More recently, it was announced that Sims 3 was very heavily pirated, more so than Spore. How are you handling this piracy issue?
JR: You identified our secret marketing campaign! [laughs] That was a very large scale – concentrated on Poland and China – demo program. In the game that was pirated there's [only] one city [out of two]... and Sims 3 has a massive amount of content, and a lot of it is downloaded once you register with EA... and join the online community. So you get that content in addition to the second city [which is downloadable for people who register], and that's a major component... A huge amount of the gameplay is an overlay for the community, where you are sampling assets created by other people. So for the pirate consumer, they don't get the second town, they don't get all the extra content, and they don't get the community. It was only concentrated on Poland and China, but I think of it as not being that different than a demo. We did it in part because we know we had a risk of piracy, but more importantly, if we go back to Sims 2, when the team gold mastered it they went on vacation. ... A large part of the Sims 3 team is still working on Sims 3 now. They're creating boatloads of content. It's a very content intensive game, so to have the pirated version and not have access to that is a little bit like having a subscription for Starbucks and only getting one coffee. It just whets your appetite rather than satisfy your ultimate goal.
IG: So that's your approach to curbing rampant piracy?
JR: I'm a longtime believer that we're moving to selling services that are disc-enabled as opposed to packages that have bolt-ons. ... If you see what we're doing with Madden Online, FIFA Ultimate Team or Sims 3, and Dragon Age is probably a 100-hour game by itself, but what comes post-release [for these games] is bigger still. So the point I'm making is, yes I think that's the answer [to piracy]. And here's the trick: it's not the answer because this foils a pirate, but it's the answer because it makes the service so valuable that in comparison the packaged good is not. So you can only deliver these added services to a consumer you recognize and know; people don't pirate servers very often, but it has happened. So I think the truth is we've out-serviced the pirate. ... By the way, if there are any pirates you're writing for, please encourage them to pirate FIFA Online, NBA Street Online, Battleforge, Battlefield Heroes... if they would just pirate lots of it I'd love them. [laughs] Because what's in the middle of the game is an opportunity to buy stuff. I increasingly believe that's the way the market's going because that's how the consumer wants to consume. And by the way, [regarding] my competitor, do you think Blizzard gets upset when someone pirates a disc of one of their online games? While we don't want to see people pirate Warhammer Online, if they're going to give us a year's subscription it's not exactly a total loss.
IG: Well speaking of your competitor, let's talk about the Activision Blizzard rivalry and their massive scale. And of course there was the saga of your trying to acquire Take-Two last year, which would have increased EA's scale. I believe that pursuit cost you $21 million.
JR: The truth is I think it's a mistake to think about corporations competing with each other. There's no doubt that in sports we compete with 2K to some degree, in shooters we compete with Ubisoft and Activision, but we don't compete with Ubi or Activision in sports in any meaningful way. With our franchises like Dragon Age, we compete with Bethesda. With Pogo we compete arguably with Miniclip... Addicting Games to a degree. We're by far the largest player in mobile games – I guess we compete with Gameloft there. Vivendi is the majority owner of Activision and I don't feel like we compete with Vivendi – they own a phone service, and they own Universal Music, who we partner with in lots of different ways. It sort of feels like you could play this fantasy Pac-Man thing forever and it doesn't mean a lot.
In terms of trying to acquire Take-Two, $21 million is a huge amount of money but in the scheme of M&A it's not. We were talking about a $2 billion acquisition, so it's small in relative terms. It's something corporations do from time to time and it certainly would have cost us much more had we completed the transaction. As we noted last year, shockingly clearly, this was an acquisition that had its window and price. That passed and we moved on.
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June 24, 2009
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