Electronic Arts CEO John Riccitiello compared EA to media giant HBO in the quarterly earnings call today. “What I can tell you is there are precious few companies that have taken great content and added strong platform components so they've created a lot of value. HBO is a company that's done that. I believe frankly we're similarly situated to create an enormous amount of value here.”
Riccitiello's comments came in response to a question from analyst John Taylor of Arcadia, who wanted to know if EA would be able to use their Nucleus Registration and Entitlement Service to reduce sales and marketing costs. The Nucleus service is part of EA's effort over the past three years “to put into place the foundation for true cross-platform capability with our brands, and for a high-value, safe and secure net of services we can offer our consumers online.” The Nucleus service now has over 140 million users; it's how EA has been able to implement their EA Sports Online Pass, for instance (where buyers of a used EA game have to pay $10 to be able to play online, thus giving EA some revenue from sales of used games for the first time, something that is being widely imitated across the industry).
Riccitiello went on to discuss the difficulties that EA and other publishers face with the classic packaged goods approach to selling games. “You're forced to reacquire your customer every year at a cost that is very significant. If a company's... running 10% of variable marketing costs against revenue, they're running $5 a customer to acquire. And if they're running 15%, they're running $7.50. That's an incredibly expensive thing to do to reacquire your customer every year.” The idea is that EA can cross-sell products and services, even across platforms, by having an integrated approach to the brands. Which is where HBO comes in... EA wants to see its strong brands leveraged across all platforms, and connecting players across multiple platforms, because that's what people tend to do. If you like a game on a console, you're more likely to check it out on Facebook or a smartphone. HBO is very smart about bringing their brands to a wide variety of media to keep customers engaged and coming back to HBO programs.
EA's mission, as Ricitiello states it, is clear: “Our mission is to transform these brands from a single event every 1 to 2 years to 365-day businesses with packaged goods launches sustained by frequent updates of downloadable content and expansions into social and mobile platforms.” As, for example, they're in the process of doing with The Sims, which has become the #2 social game in a very short time.
In an effort to make this happen, Riccitiello talks about the company's structure: “EA has organized to put full responsibility for managing our key brands behind the teams that create them. Rather than scattering the development for console, mobile, and social across multiple organizations, we are consolidating key elements of production, marketing and community into one team.” He believes consumers will benefit because of better creative continuity, and that employees will benefit because “they see the entire spectrum of gameplay, technology and business model on their franchise. Employees see much better career development and frankly, they have more fun at work.” Now there's a concept that not every major publisher seems interested in.
