EA Games Shifts Focus In A Changing Market
Electronic Arts Inc, one of the world’s most successful publishers, developers and distributors of video games, say they predict that their online and handheld games may become as commercially important as their traditional computer and game console titles””a prediction for which the company has already begun preparing for by building up critical franchises and reducing its total number of titles.
At the moment, said EA CEO John Riccitiello, the company publishes more than fifty game titles, including best-sellers like “Madden NFL,” “The Sims,” and “Rock Band.” By next year, however, he says the company plans to whittle back that number to around forty in order to allow their developers and publishers to focus on producing even higher quality games and reducing costs.
In fact, at a Reuters Global Media Summit in New York earlier this week, Riccitiello mentioned that the company may reduce their number of titles even further in the coming years.
“Thirty [titles] wouldn’t shock me at some point in the future,” he said at the conference.
Though market analysts once considered the video game industry impervious to the economic woes that have devastated a number of other sectors, game sales have tanked for most of 2009, spurring software developers to strategically recalibrate their marketing plans and start toying with alternate business models for the coming years.
According to PricewaterhouseCoopers, the gaming industry has developed into a monetary mammoth in recent years, posting some $15 billion in revenues in the United States alone.
One of EA’s hottest new titles this year, “Left 4 Dead 2,” sold a remarkable 2 million copies in its first two weeks on the shelves, said Riccitiello, while other gaming giants like Blizzard Inc and Ubisoft released titles with similar sales figures.
The problem, according to industry analysts, is that the number of super-selling blockbusters per year””often with a retail price upwards of $40″”is on the decline. As more and more marginal gamers become increasingly thrifty, they are turning to simpler games that can be played for free on their cell phones or online.
Viewing this trend with a hawk-like eye and a penchant for savvy market maneuvers, EA executives opted to dish out $275 million in cash to buy social media game developer Playfish. The small but dynamic, British-based gaming company has made a name for itself by releasing most of its games on Facebook. Its most popular creation thus far, “Pet Society,” has more than a million fans on its Facebook page.
An additional perk for EA in the Playfish acquisition is the relatively low cost associated with producing and packaging these types of games.
“We’re the world’s leader in packaged goods games, we make more of them than anybody,” explained Riccitiello. “We’re not suggesting that business is going away … [but] there’s this other thing that’s growing.”
Though Riccitiello believes that traditional packaged games won’t be going away anytime soon, he does see a growing niche for digital games, which he predicts will rise from 40 to 50 percent of the total industry next year.
“It’s our goal for that business to be as important as””and over time maybe more important than””our packaged goods business,” he said.
After posting $1.08 billion in losses for the fiscal year ending in March of this year and another $391 million for the second quarter of this year, Electronic Arts executives see the slimming down of their catalogue of titles as a necessary cost-cutting adaptation to a rapidly evolving industry.
The California-based firm also announced plans last month to lay off some 1,500 workers, representing a 17 percent reduction in their total workforce and following hard on the heels of last year’s 11 percent cut.
Riccitiello was careful to emphasize that the company’s cuts did not represent a correction of previous misplanning, but rather strategically offensive moves to better position the company in a changing and highly competitive market.
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