Electronic Arts has successfully grown its digital games business to a $1.5 billion per year operation, but dwindling interest in Xbox 360 and PlayStation 3 games continues to damage the companies earning power.
Electronic Arts has worked hard to transform its gaming business for the modern age. Games like?Command & Conquer Generals 2?that would have been boxed retail releases a decade ago have been recast as free-to-play online titles. Game studios like PopCap, whose titles?Bejeweled?and?Plants vs. Zombies?are staples of the mobile and casual markets, were acquired for an estimated?$1.3 billion. Efforts to future proof the game company while also returning to the earning power of the company prior to the 2008 market crash have been only been partially successful for Electronic Arts. Digital revenue is up according to EA?s?earnings report for the holiday quarter, but console game sales are declining far faster than EA?s newer businesses can grow.
EA reported adjusted revenue for the holiday quarter at just under $1.2 billion, with a loss of $45 million. This is well below expected revenue of around $1.3 billion. As stated, Electronic Arts? digital business grew 17 percent year-on-year thanks to games like the mobile game,?The Simpsons: Tapped Out,?which generated $23 million in net revenue all in its own. The console game business though, remains the greatest source of income for Electronic Arts, and its console business drowned over the holiday quarter.
While packaged games brought EA $738 million during the holiday quarter in 2011, those sales fell 23 percent to $568 million during that period in 2012. The problem is that EA?s console game tent poles, namely?FIFA?and?Madden NFL, aren?t supported by strong action titles any longer.?FIFA 13?sold 12 million copies across all platforms, a 23 percent increase over?FIFA 12?during that time last year. Its success was negated by the abject failure of?Medal of Honor: Warfighter. ?Medal of Honor: Warfighter?didn?t deliver, and we underestimated the overall softness of the console goods sector,? said CEO John Riccitiello during EA?s conference call.
As a direct result of the game?s failure, the Medal of Honor franchise will be taken ?out of rotation.??
?This one is behind us now,? Riccitiello said. ?We are taking Medal of Honor out of the rotation and have a plan to bring year-over-year continuity to our shooter offerings.?
EA has attempted to compete head-to-head with Activision?s Call of Duty franchise, which features annual release from multiple studios. The last few years have seen Medal of Honor and the Battlefield franchise switch off, and an announcement regarding a new Battlefield game is expected in about 90 days, according to Riccitiello. T
?We?ve already talked a little bit about that we have a Battlefield title coming next year, but we?re not in a position right now to talk about our development plans and our SKU plan long term,? he said.??That will come in about 90 days when we get to show you some Battlefield stuff.?
The timing is especially interesting.?Battlefield 3 was revealed at GDC in 2011, and Medal of Honor: Warfighter was officially unveiled at GDC 2012. With GDC 2013 happening March 25-29, it would make sense for EA to once again dominate the show with a major announcement, but 90 days would put the unveiling date in late April or early May, falling ?in the no mans land between GDC and E3. With EA annually releasing its shooters in October or November, that could put the release well into the suspected launch window of the next Xbox and possibly the next PlayStation. Could that mean the Battlefield announcement will be after, or perhaps even in conjunction with the unveiling of a new console? That is supposition, of course, but it is logical.?
How will EA recover? Rumors have been swirling for months that?Riccitiello would be ousted?if EA?s financials didn?t improve, with COO Peter Moore pegged as his replacement. For now, though, Riccitiello remains in charge of EA and he sees the coming of the Xbox 720 and the PlayStation 4 as EA?s salvation. ?As you might well expect, we know more about the roadmap, and more about what?s coming in consumer electronics, in terms of the specifics of devices that will play games, than you might otherwise be exposed to,? said Riccitiello, ?It?s why we have outlined our plan to invest? in the current fiscal year $80 million in that opportunity.?
EA will bank on its biggest earners to carry it into the next console cycle strong. ?We?ve signaled that we?re working on the next editions of our two biggest franchises in?Battlefield?and?FIFA.?
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