EA to use mobile, microtransactions, and a unified back end to fight falling revenue
EA announced a $45 million net loss in for its third fiscal quarter, as reported in early January. This is a large improvement year over year, as EA posted a $205 million loss in the same quarter last year. The company saw a loss of $381 million in its second fiscal quarter. Despite growth in its digital business, EA needs to find a way to fight falling revenue.
EA executives laid out some of the company’s plans for the future at a recent presentation at Morgan Stanley and, if you believe that $60 games moving towards the monetization strategies of free-to-play and casual titles is a bad deal, you’re not going to enjoy the rest of this this article.
Blake J. Jorgensen, CFO and Executive Vice President of EA, praised pure digital distribution as a way to increase margins on content, and pointed to the ongoing support of games like Battlefield 3 in terms of expansions and content. You sell them the game, and then you continue to sell them items through digital channels that don’t require the shipment of physical goods. It’s a good way to do business, and an effective way to raise profit margins.
“The next and much bigger piece is microtransactions within games. And so to the extent that, as Rajat said, we’re building into all of our games the ability to pay for things along the way, either to get to a higher level to buy a new character, to buy a truck, a gun, whatever it might be, and consumers are enjoying and embracing that way of the business,” he stated. “We’ve got to have a very strong back end to make sure that we can operate a business like that.”
EA is working on a new back end that will allow them to process credit card transactions for digital sales in-house, as Jorgensen stated that “you’ll get eaten alive” if you have to deal with credit card transactions with every sale. There will in fact be a single login for EA as a company that will allow you to be connected to all of your games, across multiple platforms. This will also allow EA to more easily sell you new content and to deliver that content to a variety of devices.
“All of our games will enable types of experiences that are congruent and consistent on the PC, consoles, smartphones, and tablets,” Rajat Taneja, the chief technology officer at EA, told GamesBeat. “We have a complete re-architecture of our data systems that gives us a single view of the data.”
This plan is consistent with another strategy discussed by Jorgensen: The enhanced focus on mobile games.
“It’s become a very large part of our business and it’s either an extension of existing franchises or new franchises. So The Simpsons, for example, is a free-to-play game, leverages, obviously, The Simpsons TV show, and you pay all along the way,” he explained. “Last quarter, we did over $25 million in Simpsons business alone. So there’s an opportunity there, probably smaller opportunity on a per title basis than something like a FIFA or a Battlefield. But, as Rajat said, it’s a place that’s actually growing internationally as well for us so it helps to extend our business into Asia, which has not been a big console market over time.”
In July of 2012 EA CEO John Riccitiello complained about investors focusing on NPD numbers, the sales of physical game products, when valuing EA stock. He pointed to the company’s strong performance in the digital space, which is a sector that continues to show growth for EA.
While gamers may hate the idea that the future belongs to microtransactions and smaller, mobile games, it’s hard to argue with where gamers are actually spending their money. EA isn’t focused on what you say, as a company it’s paying attention to what you do, and in this case they’re going to where they believe the money will be in the coming years. After suffering so many quarters where they post losses, it may be a bet they’re being forced to make.