There was a time when Electronic Arts (NSDQ: ERTS) was the game-company stock to own — with the most cutting-edge games and tons of cash on the books. But over the past few years, it has lost much of that luster. EA posted a $120 million loss for the most recent quarter — its fourth consecutive quarter in the red — and has laid off about 1,100 employees in the process.
While some analysts argue that now more than ever EA needs to focus on what it does best — retail sales — the company is instead testing out a bunch of new and unproven distribution channels (like digital downloads) and business models (like micro-transactions). In an interview with paidContent, COO John Pleasants says EA’s emerging digital strategy, which includes social gaming, virtual goods and even distributing games via OnLive, will get the company back in the black. He offered some hard numbers on micro-transactions, pre-paid game cards and insight into upcoming social-gaming acquisitions, as proof of why EA’s plan to generate at least $500 million in digital direct-to-consumer revenue this year isn’t just wishful thinking:
Tameka Kee: Much of EA’s future seems hinged on the successful launch of games like The Sims 3 that have online play at their core. What makes now a better time to focus on online games, than back when you first tried it with EA.com?
John Pleasants: “The story with EA.com then, was right idea, but too early. The bandwidth wasn’t there, the connected consoles weren’t there, and the idea of building one destination where everyone would play all their games was flawed. Our strategy is different now; it’s about creating a live service across a portfolio of titles, with some social aspects and a variety of business models, including micro-transactions and subscriptions.”
Let’s talk about those social aspects. Companies like Zynga and Playfish are making millions of dollars from social games. Does EA feel the need to compete — and if so — how do you do it?
“We have huge regard for companies like Playfish; they don’t have high customer acquisition costs and they’re getting users to bite on micro-transactions from the start. So we’re in investment mode, and we’ll be announcing deals with companies that will be of note some time in the near future. We’re also building four social network games from the ground up — in addition to a platform that connects game-play feeds from the consoles to a player’s social network. Then there’s Pogo.com. We’re working on back-end stuff like better SEO, new user interfaces and adding micro-transactions to the core subscription model. It’s not necessarily a competition — since we already run one of the largest online and social gaming sites standing right now — it’s more about creating this comprehensive package of social activity for every person that plays one of our games.”
You mentioned micro-transactions. How robust a business are they realistically?
“Take the FIFA franchise as an example. Let’s say we sell 7-10 million FIFA discs globally, but we have about 5 million people in Korea playing a free, micro-transaction-based version. We’re making more up-front revenue per user from the disc buyers — but the micro-transaction players are still generating around $1 million per month in revenue. We just launched FIFA Online in China, and had a million registered users that generated $254,000 in just four days. It shows how much potential there is, for micro-transactions — or any online payment model — if its unlocked on the right platform, in the right territory.”
You’ve even got pre-paid currency cards in stores like Best Buy for The Sims 3. How much revenue do you think you’ll make from the cards?
“I can’t offer a specific revenue projection for The Sims, but I can go back to FIFA 09. We launched an online component to that game — Ultimate Team — which let players build up their roster with digital cards, and sold $10 million worth of cards within the first four weeks. But we’re focusing on payment systems of all kinds, like pre-paid cards, mobile payments and PayPal, so that we can be globally accessible. We think that’s a real competitive advantage.”
It sounds like EA is stirring dozens of little digital pots, so what about the critics that say you should be more focused on showing shareholders tangible results?
“You know, we actually did make money last year. It was a small amount, but there was positive operating cash flow. And internally, we’re not satisfied with that, either. Which is why we’ve changed our management team, put a better cost structure in place, and we’re focused on spending money in what we feel are growth areas. We’ve had some successes with driving online revenue — and we’re going to keep trying, because the goal is to transform from just a game publisher into a gaming services company — and we’re working our asses off to do it. So we’re launching quite a few products, and coming into this fiscal year very strong. We have our swing on.”
Photo Credit: psd