Electronic Arts Is Doing It All Wrong

Electronic Arts (ERTS) have been making losses for so long that I am amazed that nobody has done anything about it. This time they have doubled their loss for their first quarter from $95 million to $234 million, massive figures, nearly $4 million every working day down the grid (Call Transcript). They have been a prime takeover target for ages but still nobody has moved to buy them. Let’s see what could be going wrong:

• Boxed console games in this generation mostly make a loss. The business model is not very good.
• The market is polarising into a small number of genre leading mega hits (GT, GTA, CoD etc) and a large number of underperforming “me too” titles. EA have too few of the former and too many of the latter.
• There is still an emphasis on the misguided and self defeating practice of concentrating game releases in Q4 each year.
• Publishers got the Wii wrong. They came to it too late and with too much drossy shovelware. EA is starting to perform here, but over a year late.
• MMOs are exploding. EA have massively underperformed in this market.
• EA were late at moving from licensed product to owning their own IP. It has been a painful transition.
• It is possible to put in management targets and exception reporting systems that get rid of whole swathes of suits. So more people in a company are engaged in actually making and selling product.
• Marketing has changed from being TV advertising based to being fragmented engagement with communities. Many marketing departments have not moved with the times.

Disclosure: No position