Is Electronic Arts Off Its Game?

$17 billion Electronic Arts (ERTS), which used to be spoken of as the steady-as-she-goes king of video games, can’t seem to come up with a hit title, writes Pacific Crest’s Evan Wilson in a report this morning. He sees EA as being in a protracted slump, with EA’s ranking among gamers’ reviews coming in below average last year for a second straight year. Says Wilson, “it is clear that “reviews [of games by gamers] … do correlate to quality and sales …” Ergo, EA has a problem with its products.

Although EA’s profit is set to rise about 50% in the year ending this March, and 65% in 2009, the company’s profit growth will lag top competitors this game cycle, concludes Wilson. He takes a nice slam at the kind of nebulous chatter that often distracts one in the video game business: “Despite all the talk about in-game advertising, microtransactions and restructuring, releasing well-received hit titles re-mains the key to profitability. EA’s studio organization has had a difficult past three years and it shows. EA needs a near-term turn-around to stem market-share declines and hit optimistic growth targets.”

EA makes the Harry Potter video games and has a large sports franchise, including the “Madden” branded version of NFL football.

EA shares today are down 1.14% at $52.71.

Comments

[Justin Whitaker]

EA's problems are many, but really come down to "It's the games, stupid!"

In some ways, they did it to themselves: if you release the same game each year with only incremental value to the gamer (look, now you can see the players sweat!) then sooner or later, the game buyer starts to look elsewhere for their fix.

And that's really the point, isn't it? Revenue is driven by sales of games, and your catalog has to be broad and deep enough to appeal to multiple game constituencies...I'm not certain that EA's product line qualifies. Does anyone actually care about another SIMS expansion pack, or Ultima Online, these days?

That's where Bioware and Pandemic come in. One area where EA's product line is particularly weak is in the role playing game segment, and that is something that Bioware does very, very well. I just hope EA's management doesn't decide to micromanage Bioware and lets them do what EA needs them to do. Not likely, but one can hope.

There is no short term solution for EA. They need to come up with a consistent stream of compelling AAA gaming products that get people excited about EA again. That is going to take time.