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As Holiday Sales Disappoint, EA To Focus On 'Hit Potential' In 09
As Holiday Sales Disappoint, EA To Focus On 'Hit Potential' In 09 Exclusive
December 10, 2008 | By Leigh Alexander

December 10, 2008 | By Leigh Alexander
More: Console/PC, Exclusive

EA says its holiday portfolio didn't meet sales expectations, and as a result it'll cut SKUs and consolidate its businesses next year. On a conference call to investors, the company further explained what went wrong -- and what it needs to do now.

On the call, EA CEO John Riccitiello said that while the company's quality levels have improved -- he noted 17 titles with Metacritic scores of 80 or higher versus 7 of the same last year -- "that quality has not yet translated into enough sales."

Secondly, more conservative retailers, who have begun placing smaller inventory orders more frequently, resulting in an overall reduction of year-end inventory, "will sharply reduce our December revenue," Riccitiello said.

The planned reduction in SKUs for next year, the CEO explained, will favor a greater investment in titles with the greatest "hit potential." Second, EA will focus more on games with strong online features, and reduce expenses through business consolidations like the one it recently underwent with its Casual label.

"Cutting costs will not impact our commitment to quality... [or our investment] in new properties and direct to consumer initiatives," Riccitiello stressed. EA Chief Financial Officer Eric Brown added that the SKU reductions would likely be split evenly between the company's casual titles and more traditional games, while the sports portfolio was likely to remain unaffected.

When asked by an analyst about new IP in particular, Riccitiello said, "We're very pleased with a lot of our new franchises this year. We think Spore has established a strong base for being an ongoing franchise. We think the same of MySims. Dead Space looks like a long-term big winner for us... Warhammer will continue to perform very well."

"Mirror's Edge is one that was very strongly reviewed... we'll be looking at some issues around the design to make sure that strong IP is married with strong business," Riccitiello added.

"Many times, what happens with new IP is the first edition doesn't generate the units that subsequent editions could generate... In this particular year, the consumer might have been more reticent to take risks than they might otherwise be, and it was a very crowded holiday."

But Riccitiello observed two shifts in the larger environment that play a role in the company's challenges -- a pronounced move on the part of the consumer to more heavily favor the top five titles, which yield a higher percentage of total individual sales.

"Secondly, we are definitely seeing an ongoing shift to online gameplay and monetization. It's not just an Asia phenomenon, but a global phenomenon," he said. "There's also the macroeconomic environment we have to contend with. Our response... is fewer titles, more focus on those titles, and very likely, more investment to create demand for those titles."

"Secondarily, more online features and ongoing content that will create additional business models for us and help prolong the catalog life of that title."

One analyst asked whether Wii's dominance in the market makes it challenging to achieve strong sales results on core market titles.

"We have a number of titles that are performing well on the Wii," said Riccitiello, noting MySims, Boom Blox and FIFA 09, "but there's no question that having the lead platform be a platform with two thirds of the unit sales occurring to the first-party owner is a really unusual thing. We haven't seen that since prior to the PlayStation 1."

"For those who sell... console games, that's a challenge and something we have to contend with," admitted the CEO. Still: "We don't think Nintendo's a new factor there," he added.

"We think it's really a polarization among key titles... and then the second factor, and one we all shouldn't underestimate, is a resetting or destocking at retail. As retailers end [the year] with lower retail inventories, that has less effect on sell-through -- but could have a dramatic effect on sell-in."

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Frank Smith
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Hopefully they know that the only people they have to blame is themselves. The original IP issue is of their own creation, years of the same dull games has scared the consumer into sticking with those games that usually aren't great, but their alright, there safe. The sixty dollar price point doesn't help new games either.

Going online may bring in a few extra dollars but the core gamer probably won't be swayed.

Chris Remo
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That's a fairly amazing thing to blame EA for. You're saying the reason people are sticking to franchise titles is because they're too scared to buy anything else? It honestly sounds like you're just trying to find any bizarre justification possible to attack EA.

Personally I find this news pretty depressing, but I'm not under any illusions that the game-buying public is actually some discerning, erudite crowd who really wants innovation and creativity but is "scared" into buying safe titles by EA.

Alan Rimkeit
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I also personally blame the public. People complain they want something "new" and "original". When given a chance to try games that are just that the consumers do not go for them. Sure some do, but in general most do not. Hence why Madden and GTA sell in the millions with every iteration. Game developers may have to realize that "new" and "original" IP will usually will not be blanket hits that sell in the millions. Some games like this will, but most won't. I see the same behavior in the movie market as well. Saw 10 anyone(you know it is coming some day)?

Frank Smith
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The game industry itself has trained its consumers to behave in this manner though, with the uncountable sequels and spin-offs. It'll take time, and money to reverse. And they should reverse this, because when one or two franchises from a publisher go bust, whats gonna happen. I what would happen to EA if people stopped buying Madden or The Sims

Brandon Sheffield
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Frank: and what is EA doing? Spending time and money to reverse this. So...I don't know what to tell you.

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*nelson laugh*

haw haw EA, you put all your best games on the HD systems and still got your ass kicked by nintendo. I dont want boom blox, there should have been wii versions of those HD action games you put out.

Bryson Whiteman
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This sounds like a forecast for more layoffs, more canceled titles, less risks with new IP.

Andrew Hopper
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A bit of a depressing look into the business side of games.

It's cool to hate on EA because frankly, from a business perspective they're VERY good at what they do, which pisses a lot of people off. Because let's face it- for a company to be successful, marketability always has to come before creativity or innovation.

Additionally, and this is what frustrates me: for every gamer that wants more from their games, there are 10 who'll buy whatever crap is thrown at them, mostly out of name recognition.

Stephen McDonough
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It sounds to me like they're planning to move away from the 1 title per year cycle and try to get something more like Bungie's Halo, which is iterated every 3 years, but sells huge every time and earns not only fan loyalty but extra income with the DLC.

Which makes sense. Chasing the bleeding edge hurts everyone. The Call of Duty community is now split between 4 and World at War, and 2 whole development teams have had to be paid to build and support those titles and the publisher naturally has to market and ship them both. Any newcomers to the series are not likely to purchase both.

Moving to IPs that have long shelf life thanks to strong multiplayer and supporting those titles with DLC not only helps solve the resale issue (as users will be more likely to hold onto a title whose content is going to increase) while giving developers more time to post mortem their title, prototype and iterate when the time comes for a full update.

That fewer titles will be released as a consequence of this is really not a concern for EA when they are currently releasing so many titles they are competing against themselves.

Mya Aubin
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The economy depression is the main reason for this. Ea can't help it if their audience can't afford to be bloodthirsty consumers anymore. I'm sure EA is aware after all the layoffs they've made that the economy isn't what it used to be. I don't understand why they blame themselves when its just that clear. People are not buying! They need to keep a roof over their head.

Christopher Plummer
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I like their approach and commend an industry Titan on recognizing the economic situation and adjusting accordingly. It sounds like they are going to cut the fat by sticking to titles that people will continue to play after the marketing hype dies down and support those titles with expansions and other online enhancements. /highfive Riccitiello. We are on the same page bud.

Mike Shiratti
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To this day I do not understand why people rip on EA. Sorry to those who are going to lose their jobs over this.

EA makes great games, and has proved this over the last couple years. Sure some are still steam-rolled but its quite obvious that people are seeing this and no longer buying them.

Mickey Mullasan
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This is not a suprise, and its obvious that large public companies like this will forever fluctuate constantly around meeting financial expectations at the expense of "blood and treasure". I hope that the employees that will be affected by this go and release some nifty games for the Iphone or on Steam and make a go of it before falling back onto the giant corp wagon.

Daniel Kromand
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Firstly, I'm also getting tired of the run-of-the-mill "I hate EA so much" statement, which is especially typical among younger designers.

Isn't it possible that some of EA's financial trouble is arising from the fact that this holiday season is so filled with high-profile titles that someone has to bleed?

Mark Williams
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I am so glad that EA will continue upon these new IP's. It would seem overall this holiday so many consumers chose to go for what they knew instead of going for something new such as Mirrors Edge, Dead Space, LittleBigPlanet, etc. Maybe it was just a bad time for those games to come out BUT I ALWAYS go for a new IP because I want to see what they offer. I know the experience I will receive from a why not give the new title a shot?

Keep up with the restructuring EA and keep those original IP's coming.

Anthony Charles
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I read this differently from the rest of you. He's essentially saying EA's shift towards a focus on quality has not translated into hits so to remedy that they're goin to focus on games with "hit potential". it sounds to me as if Riccitello does not think quality games necessarily have "hit potential". in order for any of us to think this is a good thing we need to know what traits a game must possess in order for it to have hit potential.

Bryson Whiteman
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I say it's high time Bioware got crackin on a Madden MMO. Talk about "Hit Potential"!

Lo Pan
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Great points, I do think the perfect storm of:

- economy

- price point

- glut of strong games

- Wii dominance but poor 3rd party attach rate

is really hurting publishers.

I like to see a price reduction to $49 retail for new console releases to help jump start purchasing.

Nick Mudge
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