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If you enjoy reading this site, you might also want to check out these Think Services sites:
 Game Career Guide (for student game developers.)
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 Finger Gaming (news, reviews, and analysis on iPhone and iPod Touch games.)
 GamerBytes (for the latest console digital download news.)
 Worlds In Motion (discussing the business of online worlds.)
 Game Set Watch (the Group's alt.game weblog.) |
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Analyst: EA Might Have Missed Its Shot This Cycle
by Leigh Alexander
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December 22, 2008
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Is Obi-Wan the only hope for Electronic Arts? Cowen Group analyst Doug Creutz thinks so, suggesting that the publisher may have missed the boat on a meaningful core market strategy for the current console cycle.
Creutz says the upcoming BioWare MMO Star Wars: The Old Republic is EA's "best chance" at improving its profitability -- but even that, he says, might be hampered by World of Warcraft's market dominance.
Concerned about the company's future profitability, Creutz says he is "slashing" estimates for EA's 2009 because of the company's "inability to develop hit core-gamer console titles."
"The company continues to struggle to deliver quality improvements where they are most urgently needed," Creutz adds. EA's recent cost-cutting measures, the analyst stresses, need deeper and more efficient research and development to benefit the company, and so the analyst's outlook for EA is muted "for the next several years."
On EA's lack of core-focused successes, Creutz says: "We believe much of the blame for this goes to prior management, which failed to incubate new hit franchises heading into this cycle and let aging franchises decline," he says. "Instead, dollars were spent on what were largely low-return projects."
But it's not all the fault of EA's prior leadership, the analyst maintains. The current management may be "guilty of some resource misallocation" -- and Creutz notes the Wii in particular.
"[EA]'s attempt to chase market share [on the Wii] has run up against the reality that third-party economics on that platform are simply not that attractive due to Nintendo’s dominance of the software market," he says.
"As a result, EA has had few owned IP titles that have reached or sustained hit economics over the last several years."
At this point in the console cycle, Creutz argues that the hit franchises have largely been established, and will be increasingly difficult for EA to displace.
"Aside from EA Sports and The Sims, EA really has a stable full of modestly-performing titles, with none offering the type of mega-hit R&D leverage offered by competing titles such as Call of Duty, Grand Theft Auto, or Assassin’s Creed", he says.
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Not related to the Wii, but still relevant to your claims: even though Mirror's Edge has been considered a bomb in terms of "hit economics" with only 160,000 sales in its opening week, it has had steady sales of around 100,000 units/week (Xbox 360/PS3 combined) for the past four weeks. And Dead Space? It has sold over a million copies so far, with at least 600,000 copies *after*opening week.
In my opinion, the concept of what Mr. Creutz calls "hit economics" --selling as many copies as you can in the first few weeks-- is what causes the failure of many software developers. The most profitable titles are the ones that have long sales lives. Those are the ones that help sustain a software company while it develops additional titles.
No, there are different problems at EA than sales numbers. If Mirror's Edge and Dead Space combine for over $75 million in sales and they're considered unprofitable, then there's a problem with the company's spending, not a problem with sales. Or perhaps there's a problem with the methodology of the analysts who are advising stockholders and board members?