Electronic Arts had a weaker holiday season than it expected, but COO John Pleasants says the company has nonetheless been laying groundwork that will grow its business in 2009 even amidst some uncertainty in the market.
Pleasants spoke at the Goldman Sachs Technology and Internet Conference in San Francisco, and echoed recent frank comments by CEO John Riccitiello about the company's struggles and future plans.
The Financial Perfect Storm
"We had a very ambitious plan that John Riccitiello laid out," Pleasants began, "and for the first two quarters [of last year], we were on plan." The exec pointed to an increased focus on quality -- bringing the number of 80+ Metacritic-scored games up to 13 from seven in a year -- as making EA "feel very good about the product that we're making."
However, "we had a very difficult Q3, as everyone is aware," he admitted. "It was a bit of a perfect storm of many things; obviously the macro economy is one thing. But we're not really blaming that at all; the external market is kind of a contributor."
"The biggest thing was that we didn't make hits," Pleasants said. EA launched a number of new properties last year, but as consumer confidence dropped, people looked to safer bets like established sequels.
"It was a time when new IPs were very difficult to break through," he explained. "We do see now, more than ever in this recessionary time, the consumer's flight towards either highly discounted products or to very very high-charting top 10 products, and our products that we felt were going to get into those slots didn't get in there. That's execution and we take full responsibility for that."
The Marketing Response
Electronic Arts has already pledged its support to the new properties it launched last year, such as Mirror's Edge and Dead Space, but Pleasants said it will have to adjust its approach to make them succeed in the marketplace -- largely by rethinking its marketing strategy and, as Riccitiello has previously noted, paring back its overall product slate by 20 percent.
"We're prioritized [our projects] rigorously, making sure we chart those titles where we need to, to hold share," he added. "Right now, we're predicting holding where we are [in market performance], but our aspirations are actually higher than that."
EA mismanaged some of its marketing spending, the exec noted, focusing too much on mass-market launch week blowouts, and not enough on the slow buildup to a title's release, beginning with early hype and leading up to the launch period.
"Our variable marketing spend -- the amounts we're spending on media to reach consumers -- is the one line item in our [profit and loss statement] that's increasing this year," Pleasants divulged, "and we think that's the right thing to be doing. We have titles we really believe in and we want to make sure they hit. Every other line item in our P&L is being reduced."
But in contrast to recent comments made by EA Redwood Shores producer Glen Schofield, who suggested EA is rethinking its traditional heavy focus on the holiday season, given extreme overcrowding in the market, Pleasants seemed to expect more of the status quo.
"Q3 remains the big target, not only for retail, but for most of the folks in our category. It certainly is for us too," he said.
The Wii Issue
Part of EA's ongoing strategy is to better establish its Wii presence -- something that actually contributed to EA's troubles in the last year, Pleasants noted, as the publisher has struggled to compete with Nintendo's own heavily dominant position on the platform.
But the company isn't giving up. "We have this year 20 to 25 SKUs coming out on the Wii," said the COO. "They are not ports, they are all products that are developed directly for the Wii."
He even floated the idea of co-marketing between EA and Nintendo, or a marketing campaign by EA that trumpets the company's focus on the platform. "For the first time, the idea that EA and Wii are two powerful companies that support each other, is something that we can market," he said.
An audience member asked about the reasoning for that shift. "Nintendo now is almost 50 percent of the install base, and that is something you cannot ignore," Pleasants responded. "Electronic Arts' history of strength is on Xbox and PlayStation. If that's only half the market, you can only get so big. Our products have got to be able to play over there."
Mirroring changes to the company's broader product slate, some of EA's genres on Wii will actually shrink in size in order to focus more on quality: "The amount of sports titles we're making for the Wii might actually be down this year, because we're focused on making the big ones really hot. It's a focus and execution thing for the Wii."