After aggressive cost cuts and the big acquisition of a social gaming company, Electronic Arts CEO John Riccitiello hopes the publisher can once again become the industry leader with his oft-discussed three-part strategy.
At the UBS annual Global Media and Communications Conference in New York Monday, Riccitiello broke down the main components: a focused intellectual property approach that focuses on "fewer, bigger, better" titles; a rapidly growing digital business; and a greater emphasis on cost control.
While Riccitiello acknowledged a packaged goods space that was softer than EA -- and many industry watchers -- expected, he still believes brick and mortar retail will rebound in the coming year, partly with help from key EA franchises such as Mass Effect 2 and Battlefield: Bad Company 2.
"[We expect] Mass Effect 2 to be one of the biggest games in the industry in 2010," he said of EA-owned BioWare's upcoming epic space role-playing game. He noted that 2007's original Mass Effect was the "largest-selling RPG in the year that it shipped."
"It's a big step forward from what was an 89-, 90-rated game the first time out in graphics, presentation and epic story, but this time, the shooting is on par with a high-end ... shooter like Gears of War." He said such improvements will help the sequel gain a larger audience than the original.
EA DICE-developed Battlefield: Bad Company 2, spin-off of DICE's popular Battlefield series, will play a more important role for the publisher going forward -- and Riccitiello is positioning the franchise as one that will give Activision's current heavyweight, Call of Duty, a run for its money.
"Battlefield represents our best opportunity of taking the first-person business back from Activision," he said. "…Call of Duty started as a million-unit franchise of a good business, and was built to be more than 10 million."
"Often, in a category as competitive as this, a title can get tired," he continued. "I think we're at that point, and I think Battlefield represents our best opportunity of taking that [genre] back."
Naming Battlefield as the best chance of EA regaining the third-party first-person shooter lead is an interesting notion considering the recent announcement of the reboot of Medal of Honor, a franchise that's commonly considered EA's main Call of Duty competitor. The multiplayer component for the upcoming Medal of Honor is under development at DICE, while EALA is creating the single player experience.
Riccitiello said that EA's focus will be on maximizing the potential of EA's long-running franchises like Madden, FIFA, The Sims, and Need for Speed, while expanding the businesses established by newer and upcoming properties like Dragon Age, Mass Effect, Army of Two, and Dead Space, Skate, and others.
From Dead Space to the Online Space
In November, EA confirmed a $300 million deal to acquire social network game developer Playfish, makers of Pet Society and other titles. At the same time, EA announced that it would be cutting 1,500 jobs from the EA workforce, particularly in areas focused on development of packaged goods. It was a not-so-subtle indicator of EA's transition from a packaged goods company to one with a greater focus on digital.
Riccitiello said that EA's digital business could move from around the half a billion dollar range this year to "a billion dollars and beyond" a year from now -- "a very profitable business."
He also noted significant growth in EA's digital business, even at this early stage. The most recent quarter saw $138 million from digital, he said, with the first half up 30 percent year-on-year.
"[This growth has happened] without the big step-changes that are coming for us, like a Need for Speed online or a Star Wars: The Old Republic, or the full play-through of Playfish," he said. "There are some big step-changes coming for us."
Riccitiello is also confident that even though EA just cut 1,500 jobs and closed studios such as Pandemic, the publisher will still be able to maintain an upwards quality trajectory.
"I think our quality is going to go up again next year," he said. "So, we cut jobs this past year, quality went up, and we are going to do it again." Riccitiello said that cuts were made on titles that EA didn't need. "We didn't diminish heads against our core franchises," he said, but in some cases where EA did have to make cuts in those areas, the company outsourced work.
He added that EA is looking closely at lower-cost areas outside of California, possibly keeping core design teams on the West Coast while taking advantage of lower costs of labor in places like Canada and Asia.
One of EA's main strategic points in the past year was to focus greater efforts on the Nintendo Wii. While the company has focused more on Nintendo's console, Riccitiello said that EA is disappointed with the console's sector performance. Nintendo's Iwata recently expressed concern over lagging sales of the console.
EA did release a successful new franchise on the Wii with EA Sports Active, and Riccitiello said the Madden iteration on Wii performed well. But Nintendo needs to keep up the cost competitiveness and innovation if it wants to maintain a market-leading position, he said.
"One, it's a very compelling platform. Two, third-parties can do a lot better on the platform with the right support from Nintendo. They've always been first-party-centric, and they're learning how to be third-party supportive. …"
On a third note, he said that with the Wii's price point, it can possibly "inherit" the substantial PlayStation 2 mass market. "My belief is the first platform to reach $149 is going to inherit much of that business."
"…The Wii is not gone. But if they maintain $199 and don't innovate, they're going to have a hard time competing with what's already been announced from Microsoft and Sony."