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EA: Brick And Mortar Stores Not Going Away Anytime Soon
EA: Brick And Mortar Stores Not Going Away Anytime Soon
September 20, 2011 | By Frank Cifaldi

EA may be focusing on its growth in the digital space with Facebook titles like The Sims Social, its upcoming subscription-based Star Wars: The Old Republic, its Origin online shop and its downloadable content, but that's not because it sees brick and mortar retailers going away anytime soon.

Speaking to investors and analysts Tuesday at the Goldman Sachs Communacopia Conference, CFO Eric Brown explained why the company doesn't see an all-digital landscape coming in the foreseeable future.

"You need a retail partner to stock the consoles. I don't see all consoles being ordered via mail," he said. "There's going to be people that go in and want to see the display, the form factors, etc."

Console makers are asking a lot when they ask retailers to stock their systems: the boxes take up a lot of valuable shelf space, and the margins are traditionally low. To make up for this, the companies market their physical game discs, so that retailers have enough incentive to stock the consoles. That's the way it always has been, and according to EA, the way it's going to be for quite a while.

"If you were to completely eliminate physical distribution of the disc, the margin opportunity is lost in the entire category. To the retailer, holistically it radically alters their view of the category," explained Brown.

"So it's for that reason that I just don't see in the foreseeable future a complete shift to digital gaming delivery."

The company has been dramatically reducing its output of packaged games over the past few years. In FY09 EA released 67 titles, then subsequently reduced that figure to 54, 36, and this fiscal year, just 22. But that trend may not continue.

"We feel that we're in a pretty good spot" in terms of packaged game output, said Brown. "It's not to say that 22 is exactly the right number of titles, because that number could flex up or down a little bit, but it seems to be about in the right area at this point in time."

Its packaged goods focus going into FY13 is not to necessarily reduce the number of games it puts out, but to increase downloadable content revenues from its top titles. Currently, both FIFA and Battlefield have generated $50 million on net digital revenue: the goal for next year, says Brown, is to get the next eight titles in its top ten to that level.

The company sees itself in a pretty comfortable position with its packaged goods output. Its various sports franchises are annualized, the four years in-between FIFA World Cup releases are offset by Ultimate Team, it has a number of hit franchises trickling out like Mass Effect and Dragon Age, and in the lucrative shooter category, the company is alternating between Medal of Honor and Battlefield.

But as one analyst asked today, why not combine the latter two franchises? Why not have Medal of Honor games carry the Battlefield brand umbrella? Activision benefits tremendously from annualizing Call of Duty, as one year's ad spend builds brand awareness for the following year, so why doesn't EA do the same with its two shooters?

Brown's only explanation was that consumers demand consistency in their franchises.

"What we have recognized is that people do like consistency in carry-over," he said, stressing that while Activision does release a Call of Duty every year, the games alternate between development studios and are inconsistent because of it. Instead, the company is cross-promoting its two shooter franchises via its Gun Club program, maintaining two brands under one initiative.

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