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Analyst: EA Betting Big On Online For Long-Term Growth

Analyst: EA Betting Big On Online For Long-Term Growth

September 23, 2009 | By Leigh Alexander

September 23, 2009 | By Leigh Alexander
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More: Console/PC

Electronic Arts views traditional retail business models as "somewhat outmoded," especially with the current console cycle's high prices, and is looking to online models as the industry's "single largest long-term growth driver."

That assessment of the company's position comes from Lazard Capital Markets analyst Colin Sebastian, who recently visited EA to get a bead on the publisher's current strategy and the state of its business.

"Interactive entertainment has absorbed consumer market share from passive forms of media over the past decade " notably television, cinema, and music " and EA now sees the traditional video game model under pressure from users increasingly engaged with online applications," Sebastian says.

"In particular, EA views the social networking platforms (e.g., Facebook) as a large growth opportunity, with relatively low barriers to entry, high margins, and attractive viral marketing characteristics."

Expect EA to try to translate its stronger sports, racing and shooter properties into the online world, Sebastian predicts, although there'd be no guarantee of great results: "Crucial questions remain with respect to the size of the revenue opportunity and the nature of the business model," he says.

As EA invests in increasing revenue from its digital services division, it is likely to focus on fewer, yet larger traditional game franchises, Sebastian suggests, a continuation of the strategy it began last year to build a smaller portfolio of bigger core titles.

The analyst expects games like Battlefield, Dragon Age, and Mass Effect to be "multi-million unit franchises," and sales of Madden and Need For Speed, which many analysts believe have seen shaky starts, are "more stable" now, according to Sebastian's checks of retail channels.

Sebastian concludes with one caveat: so many publishers have moved major titles out of the holiday and into the early part of next year that EA may face some of the same crowding around its big releases that hampered it last Christmas.

The analyst suggested that the company will need to spend aggressive marketing dollars on games like Bad Company 2, Dante's Inferno and Mass Effect 2 to help them reach their sales potential.

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