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Designer's Notebook: Is It Time to Dump EA?
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Designer's Notebook: Is It Time to Dump EA?


June 6, 2007 Article Start Previous Page 4 of 4
 

 

There has also been a growing chorus of complaints in recent years that the quality of EA’s games is slipping and that they don’t innovate any more. I don’t buy enough of EA’s games to have an opinion about it, but if true it’s a worrying trend. EA has some sure-fire properties: Harry Potter, The Lord of the Rings, and the NFL. A lineup like that is, in principle, a license to print money. But the company can’t afford to get sloppy; with what it takes to make a triple-A title these days, a major flop could really hurt. If I were Riccitiello, I’d worry less about efficiency and more about quality. Inefficiency hurts right now, but a reputation for poor quality will hurt for years.

As for why they don’t innovate any more, the reason for that is pretty obvious: they’re too big, and size discourages risk-taking. The Sims was innovative, but it was made over the objections of the top brass – it was Will Wright’s genius and determination, not the company’s farsightedness, that got that product out the door.

Spore is tremendously innovative, but to be honest I can’t imagine that it will do as well as The Sims. The Sims offers a chance for social play with characters that people can imagine stories around. I don’t see that happening with goofy little creatures, no matter how brilliant their on-the-fly animation algorithms are… although I would be delighted to be proven wrong. Also, part of the success of The Sims came from the add-on packs. But in Spore, supposedly the players will generate all the content. So how are you going to sell them add-ons?

The bottom line is that EA has become exactly what it set out to be: a big media company. It’s nowhere near as big as the really big media companies – Disney, Viacom, and so on – but it is by far the largest independent game publisher, and looks set to keep getting bigger. It’s not a startup any more; with over 7,000 employees worldwide, it’s not even a mid-sized company. There’s a big burn rate for salaries and, since the lawsuits, overtime as well. The latest generation of consoles costs more to develop for than ever, while the growth in sales of used games is putting a lot of pressure on the price of new ones. That’s squeezing profit margins for everybody.

EA faces some significant challenges in the years ahead. In some ways it was easier to be a smaller company than a big one. Big companies have too much inertia to change quickly; too much invested in people and properties and physical plant. What this means for investors is that EA’s stock is moving out of the aggressive growth category that it has enjoyed for most of its life, and into the category of slower-growing equities that tend to be owned by mutual funds, not by individual investors.

No, it’s not time to dump EA stock. The company’s not in trouble by any means. But it is time to diversify my portfolio a little.


Article Start Previous Page 4 of 4

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