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Former EA Exec Lasky: 'EA Is In The Wrong Business'

Former EA Exec Lasky: 'EA Is In The Wrong Business'

January 13, 2010 | By Chris Remo

January 13, 2010 | By Chris Remo
More: Console/PC

Electronic Arts is holding on to an outdated, top-heavy business model as the industry undergoes significant change, says former EA executive Mitch Lasky, now a partner at tech investment firm Benchmark Capital.

"EA is in the wrong business, with the wrong cost structure and the wrong team, but somehow they seem to think that it is going to be a smooth, two-year transition from packaged goods to digital," Lasky wrote in an an analytical blog post this week, adding, "Think again."

Lasky served as an executive vice president of mobile and online at Electronic Arts in 2006 and 2007 after JAMDAT, the mobile publisher he co-founded in 2000, was acquired by EA. At Benchmark, Lasky has overseen investment deals in game industry firms like League of Legends developer Riot Games and streaming service Gaikai.

In the post on his personal blog, he says he tried in February 2007 -- just prior to the return of current CEO John Riccitiello from Elevation Partners -- to convince then-CEO Larry Probst of the need to mitigate EA's rising costs and address the industry's ongoing "sea change."

At the time, he recommended "reduc[ing] expenses immediately by a minimum of $200MM annually by reducing headcount and cutting back on ridiculous expenditures on risky titles" like Spore and The Godfather, and putting forward "hyper-aggressive R&D investment and acquisitions in a transition to digital distribution and games-as-service."

Lasky claims company leadership resisted his proposal, which would also have partially sacrificed traditional year-on-year revenue growth in favor of a focus on profitability.

The problem, he says, was in willingness to execute, not in awareness: "They saw their looming innovator's dilemma as clearly as any company in the video game business back in 2006. They just weren't bold enough to act on that knowledge."

Since Riccitiello's return to EA in 2007, the CEO has attempted various reforms, including an initiative to increase the stature and market share of the publisher's internally-developed intellectual properties. This week, after EA reduced its fiscal year guidance, he admitted that "what we've described as a two-year comeback is clearly taking longer," noting that EA as well as other companies misread the state of the market going into the current economic environment.

Riccitiello's statement that EA has "the right strategies going forward and the right team executing them" stands in sharp, direct contrast to Lasky's claim that the company is "in the wrong business, with the wrong cost structure and the wrong team."

Lasky believes EA's long reliance on yearly sports franchises (which are already "fully accounted for in the Wall Street estimates" and thus can't be relied upon to actually grow the company) and hit-driven but less consistent franchises like The Sims, Need for Speed, and Command & Conquer are part of the "old EA model," and are not sufficient to move the company forward.

The "only stool leg left intact," he says, is EA's collection of online assets like Pogo, EA Mobile, and most recently Playfish, and its third-party publishing business EA Partners, which distributes games like Harmonix's Rock Band and Valve's Left 4 Dead.

Lasky believes the company's market value has decreased to the point that it could easily be the target of an acquisition by Disney -- which he says has been eying the company since the early 1990s -- or even a foreign firm like China's Tencent.

"Not to mention the shut-down of Pandemic, half of the justification for EA's $850MM acquisition of Bioware-Pandemic," Lasky added, underscoring his evaluation of the company's financial woes. "And don't think that Dante's Inferno or [MMO Star Wars:] The Old Republic is going to make it all better. It's a bankrupt strategy."

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