EA: Traditional retail outlets here for the “foreseeable future”

By Stace Harman, Wednesday, 21 September 2011 08:05 GMT

In a tidy presentation to investors and analysts that will have rocked no boats whatsoever, EA has reaffirmed the crucial role of traditional high street retailers – for the foreseeable future, at least. At the same time, the publishing giant’s focus on digital distribution continues to grow.

EA CFO Eric Brown told those assembled at the Goldman Sachs Communacopia Conference earlier this week that bricks and mortar retail stores have a crucial part to play in the future of video game retail, Gamasutra has reported.

“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.”

Hardware sales traditionally carry a low profit margin for retailers, but take up large areas of floor and shelf space. By stocking the games to sell alongside the consoles retailers can be incentivised to carry consoles, thus ensuring consumer appetite continues to be fed on the high street.

This balance was upset by Sony’s experiment with the PSPgo – that featured no physical media drive and therefore no additional profit opportunity for retailers – and led to some retailers refusing to stock the handheld console. The PSPgo was shelved by Sony earlier this year.

It’s a situation that Brown is well aware of.

“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,” he explained.

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

EA’s own shift towards digital distribution took a step forward recently with the launch of its Origin online store. The popularity of Facebook title The Sims Social further bolstering confidence in the potential of physical media-less software delivery.

But it’s EA’s packaged good output over the last few years that best illustrates the publisher’s refocusing of its distribution strategy. Since its fiscal year 2009-10 EA has reduced the number of packaged titles from 67 to its current output of just 22.

“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.”

Brown stated that the company’s focus for the next fiscal year is to increase the digital earning potential of more of its franchises to around that currently generated by its top two – FIFA and Battlefield have both attracted $50m worth of net digital revenue.

In this way, EA may be choose not to reduce its physical media output and risk upsetting its retail partners in its 2013 fiscal year, but instead increase profitability through the sale of virtual goods and services.

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