Former EA, Disney and Activision exec Mitch Laskey has published a blog post suggesting that EA’s games label – the one that looks after core console and PC titles – is the company’s greatest risk moving forward.
The blog post reads, “It is interesting to think about EA’s assets and the current state of the digital game economy in light of the challenges a new leader at EA might face”, reffering to John Riccitiello’s departure last week.
He added, “In my experience, the incumbent packaged goods companies clearly see mobile, digital distribution and free-to-play models as inevitable. They know what’s coming and have known for some time. But within the senior management ranks of these companies there is still a lingering perception that digital doesn’t, in their words, “move the needle” sufficiently.”
Such a view is potentially damaging, warns Laskey, “There are games on the mobile and free-to-play PC platforms that are indeed capable of moving the needle. And for real next-generation publishers with customer acquisition leverage, hit games can generate almost unimaginable profit margins, at least by packaged goods standards”.
Laskey stressed that EA has been aggressive in trying to capitalise on the digital market, but that the company’s core games label is in real danger. “As counter-intuitive as it sounds, console is the wild card for the future of EA,” he continued, “the platform with the most risk.
“As everyone knows, the console business has been declining at double-digit percentage rates year-over-year for the last few years. At the same time, the option value ascribed to a possible re-invigoration of the console market from the launch of new hardware this Christmas has produced what some are calling a “dead cat bounce” for EA and Activision, who have the greatest exposure to the new consoles.
“In order to be a player on the new consoles, EA will need to greenlight a dozen titles, and they will be very, very expensive – given EA’s penchant for big spending, the need to support multiple hardware platforms simultaneously at launch, and online features, this could be close to a $1 billion R&D expense. And given the customary annual refresh in the sports genres, it’s necessary to keep spending year after year.”
Costs are going up in the core sector and returns are lowering. You don’t need to be a genius to see that, but is EA ready to try and reverse the flow? Let us know below.