CASE 9 – ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY ABOUT THE CASE Video game industry is rising and competing with an edge over music, movie and television industry. For most, gaming is part of growing up especially in the United States. One of the growth drivers was the number of household across the world that had high-speed Internet access that allowed gamers to play video games over the Internet, which is the way of achieving the goal of EA to generate hundreds of thousands, and hopefully millions, of registered users playing EA Sports products online.
The second growth driver was expected to come when Sony, Microsoft and Nintendo were to launch the supercharged, next-generation versions of their game-playing platforms. Electronic Arts (EA) is the world’s leading independent developer, publisher and marketer of video games. EA is known in developing games for play on all the leading home video game consoles, handheld devices and personal computers and online. EA’s Chairman and CEO Lawrence Probst believed that EA was on course of becoming the biggest and best entertainment company in the world.
According to Probst, there are a lot of potential growth driver over the next five-, six-, seven- year period. PROBLEM How will EA maintain their top position in the video game industry? ISSUES Electronic Arts (EA) • Leading independent, publisher and marketer of video games. • Its goal is to be the market leader of games. • Won 700 awards for outstanding software in US and Europe. • Has four brand logos namely under EA Sports, EA Sports Big, EA Games and EA Pogo. Strengths:It gives high pay and stock option to their employees. It offers localize games in multiple platform, languages and countries.
It has regular meeting every 90 days to listen to game developers update their work. According to John Riccello, EA’s Chief Operating Officer, they double down things that work and stop things that don’t work. It focuses on doing fewer things and doing them better and getting more leverage out of the titles it ship. It has the policy of making games that it could be proud of which meant that it stayed away games with profanity, sex, crime and violence. The firm policy of not creating games for mature audiences. EA have little or no order backlog since orders were shipped upon receipt.
Weaknesses:EA’s refusal to program online functionality into its Xbox games. EA included trash talk in its sports games which contradicts its policy. EA’s failure on most of its online sites. Opportunities:New games to be developed for the next-generation consoles. Development of more online sites due to increase of broadband connections. Threats:Possible new entry of competitors and decrease of buyers. EA and the Macro environment • General Economic Conditions The game players were rising regardless of the economic condition of the world.
The global video game market was on track to rival the movie, music and television industry. In the year 2003, video game industry represented a $31 billion global market. • Legislation and Regulations As EA’s chief guardians and general counsels Lawrence Probst and Ruth Kennedy hold on in their firm policy of not creating games for mature audiences, EA may not have violate any regulations In fact, they won over 700 awards for outstanding software in US and Europe. • Population Demographics About 250 to 300 million people worldwide were very active or frequent players of video games.
And perhaps 100 million people were infrequent players. Majority of players were preteens, teens and young adults between ages 20 to 40 years old. • Societal Values and Lifestyles Gaming is part of growing up in United States and maybe in all part of the world. Hard-core game players purchased 10-15 new games a year and were also among those most attracted to playing games online. In North American households, 75 million game consoles were owned. A study found that 70% of college students in America played video games.
The number one reason of people why they are playing video game is that it is fun. • Technology Playing video games online is now possible as the number of household having high-speed internet access or broadband connections increases. EA’s goal is to generated hundreds of thousands, and hopefully millions, of registered users playing EA Sports products online. Next-generation consoles that which Sony, Microsoft and Nintendo will launch will have the ability of render real life images, record TV shows, surf internet in 3D, play music, run movie like video game and even to manage home appliances.
Next generation-consoles of different console manufacturers may have similar benefit because they had all selected IBM Power PC microprocessors for their next-generation consoles. EA and the Immediate Industry and Competitive Environment • EA and the Video Game Industry Video game industry is rapidly growing. It is due to the following factors: 1. Broader game content. 2. Evolution of video game consoles into multifaceted entertainment device. 3. People who started playing in their preteen age continue until their young adult age. 4. Quantum leaps in the quality of both graphics and play. . Growing ability on the part of video game developers to capitalize or expanding action movies into particular video game. 6. Growing capability to play games online. • EA and its Suppliers 1. The console makers (Sony and Nintendo) that supplied CDs, DVDs, or optical disks on which EA then installed its video games designed for PlayStation, GameCube, and Game Boy consoles. 2. Companies that pressed the CDs, DVDs, and optical disks containing its games ($1 per unit). 3. Companies that printed its game instruction booklets ($1 per unit). 4.
Companies that packaged the disks and printed game instructions on the jewel cases and boxes for shipping to customers. EA mostly has the power over its suppliers was able to negotiate volume discounts and it was the company’s practice to have multiple sources of supply for all the functions that were outsourced to suppliers. EA kept only a small inventory of its games on hand so it could not obtain additional supplies. Also, EA can fill retailer orders from replenished inventories within two to three weeks and historically, most sales of a particular game occurred 60-90 days after initial release. EA and the Substitute Products Substitute products for EA games maybe songs from music industry, movies from movie industry, and television programs from television industry which people also sought fun and entertainment. There have not been so many problems with the substitute products because video game industry is uprising. According to a writer for Fortune, music sales have been falling in recent years, the moviegoing experience hasn’t change that much and network TV is on the skids. • EA and its Buyers
Buyers of EA products are the console makers (Sony, Nintendo, and Microsoft), players playing on PC and mobile phones, and online players of EA’s games. EA’s relationship with Sony was good. Approximately 37% of EA’s revenues in fiscal year 2003 were derived from software sales for Sony’s PlayStation2 and 4% from original PlayStation. Sony also announced that EA would make many of its sports games available for Sony’s PlayStation 2 online service. Sony gives EA the autonomy to establish the online environment in which the action took place for their games, control the play using their own servers and dictate subscription fees at their sites.
EA believed that it had a strong working relationship with Nintendo. EA derived about 7% of its 2003 revenues for GameCube. As per a 2001 licensing agreement, EA was authorized to distribute Nintendo’s proprietary optical disks containing EA game software for GameCube consoles. Nintendo enables EA promote and manage their own online services and not to take a percentage of revenues or charge a royalty for the use of their consoles in online play. EA’s relationship with Microsoft was good at first. 9% of EA’s fiscal 2003 revenues came from sales of games for Microsoft’s Xbox.
Microsoft authorized EA to develop and distribute DVD-based video games to play on the Xbox. However, their relationship was strained in 2003 when Microsoft refuse let EA developed games earn any revenues from online play using Xbox console. • EA and the New Entrants Small game developers may possibly enter the market and there is always a risk that one day, those small developers of game can develop a never seen and experience game before. So development and innovation is always a must. • EA and the Rival Firms
The software segment of video game industry was highly competitive characterized by the continuous introduction of new games and updated game titles and the development of new technologies for creating and playing games. Competitors of EA are Activision, Take-Two Interactive, Capcom, Eidos, Acclaim Entertainment, Sega, Lucas Arts, Infogrames, THQ, Konami, Namco, Vivendi Universal, Midway Games, 3DO, Sony, Microsoft and Nintendo. Competition was based on game features, product quality, timing of game releases, access to distribution channels and retailer shelf space, brand-name recognition, marketing effectiveness and price.
Sega Strength: Sega was creating a situation in which the player would see the game through the eyes of a participant as opposed to watching the game with a bird’s eye view of the playing field. Sega’s ESPN series would be the primary competition for EA Sports is sports genre. Weakness:Sega had failed to attract video game business and acquisition discussions had been broken off with several companies, so Sega makes the major push to establish itself in sports games resulting in teaming up with ESPN. Activision Strength:Activision’s biggest competitive strength was in games based on superheroes.
Activision planned of rewarding people as they play and won the game. Weakness:Activision was focusing its development and marketing resources on high-quality titles that stood a much better chance of winning space on retailer’s shelves. However, many software publishers were also putting more emphasis on sequels to previous hits. Acclaim Entertainment Strength:Issued certain “special edition” comic magazines to support some of its games. Weakness:They lose money for the past two years maybe due to poor operation. THQ (next to EA as video game publisher)
Strength:THQ has diverse portfolio of game titles, has strong technology and internal development capabilities, expand its global product development capabilities, grow its international sales, and pursue opportunities and wireless gaming. THQ was the leading independent publisher of games for Game Boy Advance. Sony Strength:Sony Online Entertainment’s award winning website where 13 million people had registered. Nintendo Strength:Aggressive console pricing. Bundle games with its hardware. Has a strong relationship with game developer. Microsoft
Strength:Microsoft was using the online capabilities of its Xbox console and the Xbox Live to differentiate itself from rivals and build market share. ALTERNATIVE COURSES OF ACTION 1. EA may develop its own game console. 2. EA may just focus on developing video games for the next-generation consoles and not create online sites. 3. EA may focus more on developing online sites than developing software games. RECOMMENDATION EA should focus on developing video games because it is where they excel. Instead of focusing on online sites, EA should create games that will capture the gamer’s attention.
One of the drawbacks of playing video game is that not everyone had the patience to learn complex controls or wanted to spend 20 to 30 hours it took to navigate a game successfully. EA should take that chance to develop games that are easy and fast to play and navigate. Maybe through that, impatient non-game players will be captured by EA. Moreover, EA must continue to stick to its policy of creating games free from violence, profanity, sex, etc. As EA include trash talk to its sports games, the policy is somehow violated, so it is much better to remove those trash talks for the wholesomeness of the games they are offering to the market.
EA should take the chance of developing video games for the next-generation consoles instead of making their own online site because they are weak at that. In fact, out of the five sites created by EA, only one was proven successful. EA can’t have it all. It should only focus on the things they it proven itself successful. As what John Riccello, EA’s Chief Operating Officer said, they double down things that work and stop things that don’t work. Submitted by: Rose Ann G. Nicolas Submitted to: Professor Don Brodeth