March 19, 2013 9:22 pm

EA: off its game

Video game pioneer’s mistakes stand out when compared with rival’s success

Electronic Arts chief executive John Riccitiello has run out of lives. After he held the controller for six years, the video game pioneer announced his departure from EA this week. His tenure saw the rise of Zynga and other mobile and social game makers. But even as these new platforms have proliferated, there remains no substitute for a hit video game whatever the platform or form of distribution.

EA, during Riccitiello’s reign, spent more than $1bn buying developers of mobile and social games to keep up with the (unprofitable) leader Zynga. And in the past year, digital revenue, (including both internet download and mobile), grew nearly 40 per cent. Yet physical console games still accounted for 60 per cent of revenue, and sales from the segment fell by a quarter, pushing overall revenue down by a tenth.

EA has its share of blockbusters, particularly in sports with their Madden NFL and Fifa franchises – but these require royalties to the sports leagues, so are less profitable than games developed entirely within EA. And while flops and missteps are part of any entertainment business, EA’s mistakes stand out when lined up against the hits that its rival Activision Blizzard has unleashed. Its star performers include the blockbusters World of Warcraft and Call of Duty franchises, the latter being the highest seller of 2012 according to VGChartz, a market research firm. As such, Activision Blizzard boasted revenue growth in 2012 of more than 10 per cent and its operating margin exceeds 30 per cent; EA’s operating margin is below 10 per cent.

It is little surprise, then, that Activision’s stock price is up more than 60 per cent since 2009, versus a 10 per cent gain for EA. All this is great if you have been an Activision Blizzard shareholder but today’s hit maker can quickly become tomorrow’s has-been. Just ask EA.

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