EA slams Zynga, backs next-gen consoles

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Electronic Arts has criticised its social gaming rival Zynga for paying high prices for “instant one-hit wonders” that give it a “temporary lead” in the charts.

John Riccitiello, chief executive, also used EA’s quarterly earnings call with analysts on Monday to argue the success of EA’s own digital and social strategy, defend falling subscriber numbers for its Star Wars online game and announce a big investment in next-generation console games. Details after the jump.

EA has seen two senior executives defect to Zynga over the past year and has reacted testily to the young company overtaking it in market capitalisation since its IPO in December.

EA is competing in social gaming and mobile helped by its own acquisitions of Playfish and Popcap Games, but, without actually naming Zynga, Mr Riccitiello made an obvious allusion to its acquisition of OMGPOP, developer of Draw Something, in March for a reported $200m.

“I’m pretty anxious about acquiring instant one-hit wonders in this space – there’s an awful lot of noise that grows up around an individual franchise as it rises, less so when it declines,” he said.

Draw Something, the Pictionary-style game, is showing signs of being a fad, with user numbers dropping by nearly a third in the past month.

Mr Riccitiello said such acquisitions had to be founded on a belief that the franchise would last a very long time to justify the earnings multiples being paid. He said that EA had an “unbelievable portfolio of brands” for social and mobile with the likes of The Sims, Sim City and Bejewelled.

“We don’t need to buy a brand just to get a temporary lead on top of the charts for whatever is hot this quarter,” he said.

Mark Pincus, Zynga chief executive, told the FT on Monday that he expected long-term growth from Draw Something.

EA was reporting its fourth quarter and fiscal year results to March 31. It reported $1.2bn in digital sales - ahead of the $1bn target it set a year ago.

Its Star Wars: The Old Republic game shows how the mix of its business is changing. While available in traditional stores as a packaged disc, a digital version can be downloaded from its new Origin service and players also pay a monthly subscription for the PC online role-playing game.

EA said it had sold 2.4m copies from its December launch to the end of March, but subscribers had declined from 1.7m to 1.3m in the past three months. The Silicon Valley company said a substantial number of dropouts were casual users ending trial subscriptions. The game was profitable and its fate was not key to the company’s fortunes, it said, representing only around 5 per cent of profitabilty expected in the current fiscal year.

However, Star Wars will face fresh competition when Activision Blizzard launches its new online game Diablo III next week and EA’s shares fell 6 per cent in extended trading in New York.

Investors may also have been disappointed by an outlook that fell short of analysts’ expectations, with EA blaming this on an unnamed major game being delayed and its decision to spend $80m this fiscal year on next-generation console development.

Nintendo is expected to release the Wii U this year, but Microsoft and Sony are not expected to launch their next-generation consoles until 2013.

While some analysts think the console era is coming to a close with TVs and other devices capable of handling high-quality games, Mr Riccitiello is still a fan.

“We are strong believers that consoles will return to strong growth and represent a great opportunity, one that is in lockstep with our digital plans,” he said, adding that EA expected its digital business to grow 40 per cent this fiscal year.

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