CASE STUDY:Electronic Arts: gambling on the future of video games

Electronic Arts: gambling on the future of video games Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) Atul Gupta, Stef Nicovich and Taylor Garrison Atul Gupta is Professor at Department of Management, Lynchburg College, Lynchburg, Virginia, USA. Stef Nicovich is based at Department of Marketing, Lynchburg College, Lynchburg, Virginia, USA. Taylor Garrison is based at Lynchburg College, Lynchburg, Virginia, USA. Disclaimer. The Authors prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data or an illustration of effective or ineffective management. Although based on real events, and occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. DOI 10.1108/EEMCS-07-2015-0160 Introduction In late October, 2013, Andrew Wilson, Chief Executive Officer of Electronic Arts (EA), sat in his office surrounded by his executive team: Lucy Bradshaw, Vice President of Maxis; Frank Gibeau, Vice President EA Mobile; Blake Jorgensen, Chief Financial Officer; Peter Moore, Chief Operating Officer; and Patrick Soderlund, Vice President of EA Studios. Together they discussed the impending launches of Sony's PlayStation 4 and Microsoft's Xbox One; all while still trying to manage the increasing mobile market, the growing freeto-play (F2P) market, the expanding Personal Computer (PC) market and the current console market, and keeping an eye on possible emerging markets. Ultimately, their goal was to brainstorm the best course to regain EA's position as the premiere game software developer in an increasingly turbulent environment. Andrew Wilson was anxious. They had just announced EA's biggest early next generation game, Titanfall, as an exclusive for Microsoft's Xbox One. During 2012, EA's stock had slipped from a high of US$21.00 per share to below US$15.00 per share[1], and revenue in the video game market had been falling for the past few years (Figure 1). Leading up to the 2013 launch of the next generation consoles, EA's stock had started to increase amid building momentum following the E3 trade expo, which was the video game trade show prior to the launch of the Xbox One and PlayStation 4. EA had to correctly predict where to leverage its resources. Would it focus on the next generation consoles, which have a small initial install base, or would it target the existing consoles? Was EA equipped to profit from the explosive growth in mobile gaming? How would it handle the growing trend of F2P games? Videogames were dependent on the installed based of machines for which they run. Exploiting any new markets would mean reacting to different installed bases of machines as well as different levels of infrastructure connecting them Wilson realized that EA had to leverage its existing markets against the potential of new markets. Would the new markets be profitable? What kind of games would be attractive to different cultures and finally could EA take advantage of the preferred gaming platforms available and would these platforms play to EA's strengths? The question was not so much whether to explore these emerging markets but to what extent should the company extend its resources to ensure its future in them? Overview of game markets in 2013 In 2013, change was coming to the video game market. Not only was it a year where companies began to prepare for the launch of Xbox One and PlayStation 4, it also represented a period where game publishing companies continued to expand the markets that games served. Traditionally, publishers had served game markets by selling a box copy of the game that included the entire game for an average of sixty dollars. In 2013, VOL. 6 NO. 2 2016, pp. 1-20, Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1 Figure 1 US video game market revenues[9] (Billions US Dollars, ination adjusted for 2012) 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Revenue Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) many game publishers were increasingly trying to make games targeted at different budgets, gamers and platforms. In addition, publishers explored various monetization models, which dictated how the consumer ultimately paid for the game. For major publishers like EA, the primary monetization model in 2013 was still the full-cost sixty-dollar game sold in stores or with the release of the Xbox One (X1) and PlayStation 4 (PS4) in the digital marketplace (Table I). These full retail games represented the bulk of EA's revenue (with several selling in the top 10) since its inception and were often described as \"complete\" games, with the start and finish was included; a complete consumer product. As such, EA's revenues were heavily dependent on the success of these platforms. Projected Xbox One and PlayStation 4 Sales (Epstein, 2013): In a report issued recently, ABI estimated that cumulative Wii U, Xbox One and PlayStation 4 sales will total 133 million units during the consoles' first five years on the market. During that same period of time, however, combined sales of Microsoft's Xbox 360, Nintendo's Wii and Sony's PlayStation 3 totaled 140 million units. Publishers would sometimes sell add-ons for these games, but they were not a requirement for the consumer to enjoy a complete product. EA had several titles that were annual and major US$60 titles that drove consumers to flock to the stores and buy these new games and consoles. The most popular/bestselling titles were sports titles and first person shooters (FPSs). As reported by (Makuch, 2013), these two genres made up 60 per cent of the chart-topping games in 2012. EA was expecting similar sales of major titles in 2013[2] as compared to 2012 in large part to continued successful annual releases of Madden football and FIFA soccer. Further, in November, the unreleased (but expected to perform well) Battlefield 4, a FPS, was anticipated to put three EA titles in the top ten selling games of the year, and each at US$60 per sale (Table II). While the US$60 one-time purchase game remained the primary monetization model for EA, the company began to explore and continued to tap into other models in the evolving gaming industry. Specifically, the next biggest market for EA (as far as participation went) was the growing F2P market. This market was generally defined by games that were free Table I Platform release dates in North America[10] System Release date Price (US$) Microsoft Xbox 360 Sony PlayStation 3 Nintendo Wii Nintendo Wii U Sony PlayStation 4 Microsoft Xbox One 11/22/2005 11/16/2006 11/19/2006 11/18/2012 11/15/2013 (To be released) 11/22/2013 (To be released) 399 499 and 599 249 299 and 349 399 499 PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 2 2016 Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) Table II Electronic Arts: annual income statement[11] 2012 2011 2010 Net revenue (US$) Cost of revenue Gross profit 4,143 1,598 2,545 3,589 1,499 2,090 3,654 1,866 1,788 4,212 2,127 2,085 3,665 1,805 1,860 Operating expenses Research and development Marketing and sales General and administrative Acquisition-related contingent consideration Amortization of intangibles Restructuring and other charges Goodwill impairment Certain abandoned acquisition-related costs Acquired in-process technology Total operating expenses Operating income (loss) Gains (losses) on strategic investments, net Interest and other income (expense), net Income (loss) before provision for (benefit from) income taxes Provision for (benefit from) income taxes 1,212 853 375 11 43 16 - - - 2,510 35 - (17) 18 (58) 1,153 747 301 (17) 57 161 - - - 2,402 (312) 23 10 (279) (3) 1,229 730 320 2 53 140 - - - 2,474 (686) (26) 6 (706) (29) 1,359 691 332 - 58 80 368 21 3 2,912 (827) (62) 34 (855) 233 1,145 588 339 - 34 103 - - 138 2,347 (487) (118) 98 (507) (53) 76 (276) (677) (1,088) (454) 0.23 0.23 (0.84) (0.84) (2.08) (2.08) (3.40) (3.40) (1.45) (1.45) 331 336 330 330 325 325 320 320 314 314 Net income (loss) Net income (loss) per share Basic Diluted Number of shares used in computation Basic Diluted 2009 2008 to download and play, but certain parts of the game were behind pay walls, a gameplay mechanic that required the customer to make a purchase before they could continue within a game. These games appeared mostly on the PC and mobile platforms. They were popular on said platforms because they often enticed a player into downloading a game. As explained by Swrve.com (2014), once the gamer was hooked, he/she would hopefully want to buy something to continue playing the game. Rose (2013) explained that these games were often filled with free loaders and survived off of \"whales\" - the few gamers who spent a lot of money on the game. At the heart of it, F2P market potential in new arenas would depend on the degree of Internet access and mobile phone usage available[3]. The F2P market was heavily dependent on one's the ability to distribute these games directly to the computer or phone. Not all new markets had the requisite infrastructure needed. EA had several F2P titles on the market. The majority of those titles were mobile games, but the most notable was a PC game titled Star Wars: Knights of the Old Republic. Star Wars: Knights of the Old Republic started off as a subscription based game. However (Kain, 2012) noted that, due to poor sales, the game switched to the F2P model. This title served as EA's premiere entrance into this type of billing and had middling success as far as the game's genre goes. EA did not release any other major F2P titles, but did use them heavily in their mobile games (Plants vs Zombies) with in-app purchases (IAP). Mobile gaming was the direct opposite of gaming on consoles and PCs. Mobile games were smaller, generally designed to have a goal that could be completed in less than 10 minutes, and were often 99 cents or F2P with a heavy use of IAPs (Zamora, 2012). Mobile gaming created all new genres of games and allowed basement programmers to strike it rich. Nevertheless, ultimately mobile games did not hold a good deal of staying power. Gaming companies were trying to create the next hot viral game that would experience growth and popularity for months, only to be usurped by the next hit. Mobile also removed the limits that were found when publishing on the major game consoles. On a mobile platform like the iPhone or Facebook, anyone could develop and publish games; the game VOL. 6 NO. 2 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3 developers did not need a costly console game development license, nor did mobile gamers have the same expectations that console gamers had. This created a unique playing field where, for example, a team of two who worked out of their home could publish and promote their game on Windows Phone and be equal to EA within the platform's digital store. EA tried various approaches to mobile game development and saw talent leave for new start-ups, like Zynga, that represented the growing mobile market place. Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) EA took several different approaches to mobile gaming market. It re-released older titles, released complementary games that rolled-out around the time of major console releases, and developed mobile first titles. After seeing the rise of start-ups, EA purchased PopCap games in 2011 to strengthen its mobile portfolio (Reilly, 2011). EA's titles proved popular with gamers on various mobile platforms. On Windows Phone it had two of the top ten paid games with many others in the top 100 (Windows Phone, 2014). EA continued to support the major mobile platforms - Web, iOS, Android and Windows. EA knew this was a strong and growing market, but it had yet to see the success of an Angry Birds. The most desirable of the video game monetization models was the subscription. The idea that a company could sell a game in addition to a monthly subscription was highly sought after. The subscription created a cycle where the gamer would renew his subscription because he wanted to continue playing the game. In turn, psychologically the gamer wanted to play the game more because he was already paying a subscription. Subscription based titles were actually made largely successful by EA with the release of (Ultima Online, 2014). Ultima Online was released in 1997 and continued as a subscription-only game as of publishing and in 2012 was named one of the All-Time 100 Video Games (Peckhame, 2012). However, EA failed to catch lightening again - it attempted it with several games, which were either discontinued or switched to the F2P model. Ultima Online was EA's first and most successful subscription based title. That is not to say that other companies were unsuccessful with subscription based games. Activision Blizzard, EA's largest competitor, released of World of Warcraft, which, in September 2013, had 7.6 million subscribers (Pareira, 2013). There were many other successful games and gaming platforms that were able to charge a monthly fee to gamers. With services like Xbox Live, which had over 45 million paying subscribers, subscription based gaming offered a real opportunity for companies as the video game market continued to change (Futter, 2014). The video game industry At the end of 2012, the video game industry was seeing a double-digit percentage drop off of sales compared to 2011 (Figure 1). The gaming markets were continuing to expand thanks to smart phones and tablets; however, many gamers were not buying $60 games. Instead, gamers were simply downloading free ad supported games or downloading F2P mobile games (but often not using the IAPs). The 2012 year ended with software and accessory sales down 22 per cent, which was nearly $3.7 billion less spent on games in 2012 than in 2011 (Tassi, 2013b). As a whole, 2012 represented an off year for the gaming industry (Guarini, 2013). The total amount spent on video games for 2012 was $13.26 billion, but December was the 13th consecutive month of decline year-over-year. EA felt the decline in video game spending during 2012 as well, and recorded total revenue of $3.8 billion for the year ending March 31, 2013 compared to $4.1 billion for the year ending March 31, 2012 (yahoo.com 2014b). EA and its nearest competitor, Activision Blizzard, had both seen a growth in revenue coming from 2010 to 2011(Table III). However, like most of the industry, EA saw a drop in revenue coming out of 2012 (yahoo.com 2014a). Video game software sales were not the only part of the industry that was down during 2012. New video game console sales saw a 21 per cent drop in sales in 2012 (White, 2013). However 2012 represented the last year before Microsoft and Sony both would release their new consoles in fall of 2013. The video PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 2 2016 Table III Activision blizzard: annual income statement[12] Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) 2012 2011 2010 2009 2008 Net revenues (US$) Product sales Subscription, licensing, and other revenues Total net revenues 3,620 1,236 4,856 3,257 1,498 4,755 3,087 1,360 4,447 3080 1199 4279 1872 1154 3026 Costs and expenses Cost of sales-product costs Cost of sales - online subscriptions Cost of sales - software royalties and amortization Cost of sales - intellectual property licenses Product development Sales and marketing General and administrative Impairment of intangible assets Restructuring Total costs and expenses Operating income Investment and other income (expense), net Income before income tax expense 1,116 263 194 89 604 578 561 - - 3,405 1,451 7 1,458 1,134 255 218 165 629 545 456 - 25 3,427 1,328 3 1,331 1,350 250 338 197 626 516 375 326 - 3,978 469 23 492 1432 348 315 212 627 544 395 409 23 4305 (26) 18 (8) 1160 267 219 193 592 464 271 - 93 3259 (233) 46 (187) 309 246 74 (121) (80) 1,149 1,085 418 113 (107) Income tax expense Net income Earnings per common share Basic Diluted 1.01 1.01 Weighted-average number of shares outstanding Basic Diluted Dividends per common share 1,112 1,118 0.18 0.93 0.92 1,148 1,156 0.165 0.34 0.33 1,222 1,236 0.15 0.09 0.09 1283 1311 - 0.11 0.11 946 946 - game market saw growth from 2010 through 2011; then a fall off as the install base for game consoles plateaued and rumors of new, more powerful consoles started to enter the market. As the games industry got ready for the launch of the Xbox One and PlayStation 4, companies looked back at 2012's slower sales and made a judgment call about whether or not to move forward with the various platforms that game publishers supported. The last major console cycle refresh was started in 2005, when Microsoft released the Xbox 360 that November and the video game market grew 6 per cent that year (Banerjee, 2006). Game publishers had to predict how gamers would react to the entrance of the new PlayStation and Xbox; i.e. would gamers purchase the new consoles, ignore the new release and continue to use current Xbox and PlayStation consoles (which comprise a worldwide install base of over 70 million units, see Figure 2), or shift focus to tablet and mobile devices (Weber, 2013). Developing software for the current Xbox 360 and new Xbox One was different: while they could share some resources, they could not share all of them. Thus, EA would have to decide how much effort to put into supporting the various platforms. The company risked alienating a large customer base with a subpar game versus missing the launch of new games as hardcore gamers flocked to buy games for their new console. The trends for these new consoles also showed that they were not designed for just gaming. Game publishers would have to split time with other entertainment media. The current Xbox 360 and PlayStation 3 primarily focused on gaming while evolving to support apps like Netflix, HBO GO, music streaming, etc. As the Xbox 360 began to wind down in favor of the upcoming Xbox One launch, more time was spent on the Xbox 360 watching online video than it was playing online games (Pham, 2012). This was a significant change in how game consoles were used and marketed. The Xbox One and PlayStation 4 were both being marketed as much more than gaming consoles. Microsoft even announced new VOL. 6 NO. 2 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5 Figure 2 Console sales from Xbox 360 generation through 2012 SAL ES WII U 1.6 WII 97 PLAYSTATIO N3 70 XBOX 360 70 0 20 40 60 80 100 120 Millions of Units Sold Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) Source: Alabaster (2013) Xbox exclusive TV shows for the Xbox Live platform that would compete for gamer attention and money against game publishers who also published titles to these platforms (Ingraham, 2013). This was an era of change for the gaming industry. Revenue had been declining. More gamers were entering the market, but they were playing on lower cost mobile platforms. In addition, the newly released game consoles were not solely focused on gaming anymore. Game publishers did not have limitless resources and therefore needed to determine with whom they should partner, how they should manage their resources, which licenses made sense, and where/how they published their games moving forward. Wilson realized that this already complex situation became even more complicated when trying to gain entrance into new markets. New markets Wilson and his team realized that sales needed to be increased and that there were essentially only three ways to do so: expand EA's current market, seek out new markets, or a combination of the two. Therefore, to what extent should EA focus on seeking new markets, and which markets should they consider? Traditionally the video game market had been dominated by the USA followed by Europe and Asia. Recently there had been observed economic growth in both India, Latin America and to some extent Africa (United Nations, 2012). However questions remained as to the viability of these new emerging markets. How were these markets different from the markets for which EA was used to developing? Major questions still to be resolved included the following: Q1. What kind of installed gamer base was there? Q2. What kind of distribution networks were available?[4] Q3. To what extent had the mobile and social revolutions reached these countries? Q4. Would the current pricing and costs structures be viable in an emerging market; and finally? Q5. In what kinds of games would these markets be interested? Would the games initially developed for other markets appeal to emerging market tastes or would new or modified games need to be developed? Answers to these questions would need to be addressed in order to determine the company's strategy concerning market expansion. PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 2 2016 Electronic Arts EA was founded in 1982 by Trip Hawkins on the principle that interactive media was more interesting than passive formats and that one day software would be more important than traditional media like film and television (Ramsay, 2014). EA would go on to develop software for the PC and Mac platforms before eventually making games for the home video game consoles. Eventually, Trip Hawkins would leave the company to go found the now defunct 3DO Company (Ramsay, 2014). Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) EA issued an IPO in 1990 after securing licensing terms with Sega. This allowed EA to publish games on Sega's Genesis platform, which allowed EA to be part of the growing home console market. Its market would expand and grow as it released several titles that would become yearly hits - including Madden Football, which was one of EA's biggest games and continued to be a top ten selling game every year (Makuch, 2013). Fast-forward to 2013 and EA had games on all major platforms and was a well-known company. It had produced game titles that represented every genre. EA's games could be found on every platform from smartphones to the upcoming X1 and PS4. Of course, this came at a cost for the company. For instance, EA had the exclusive NFL license for video games and had used that to build a video game sports empire. This exclusive license, along with failed monetization models and several poorly reviewed game releases, damaged the company reputation and alienated a lot of gamers. In fact, in 2013 EA was voted the Worst Company in America again by Consumerist website readers (Tassi, 2013a). Nevertheless, in the end EA continued to sell enough games to have several titles in the top ten list year after year[5]. EA's strongest titles were traditional consoles games like Madden Football, FIFA Soccer and Battlefield. All three of those titles were in the top ten selling lists in the years they were released. In addition, EA made a strong push into mobile with their F2P game Plants vs Zombies, which made heavy use of IAP (popcap.com, 2014). Those titles allowed EA to reach a wide variety of gamers. The company also maintained its own online PC games digital download store called Origin. With Origin, EA sold its own games and other titles on behalf of other publishers. Initially, Origin created a rift among gamers because it fragmented the market and was viewed as less capable than its competitor, Steam, but eventually gamers grew to accept the digital platform. In recent years, EA tried to launch new game franchises to varying success. Its biggest success was the Star Wars: Knights of the Old Republic franchise, which spawned more than three titles. On the other hand, EA unsuccessfully launched Army of Two, Daunte's Inferno and others. Based on sales data from year end game sales, it was evident that having a strong franchise title that can have sequels helped ensure greater sales[6]. In early 2014, EA was attempting to launch another new franchise, Titanfall, which received high praise from previews. EA attempted to develop new franchises and constantly had new intellectual property (IP) in the works (Dring, 2013). Until the Xbox 360 generation of consoles, EA was the major third party publisher in the home console market. It had the key games, held the most popular licenses and was associated with quality games. That changed when Microsoft released the Xbox 360 and its FPS developers left EA and moved to Activision. Activision went on to release Call of Duty, along with its many sequels, which became the bestselling games every year for almost six years straight. EA had to shake things up to compete with Call of Duty. In addition, when Activision merged with Blizzard to form Activision Blizzard, EA was no longer the largest publisher on the platforms, causing the company to become very dependent on the console makers. The competition The video game market had an abundance of publishers, yet overall was dominated by a handful of companies. On the console and PC market, EA's largest competitor was VOL. 6 NO. 2 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7 Activision Blizzard[7], while on the mobile platform the company primarily competed with Zynga[8] and King Digital Entertainment. Additionally, it had the added challenge of not completely determining its own destiny. Although EA published on a number of platforms, the company did not own any. In fact, EA competed directly with the platform's owner. On the Xbox platform, EAs Battlefield franchise not only competed against Activision Blizzard's Call of Duty but also Microsoft's Halo franchise. EA had to constantly innovate with its games while also creating partnerships and taking large bets on what would be popular that year. Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) Activision Blizzard dominated two of the markets in which EA was competing. Both companies had games in the top ten list for their markets, but Activision was consistently number one on the home consoles and had the largest subscription title with World of Warcraft. Activision Blizzard was a publicly traded company that in the financial year, ending December 31, 2012, recorded nearly a billion more dollars in revenue than EA did during the year ending March 31, 2013. Mobile was the new hot market in which every company wanted to have the next breakout hit. Two companies rose to the top with different approaches - Zynga by making wellknown games (and a lot of them, many of which were accessed via Facebook) and King Digital Entertainment, which released fewer titles but produced Candy Crush - a smash hit on several different mobile platforms. Zynga was going through a turbulent period with management reshuffling, including hiring the former head of Microsoft Xbox and a former EA executive to try and stop the bleeding (Wingfield, 2013) (Table IV). Mobile thus far had not proven to be as sustainable as its console brethren due to the fickle nature of the market. However, that did not mean there was not a large and serious market seeing Table IV Zynga: annual income statement[13] 2012 2011 2010 2009 1,144,252 137,015 1,281,267 1,065,648 74,452 1,140,100 574,632 22,827 597,459 85,748 35,719 121,467 5,272 14,138 19,410 352,169 645,648 181,924 189,004 95,493 330,043 727,018 234,199 254,456 - 176,052 149,519 114,165 32,251 - 56,707 51,029 42,266 24,243 - 10,017 12,160 10,982 8,834 - Total costs and expenses 1,464,238 1,545,716) 471,987 174,245 41,993 Income (loss) from operations Interest income Other income (expense), net (182,971) 4,749 18,647 (405,616) 1,680 (2,206) 125,472 1,222 365 (52,778) 177 (209) (22,583) 319 187 Income (loss) before income taxes (Provision for) benefit from income taxes (159,575) (49,873) (406,142) 1,826 127,059 (36,464) (52,810) (12) (22,077) (38) Net income (loss) Deemed dividend to a Series B-2 convertible preferred stockholder Net income attributable to participating securities Net income (loss) attributable to common stockholders (209,448) (404,316) 90,595 (52,822) (22,115) 4,590 58,110 - - Revenue (US$) Online game Advertising Total revenue Costs and expenses Cost of revenue Research and development Sales and marketing General and administrative Impairment of intangible assets - - 2008 (209,448) (404,316) 27,895 (52,822) (22,115) Net income (loss) per share attributable to common stockholders Basic (0.28) Diluted (0.28) (1.40) (1.40) 0.12 0.11 (0.31) (0.31) (0.18) (0.18) Weighted average common shares used to compute net income (loss) per share attributable to common stockholders Basic 741,177 288,599 223,881 171,751 Diluted 741,177 288,599 329,256 171,751 119,990 119,990 PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 2 2016 as nearly all first world markets saturated with smartphones and therefore potential customers. Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) EA also found itself directly competing for entertainment dollars with the console and phone makers themselves. Microsoft and Sony not only charged EA for the right to publish games onto the Xbox and PlayStation but also made games for the Xbox and PlayStation. This generally meant that when Microsoft released a FPS title on the Xbox, it was not advisable to release a title in the same genre around the same time. However, Microsoft would only release a game on the Xbox - so while EA might lose Xbox sales, Microsoft's game release would not affect their sales on other platforms. Similar to movies, there were also prime dates to release games, with most major titles being released in middle to late November - always wanting to be available for Black Friday. However, EA could not release its Battlefield title on the same week as Call of Duty, given that they are both military FPS titles and Call of Duty was the more popular of the two. The partnership with the console makers was a complicated relationship. EA could sign an exclusive with Xbox, then later compete with Microsoft for a particular release week, all while the paying Microsoft a license fee and hoping that Microsoft would approve EA's games to be published on Microsoft's platform. Electronic Art's current proposed path forward Leading up to the release of the Xbox One (X1) and PlayStation 4 (PS4), Wilson and his team at EA had a great deal of work ahead of them. The company had already announced that key titles would be published on not just the X1 and PS4 but also the Xbox 360, PlayStation 3 and the PC. That meant that EA would have to write software for five different platforms, ensure that said software worked and have it all ready to go on launch day. The X1 and PS4 represented hope for the industry. They were hoping to reignite gamers and encourage them to spend more money on consoles. However, focusing too much on the new consoles meant EA could possibly alienate the current 140 million owners of Xbox 360's and PlayStation 3's. Current consoles did not suddenly stop working when the new consoles were released. Although the market dynamic changed greatly as the heavy spenders jumped to the new consoles, there was still a large purchasing base on the current generation of consoles. Electronic Art's prized jewel was its exclusive use of the NFL for video games in the form of Madden football (Agnello, 2012). Every year, Madden Football was released on various platforms and EA could count on it being a top ten selling game that accompanied the meteoric rise in popularity of NFL football. EA's ability to keep the NFL happy and maintain the license would be key to maintaining its desirable position as a dominant video game sports company. EA was testing different games and monetization models on mobile. Its titles ranged from full console ports with virtual joysticks on the screen to games like Plants vs Zombies, which was designed with a mobile play style, was F2P and made large use of IAP. EA published titles on all of the three major mobile platforms, with some landing and some missing on each platform. EA was able to leverage its brand and licenses while successfully introducing new IP as mobile titles. The purchase of PopCap games for US$1.3 billion showed how serious EA was about having a future with mobile (Rao, 2011). In addition, EA had created new franchises. The most notable leading up to the release of the new consoles was TitanFall (Santos, 2013). EA had reached an exclusivity deal with Microsoft, (the terms of the contract were undisclosed), to publish TitanFall exclusively on the Microsoft platforms. There were a few public benefits that EA would receive for making this game exclusive to Microsoft's platform, including less development time for EA, hands on development support from Microsoft and free servers and support for TitanFall (Their, 2013). The exclusivity deal could be seen as a winning situation. EA received additional marketing and saved money on resources. However, there was a trade-off. By going exclusively with Microsoft, EA was limited to selling to the Microsoft console owner VOL. 6 NO. 2 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9 population. An exclusive title meant that EA could not sell a single copy to over 70 million PlayStation owners. A lesser audience decreased the chance of TitanFall growing from a hit game into a hit franchise. Changing tastes Downloaded by University of Technology, Sydney At 22:28 24 July 2016 (PT) With the launch of the Xbox One and PlayStation 4, EA had to navigate yet another change in the evolving gaming market. This was the first generation of gaming consoles where the marketing around the consoles was not exclusively about games. Video game spending was trending down and these new consoles were launching with upwards of US$500 price tags, which limited their market. Previous console launches showed that they could expect to sell between 600,000 and 1,000,000 units per month in the first few months, with it slowing down after the Christmas rush. EA would have a busy fall as it determined its strategy going forward. The hype leading up to the launch of the PS4 and Xbox One was positive and boosted EA's stock price, but EA needed the sales to match the hype. Were games still the focus of these console platforms that have increasing multimedia features? What was the monetization model that EA should be using? Would these two consoles turn the market around? Were they too expensive to do so? If growth could not be regained in traditional platforms and markets EA would need to keep an eye toward new markets. The recent downturn in traditional markets gave an urgency to exploiting new opportunities. As Wilson and his team contemplated the changes affecting the video game industry and EA's position in it, he was certain of one thing: the company's entire future was dependent on being where the gamers were buying games and spending their time. The challenge was that the video game market was going to extremes. While EA had the resources to compete at both ends - mobile and consoles - it needed to be able to predict and create hits in both extremes. Console gamers were commonly spending upwards of US$100 per game, while mobile gamers struggled to spend US$0.99 on a title, no matter how many hours of entertainment it provided. That was a divide that EA had to overcome, all while hoping that Sony and Microsoft could convince enough gamers to buy the Xbox One and PlayStation 4 as they dealt with the ever changing tastes and preferences of the mobile gamer. Regardless of the success of the new consoles, EA would need to explore new opportunities to maintain its competitive position. What ever strategy EA embraced, its resources would be tested as it attempted to keep up with this latest wave of change. Notes 1. www.nasdaq.com/symbol/ea/interactive-chart 2. www.engadget.com/2013/06/10/respawn-entertainments-unveils-titanfall-xbox-one-exclusive/ 3. www.pewglobal.org/2015/03/19/internet-seen-as-positive-influence-on-education-but-negativeinfluence-on-morality-in-emerging-and-developing-nations/ 4. www.pewglobal.org/2015/03/19/internet-seen-as-positive-influence-on-education-but-negativeinfluence-on-morality-in-emerging-and-developing-nations/ 5. www.gamespot.com/articlespd-black-ops-ii-is-us-top-selling-game-of-2012/1100-6402271/ 6. www.engadget.com/2013/06/10/respawn-entertainments-unveils-titanfall-xbox-one-exclusive/ 7. www.nasdaq.com/symbol/atvi/interactive-chart 8. www.nasdaq.com/symbol/znga/interactive-chart 9. http://vgsales.wikia.com/wiki/Video_game_industry 10. https://en.wikipedia.org/wiki/Timeline_of_video_game_console_releases_in_North_America Keywords: Strategy, Value chain, Marketing strategy/methods 11. www.sec.gov/Archives/edgar/data/712515/000119312512249324/d318259d10k.htm - tx318259_8 12. www.sec.gov/Archives/edgar/data/718877/000104746913001506/a2213119z10-k.htm - page_ fg79201_1_4 13. www.sec.gov/Archives/edgar/data/1439404/000119312513072858/d489727d10k.htm PAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 2 2016 References Agnello, A.J. (2012), \"EA retains exclusive rights to NFL license after lawsuit settlement | Digital trends\