{"id":2877,"date":"2015-12-08T14:11:42","date_gmt":"2015-12-08T19:11:42","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/electronic-arts-the-evil-empire-regains-its-groove\/"},"modified":"2015-12-09T20:05:37","modified_gmt":"2015-12-10T01:05:37","slug":"electronic-arts-the-evil-empire-regains-its-groove","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/electronic-arts-the-evil-empire-regains-its-groove\/","title":{"rendered":"Electronic Arts \u2013 the \u201cEvil Empire\u201d regains its groove"},"content":{"rendered":"

After enduring a tough recession and a few missteps with its monetization model, Electronic Arts (EA) is again minting cash, striking a delicate balance as one of the world\u2019s most popular game publishers and, at the same time, one of the most hated companies in the industry. In the face of often-loud consumer complaints, EA has been impressively effective at aligning its business model with an aggressive, controversial operating model. How have they managed this tightrope act, and can it continue?<\/p>\n

Business Model<\/u><\/p>\n

EA is a developer, marketer, publisher, and distributor of video games for personal computers, video game consoles, and mobile devices. The third-largest such company in the world (after Nintendo and Activision-Blizzard)1<\/sup>, EA develops and publishes games in such diverse franchises as FIFA<\/em>, The Sims<\/em>, Battlefield<\/em>, and Star Wars: Knights of the Old Republic<\/em>. Since their founding in 1982, EA has brought to market some of the most popular titles in gaming history. The company estimates that it currently has 300 million registered players in over 200 countries2<\/sup>.<\/p>\n

\"games\"<\/a><\/p>\n

Consisting of dozens of studios operating across 31 locations on 3 continents, EA\u2019s four divisions simultaneously work on many game fran
\nchises, with the umbrella organization responsible for marketing, contracting with video game
\nplatform manufacturers (e.g. Sony and Microsoft for consoles), and distribution3<\/sup>.<\/p>\n

The company\u2019s long-term strategy is to consistently deliver blockbuster hits from its multiple well-known, established franchises on a regular basis; steady cash flow from these hits will fund development of new and engaging games across all platforms, with a special emphasis nowadays on mobile devices. EA monetizes these games through several different payment models, depending on the specific game: an initial purchase price for the base game with additional charges for intermittent release of later expansion content; a free-to-play base game with abundant \u201cmicro-transactions\u201d to unlock new content; or regular subscription fees.<\/p>\n

Operating Model<\/u><\/p>\n

EA has developed an unusual operating model which has led to its huge success, but also earned it the moniker of \u201cevil empire.\u201d In fact, the company is one of only two to ever twice win The Consumerist\u2019s <\/em>Worst Company in America \u201cGolden Poo\u201d award (along with, unsurprisingly, Comcast)4<\/sup>. How did a gaming company become more despised than the likes of Walmart and Bank of America, the finalists it vanquished?<\/p>\n

\"golden<\/p>\n

The hatred stems from the same operating model which, after some missteps over the last 3 years, EA is using to return to profitability5<\/sup>. Rather than develop all its games organically, EA actively searches for and acquires small independent studios with promising game franchises. The company then aggressively pushes acquired studios to develop new games for these franchises, adding its scale and marketing prowess to vastly expand their distribution. EA\u2019s 2007 acquisition of Bioware is a prominent example, as its budding Mass Effect<\/em> series and still-in-development Dragon Age <\/em>franchise became hugely popular with EA\u2019s support. The company\u2019s ability to consistently find future winners on the open market has earned it years of booming success.<\/p>\n

The flip side of this model, however, is EA\u2019s quick trigger finger in shuttering any newly-acquired studios that lose their luster. After gutting or closing down Bullfrog Enertainment, Westwood Studios, Pandemic Studios, and a number of other entities not long after their acquisitions, EA earned a reputation for buying their way to continued success, and conveniently eliminating potential competition in the process.<\/p>\n

In addition, EA occasionally overreaches with its operating model in pursuing its strategy of consistently delivering blockbuster games. A number of its recent big-name games have seen significant\u00a0quality issues as its studios have been forced to \u201cfinish\u201d games on time to meet EA financial targets7<\/sup>. Its tendency to insert micro-transactions and attach post-release expansion content, for which it charges gamers a separate fee, also adds to consumer complaints that the company nickels and dimes its customers.<\/p>\n

Can they keep the ball rolling?<\/u><\/p>\n

Luckily for EA\u2019s shareholders, its management team and CEO Andrew Wilson seem to have learned from this overreach and toned down the company\u2019s visible profiteering8<\/sup>. Negative publicity and troublesome game launches caused a nearly double-digit percentage dip in revenues in fiscal 2014, but despite all the controversy and animosity its operating model engenders, EA has returned to strong profitability on the backs of its immensely popular franchises. In fiscal 2015 the company saw net income of $948M on revenue of $4.5B, in-line with its less-hated archrival Activision-Blizzard\u2019s numbers9<\/sup>. As long as EA can continue to spot and acquire future winning franchises and turn them into cash cows, the company will continue to make sizeable profits regardless of the angry rhetoric it occasionally faces. At least for now, EA has aligned a controversial but apparently repeatable operating model with its business model and created a hugely successful strategy. The evil empire marches on.<\/p>\n

 <\/p>\n

Sources<\/u><\/p>\n

    \n
  1. Yahoo! Finance, Electronic Arts,<\/em> Accessed December 2015.<\/li>\n
  2. EA 2Q FY16 Earnings Release presentation, December 2, 2015.<\/li>\n
  3. EA company website<\/li>\n
  4. Chris Morran, \u201cEA CEO: We Don\u2019t Want to Win Worst Company Award for 3rd<\/sup> Time, \u201c The Consumerist, <\/em>September 5, 2014, http:\/\/consumerist.com\/2014\/09\/05\/ea-ceo-we-dont-want-to-win-worst-company-award-for-3rd-time\/, accessed December 2015.<\/li>\n
  5. William Usher, \u201cWhy People Hate EA? Ten Simple Reasons,\u201d CinemaBlend<\/em>, 2012, http:\/\/www.cinemablend.com\/games\/Why-People-Hate-EA-Ten-Simple-Reasons-43696.html, accessed December 2015.<\/li>\n
  6. Bioware company website.<\/li>\n
  7. Wesley Yin-Poole, \u201cEA Addresses \u2018Unacceptable\u2019 Battlefield 4 Launch,\u201d Eurogamer<\/em>, June 20, 2014, http:\/\/www.eurogamer.net\/articles\/2014-06-19-ea-addresses-unacceptable-battlefield-4-launch, accessed December 2015.<\/li>\n
  8. Andy Meek, \u201cElectronic Arts\u2019 CEO on Transforming The \u2018Worst Company in the U.S,\u2019\u201d Fast Company<\/em>, November 7, 2014, http:\/\/www.fastcompany.com\/3038121\/innovation-agents\/electronic-arts-ceo-on-transforming-the-worst-company-in-the-us, accessed December 2015.<\/li>\n
  9. EA 4Q FY15 Earnings Release presentation, May 5, 2015.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

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