EA's Fiscal Year Financials Released (May 16, 2010)

[ChrisReid]

Electronic Arts has reported its fourth quarter and year-end financials for fiscal 2010. The numbers were a significant improvement over last year, but they still represented a fairly substantial loss overall. Revenue of $3.6 billion was down compared to $4.2 billion a year ago, however loss was just $677 million instead of $1.1 billion. Despite some stiff competition from Activision/Blizzard and the first party game developers, EA still came out as the best selling publisher on the PS3, XBox 360, PC and PS2. Madden NFL 10, Sims 3, Bad Company 2 and Need for Speed Shift each shifted more than four million units, and EA's best selling game was FIFA 10 with over ten million sold. "Digital revenue," which includes downloadable games such as Wing Commander Arena was up to $570 million, with about a third of that being made for mobile phones. Full details are available here.

“We had an excellent fourth quarter, driving record-breaking non-GAAP revenue in the fiscal year,” said John Riccitiello, Chief Executive Officer. “Battlefield: Bad Company 2 outperformed, which contributed to revenue at the high end of our guidance range, and we exceeded our expectations on the bottom line.”

“We are affirming our FY11 and Q1 non-GAAP guidance and expect to grow profitability in the year ahead,” said Eric Brown, Chief Financial Officer. “Our digital businesses are expected to grow approximately 30%.”

--
Original update published on May 16, 2010

 

[Bandit LOAF]

Loss on Licensed Intellectual Property Commitment. During the fourth quarter of fiscal 2009, Electronic Arts amended an agreement with a content licensor. This amendment resulted in the termination of our rights to use the licensor’s intellectual property in certain products and we incurred a related estimated loss of $38 million.

That's an odd one. It matches the timeframe for dropping their deal with id to publish Rage... but why would that cost $38 million? My best guess is that it signals the beginning of the end of of EA's Rock Band deal--note that there's no Rock Band 3 on their release forecast (and there was no iPad Rock Band).

 

[AD]

I also find it interesting that EA recently announced that their sports games will also be charging people who buy the game second hand ten dollars to buy a license to play online. Basically it's like what they did with ME2, Saboteur, and Dragon Age where certain DLC was free if you bought the game new (comes with a code). But people who buy the game second hand have to buy the code. Except now, at least with sports games, shutting second hand buyers out of multiplayer actually severly restricts the games for such players whereas the ME2 DLC is entirely optional.

It's kind of clever actually... EA doesn't see a penny from second hand sales otherwise... and is there honestly that big a market for second hand sports games anyway when everyone playing multiplayer is playing this years version anyway?

 

[ChrisReid]

That's an odd one. It matches the timeframe for dropping their deal with id to publish Rage... but why would that cost $38 million? My best guess is that it signals the beginning of the end of of EA's Rock Band deal--note that there's no Rock Band 3 on their release forecast (and there was no iPad Rock Band).

Green Day Rock Band is on their forecast for next month, but that is odd about Rock Band 3. I thought EA was included in the Rock Band 3 announcement last March, but it's not in the schedule.

It's kind of clever actually... EA doesn't see a penny from second hand sales otherwise... and is there honestly that big a market for second hand sports games anyway when everyone playing multiplayer is playing this years version anyway?

Yes, used EA Sports games are huge, both for the current year and prior years' versions. GameStop has 6200 stores now, and from my experience, 150 copies traded in and resold of the current year's Madden at each store on average is pretty doable (that would be a million used sales).

 

[t.c.cgi]

It's kind of clever actually... EA doesn't see a penny from second hand sales otherwise... and is there honestly that big a market for second hand sports games anyway when everyone playing multiplayer is playing this years version anyway?

I'm not at all concerned about used game sales. Games I bought and decided I actually don't like at all I used to just give away to someone who asked for it. Well now that person has to pay $10.

My opinion is that this isn't going to have the end effect they're hoping it will. Used sales are people on the fence of "I'd like to maybe play that game but I really don't want to pay a week's worth of groceries for it so I'll get a used copy for cheaper." While a few will probably just pony up and buy new, I'm betting most turn to piracy or just plain stop buying EA games.

It's a nice idea but it assumes buying new or buying a DLC serial is the only set of options, which is an odd conclusion when everyone working the industry is claiming piracy stole their firstborn and sold it on the slave market.

 

[Quarto]

I'm not at all concerned about used game sales. Games I bought and decided I actually don't like at all I used to just give away to someone who asked for it. Well now that person has to pay $10.

Well, it's a reasonable thing to do. I don't much like the way game publishers lately have been ranting about how evil Gamestop is, and their argument about Gamestop causing losses is moronic... but I can certainly understand publishers trying to adapt their strategies to get money directly out of people who buy their games indirectly. Whether or not a particular strategy is good, that's another issue...

My opinion is that this isn't going to have the end effect they're hoping it will. Used sales are people on the fence of "I'd like to maybe play that game but I really don't want to pay a week's worth of groceries for it so I'll get a used copy for cheaper." While a few will probably just pony up and buy new, I'm betting most turn to piracy or just plain stop buying EA games.

It's a nice idea but it assumes buying new or buying a DLC serial is the only set of options, which is an odd conclusion when everyone working the industry is claiming piracy stole their firstborn and sold it on the slave market.

I think you're being too... uhhh... well, not cynical - naive, actually. You assume that this is all about the money. Well, it's more complicated than that. No matter what the industry will tell you, most people do not pirate games. Not because they're especially keen to pay for them... but simply because they don't know how to, and can't be bothered to learn. I suspect this is especially the case for sports game fans - they're casual gamers, they're not hardcore enough to know the ins and outs of bittorrent and such. So, they'll still buy used games, and while they might not all buy that code, at least some of them will - and that's what counts for EA.

 

[Bandit LOAF]

It's a nice idea but it assumes buying new or buying a DLC serial is the only set of options, which is an odd conclusion when everyone working the industry is claiming piracy stole their firstborn and sold it on the slave market.

This is an anti-piracy measure. No matter how you get the game--new, used, pirated--you have to download DLC from EA's server (to play online in the sports games, to see naked chicks in The Saboteur, etc.)

When you buy the game new you get a code that you enter to get the download for free... when you buy it used or you steal it then you have to buy it separately through PSN/XBL. Since the material isn't on the disc and is instead sent to your specific account by EA's computers there's no simple way to pirate it.

Well, it's a reasonable thing to do. I don't much like the way game publishers lately have been ranting about how evil Gamestop is, and their argument about Gamestop causing losses is moronic... but I can certainly understand publishers trying to adapt their strategies to get money directly out of people who buy their games indirectly. Whether or not a particular strategy is good, that's another issue...

Gamestop is causing losses for publishers. We're not talking about the library analogy anymore, where customers wouldn't have been interested in the first place without the discount. Gamestop's particular business model has been to create culture where new copies of games are devalued and resold copies are treated as the norm..

Red Dead Redemption came out on Tuesday. I can go to a Gamestop right now and they will tell me a new copy isn't available because I didn't preorder... but that they can sell me a used copy for almost the same price as new! I'll save five dollars and the publisher will get nothing.

They can sell a game over and over and over because they 'reward' you for returning new games as quickly as possible (at a big loss and with store credit) to be turned around... and they've worked this to the point that there's almost no difference in price between a new and used copy of a game that has just come out.

EA isn't worried because people are buying a cheap game a year later used... they're worried because Gamestop has a system that lets them re-sell new releases the week they came out with little savings to the customer, no money going to the publisher and very little risk for the store.

 

[t.c.cgi]

This is an anti-piracy measure. No matter how you get the game--new, used, pirated--you have to download DLC from EA's server (to play online in the sports games, to see naked chicks in The Saboteur, etc.)

The only thing pirates miss out on is multiplayer since you can't keygen yourself into an EA account. All of the releases using the new $10 plan have seen the pirates walk away with the DLC... and the preorder items from all the stores... and the soda contest items from the convention.

 

[ChrisReid]

The only thing pirates miss out on is multiplayer since you can't keygen yourself into an EA account. All of the releases using the new $10 plan have seen the pirates walk away with the DLC... and the preorder items from all the stores... and the soda contest items from the convention.

We're talking about games like Madden, FIFA and NCAA Football here. "The only thing" they're missing is the incredibly popular online multiplayer, the only part of the game that many people (easily millions) play.

 

[AD]

We're talking about games like Madden, FIFA and NCAA Football here. "The only thing" they're missing is the incredibly popular online multiplayer, the only part of the game that many people (easily millions) play.

Yeah, limiting multiplayer is a whole different story from pirating DLC or ingame items. I'm sure cracks for all sorts of things exist. But trying to fake it when online sport servers are run by EA is an entirely different thing.

This isn't entirely new. When Need for speed: Most Wanted came out. You had to register your copy and have an EA account ot play online on the PC... Problem was that if you got a second hand copy your serial would already be used and unless that person gave you the account info you were stuck with only the single player game (good thing the single player games was pretty much worth it on it's own).

 

[Quarto]

Gamestop is causing losses for publishers. We're not talking about the library analogy anymore, where customers wouldn't have been interested in the first place without the discount. Gamestop's particular business model has been to create culture where new copies of games are devalued and resold copies are treated as the norm..

Well... you know, good for them. That's what the free market is all about. If Gamestop is causing losses for publishers, it's only doing so in a way in which cars caused losses for people making horseshoes - in other words, in a way none of us are obliged to give a damn about. Gamestop simply found a way to offer a better service than the publishers, providing the same product at a lower price - and the fact that it does so by exploiting the publishers' own product makes no difference at all.

Game publishers have, over the past few years, done everything in their power to encourage Gamestop's business model. Most games today are published with virtually no manual - there's nothing in the box except for a pretty silver disc. What's more, a lot of games today generally offer very little replay value (the interesting thing here is those sports games that started this discussion - they do offer a lot of replay value; I bet their trade-in numbers are nothing compared to the latest Call of Duty and such). If a customer has no reason to proudly display the game on his shelf, nor does he have any reason to hold on to the game to play it later - then it's no surprise he'll be happy to sell it back to the store a week later. And it's no surprise other customers will be happy to buy it used if the price is even $1 lower. That's life, and game publishers had best get used to it. That's why it's great to see EA taking actual steps to adapt to the changing market, rather than trying to fight this out using PR.

 

[t.c.cgi]

This isn't entirely new. When Need for speed: Most Wanted came out. You had to register your copy and have an EA account ot play online on the PC... Problem was that if you got a second hand copy your serial would already be used and unless that person gave you the account info you were stuck with only the single player game (good thing the single player games was pretty much worth it on it's own).

Well, before that even you had Half Life 2 which required a Steam account to play at all. All of these online accounts are strictly non-transferable by the ToS. But that ship came and went.

I know how all of this works out on a PC, but how do used copies pan out on consoles? Is multiplayer tied to the serial being entered into a non-transferable account on consoles also? If so, doesn't that makes the $10 plan redundant? If they're unwilling to buy new for multiplayer (arguably half the game in many cases), they probably also won't care about some launch-day frills and alternate endings.

 

[Bandit LOAF]

Well... you know, good for them. That's what the free market is all about. If Gamestop is causing losses for publishers, it's only doing so in a way in which cars caused losses for people making horseshoes - in other words, in a way none of us are obliged to give a damn about. Gamestop simply found a way to offer a better service than the publishers, providing the same product at a lower price - and the fact that it does so by exploiting the publishers' own product makes no difference at all.

I wasn't criticising Gamestop for their business model, I was explaining it--what you said was that it was "moronic" for publishers to claim it was impacting their profits.

I don't agree that it's something we shouldn't think about, though. A publisher that isn't making as much money on a game isn't putting as much money into the next one. That's as reasonable a thing as any for a PR person to try and convince the general public of.

We all know this will equalize well before it threatens anything we care about... but it is true on a theoretical level that Gamestop doesn't have a sustainable model. The horseshoe analogy doesn't work because there isn't a second product being produced by Gamestop--if your goal is to strip new game sales in favor of used ones then you will eventually hit a point where no one will want to build new games for you in the first place.

(Cars went through the exact same battle, though--dealerships worked to destigmatize used cars which hurt sales of new ones and prompted manufacturers to respond with a campaign to convince everyone that if they were going to buy used cars they needed to be 'certified' by the maker... and so on.)

Game publishers have, over the past few years, done everything in their power to encourage Gamestop's business model. Most games today are published with virtually no manual - there's nothing in the box except for a pretty silver disc.

I do like that everyone who really wants a display pieece does get that option now--there's a fancy 'collectors edition' for almost everything these days.


Edit: my prediction is we'll ultimately have something similar to the used car solution that won't require end users to choose anything--publishers will provide 'certified' used games to Gamestop with the missing DLC codes re-inserted in exchange for some slice of the profit. The other extremes aren't justifiable (going download-only on the publishers part, working towards 100% used games for Gamestop).

 

[ChrisReid]

Game publishers have, over the past few years, done everything in their power to encourage Gamestop's business model. Most games today are published with virtually no manual - there's nothing in the box except for a pretty silver disc. What's more, a lot of games today generally offer very little replay value (the interesting thing here is those sports games that started this discussion - they do offer a lot of replay value; I bet their trade-in numbers are nothing compared to the latest Call of Duty and such).

A quick comment on that particular example - the latest Call of Duty is actually known for its exceptional multiplayer. There's a lot of people (again, in a game that sold 15 million (new) copies in the first several months, we're talking millions of people here) who buy Call of Duty strictly for the multiplayer and never touch the single player.

It's a tangent as well, but the multiplayer map pack for the latest CoD has performed amazingly well. There was a general whiny current before its release about how they were charging $15 for two old map rereleases and three new maps (the first DLC map packs on XBox Live cost $5 several years ago), but wow, it's sold well - more than 2.5 million copies so far.

 

[Delance]

Well, then publishers should absolutely love Steam, since it's virtually impossible to sell used Steam games. You could sell your account -- but that's against Steam's policy and could get the account removed.

 

[Bandit LOAF]

They certainly love the concept, if not the fact that Steam is run by a competitor.