Last week, over three and a half years after its initial release, Digital Extremes’ free-to-play shooter Warframe broke its concurrent player record with expansion The War Within, hitting Steam’s top three on the weekend of release, recording a maximum of 68,530 players online at once and logging an incredible 1.2 million hours of playtime in a single day. Across PC and the more recent Xbox One and PS4 versions of the game, over 1 million of the 26 million players who have registered since the game’s 2013 launch had played by November’s halfway point, beating all previous monthly unique records with a fortnight to go.
Those are impressive numbers, especially for a game at a point in its lifecycle where it could certainly be forgiven for slowing down – and it’s no anomalous bump. Instead, a quick glance at SteamSpy’s graphs for the game show a steadily increasing number of players for the game, as well as a very healthy schedule of updates, patches and big content drops. Rather than leeching users to other games as it ages, Warframe is going from strength to strength.
Meridith Braun, VP Publishing at Digital Extremes, says that it’s been a tight compromise of strategies – resulting in a success which far exceeds the expectations of a game which was initially seen as something of a make or break exercise. Key to that, she says, has been a careful acquisition process, but not one which has come at the cost of long term curation and engagement of existing players.
“It’s definitely a balancing act between catering development to new players and veterans of the game,” Braun explains, “but after 3.5 years, the core of the game has grown so much that for new players there are literally hundreds of hours of missions, quests, customising and exploring game systems before they catch up to where veteran players are.
“Whilst many of our updates focus on adding new content and improving game systems that our veterans are most interested in, earlier this year we took a fresh look at the new player experience and released an update that refined some of the tutorials, updated the UI, tied quests together to help the lore flow better, and revamped the market for easier functionality. It was not our most played update, like The Second Dream or The War Within, but it served a long-tail purpose of making Warframe more inviting and easier to understand for new players. It helps them navigate to the really intricate depths of the game with the intent to retain them long-term.”
“We spend very little compared to other free-to-play games that focus a large amount of their budgets on acquisition”
Polishing the tip of the spear is a tried and tested acquisition technique, but it’s not usually a way of sidestepping the vast costs which many companies associate with gathering new players. Warframe’s marketing, though, was forged in a crucible of necessity, at a time when budgets were almost non-existent. As a result, the studio has learned to maximise the gain from channels which deliver users without draining revenue, although the financial success of the game has also enabled them to operate in areas previously well beyond their price range.
“We spend very little compared to other free-to-play games that focus a large amount of their budgets on acquisition,” says Braun. “Warframe was a passion project – the studio’s ‘Hail Mary’ pass, if you will. There was barely budget to buy an account server for the game, let alone to spend on marketing at the time. We turned to viral everything to get the word out: live streaming, social media, Reddit, forums, PR, knocking on partner’s doors for promotional opportunities. Once we launched in open beta and more players got a taste of the game, it was clear we had something unique on our hands. Since then our acquisition strategy has focused primarily on our update schedule and community involvement.
“We discovered early on that frequent significant updates – updates that added dramatic gameplay changes, enhancements and content, and transparency with our community, brought in droves of new players. Now that we have more wiggle room in our coffers, we work the usual acquisition channels – online CPA-focused advertising, social media, streaming, etc. – but nothing beats age old word-of-mouth between players telling their friends to join in on a game that only gets better and better over time.”
What’s perhaps even more unusual about the current high that Warframe finds itself riding upon is that it comes at a time when the AAA shooter market is crowded with a wide spread of very high quality competitors – many of which are under-performing at retail. The game’s peak numbers come at a point when there are brand new Battlefield and Call of Duty games at market, as well as extremely well reviewed releases like the Titanfall and Dishonored sequels.
“Warframe was a passion project – the studio’s ‘Hail Mary’ pass, if you will. There was barely budget to buy an account server for the game, let alone to spend on marketing at the time”
Braun very much sees free-to-play as playing a significant part in the difficulties which Warframe’s boxed rivals are experiencing.
“I think we’re seeing the F2P model disrupting the standard retail model for larger budget games,” she says. “The continued rise of AAA-quality, free-to-play games coming to market – and their ability to fill the long gaps between large IP releases – is taking a bite out of the big game market. Just this year it was great to see F2P titles like Paragon and Paladins launch to great fanfare and numbers, I’m sure they both had some effect on the big budget FPS games alongside Warframe.
“It’s hard to compete with free. Sure, we want people to eventually pay for the entertainment they’re receiving – but when you have the ability to try out a game for free for as long as you want, a game with equally great production value, and then decide if it’s a game that deserves your money, that’s pretty stiff competition. The larger games also aren’t built to be as agile and reactive to the market after they ship. Free games at their core are made to continually update and improve, offering incredible value and entertainment over a longer period of time.”
Blizzard probably has a few things to say about the notion that free-to-play games offer the best long-term player engagement and responsive improvement, and Braun freely admits that games like Overwatch share that strategy of player curation. Warframe, she says, also offers something else, though. Because it wasn’t a Blizzard game, born almost fully-fledged and slickly functional, early adopters have had the joy of watching it smooth out its rougher edges.
“When Warframe first launched it was a shell of the size of game it has become, and our players have stayed with our growth throughout its life-span. They enjoy taking the ride with us, being a part of the evolution, experiencing game development from the front seat. If you’re not thinking about long-term engagement and game service at the heart of your game design as a good part of the future of gaming, you may have yet to come to grips with the dwindling projections of one-and-done games.”
Games publisher EA believes things will turn around for the company next year. This year has been pretty unpleasant for the company after its trusted DRM sunk its flagship SimCity release.
But Electronic Arts seems to think that is all behind it and has forecast fiscal 2014 earnings above Wall Street’s expectations. EA has been cutting staff and reorganizing studios in recent months to embrace new game platforms. It is preparing a new batch of games including the latest installment of its “Battlefield” shooter game franchise.
Digital revenue, from mobile games, online offerings and other newer sales channels, rose 45 percent year-over-year to $618 million, larger than EA’s packaged goods business in the fourth quarter ended on March 31. It thinks that consumers have held back from buying hardware and software as they await new versions of Sony’s PlayStation and Microsoft Xbox expected later this year.
The video game maker forecast revenue of $4 billion, in line with Wall Street’s expectations. Weakness in the packaged games market dented revenue, but EA recognized $120 million of deferred payments from its “Battlefield Premium” service in the fourth quarter.
For the latest quarter, total revenue declined to $1.2 billion from $1.37 billion a year ago. Adjusted revenue rose 6.4 percent to $1.04 billion over the same period, barely beating analysts’ average estimate of $1.03 billion.
Net income fell to $323 million from $400 million last year.
The recent launch of SimCity was a troubled one for Electronic Arts, as the company struggled to get its servers fully functional. Ordinarily, this wouldn’t be good for any game’s launch, but when a title is designed to be always online, and countless players therefore can’t even play the game they just purchased, the situation quickly escalates. EA moved as fast as it could to rectify the situation, but some players felt EA’s real intent was to force DRM on its customers. Maxis head Lucy Bradshaw’s blog post seemed to only stir the pot, but EA Labels president Frank Gibeau now insists that DRM had absolutely nothing to do with the game’s design whatsoever.
Speaking at GDC this week, Gibeau commented, “That’s not the reality; I was involved in all the meetings. DRM was never even brought up once. You don’t build an MMO because you’re thinking of DRM – you’re building a massively multiplayer experience, that’s what you’re building.”
Not only was DRM not a topic of internal discussion at EA, Gibeau said, but the executive also made it very clear that DRM is simply not an option for publishers anymore.
“At no point in time did anybody say ‘you must make this online’. It was the creative people on the team that thought it was best to create a multiplayer collaborative experience”
“DRM is a failed dead-end strategy; it’s not a viable strategy for the gaming business. So what we tried to do creatively is build an online service in the SimCity universe and that’s what we sought to achieve. For the folks who have conspiracy theories about evil suits at EA forcing DRM down the throats of Maxis, that’s not the case at all,” he said with a laugh.
For EA and Maxis, Gibeau said it really was a case of building a completely connected world with an MMO-like infrastructure.
“It started with the team at Maxis that had a creative vision for a multiplayer, connected, collaborative SimCity experience where your city and my city and others’ were [working together]; for better or for worse, and for right or for wrong, the lead designers and the producers and the programmers felt like they wanted to tell us a multiplayer, cooperative city story around SimCity. We had built a bunch of these and you could’ve gone deeper and deeper into your plumbing and managing toilets and electrical posts, but we felt there was a bigger story to tell and a bigger opportunity to chase with an always-on connected experience built around that concept. That’s what we set out to design and that’s what Maxis created and brought forward into the marketplace,” Gibeau explained.
“At no point in time did anybody say ‘you must make this online’. It was the creative people on the team that thought it was best to create a multiplayer collaborative experience and when you’re building entertainment… you don’t always know what the customer is going to want. You have to innovate and try new things and surprise people and in this particular case that’s what we sought to achieve. If you play an MMO, you don’t demand an offline mode, you just don’t. And in fact, SimCity started out and felt like an MMO more than anything else and it plays like an MMO,” he continued.
Gibeau acknowledged that EA probably should have done a better job in its messaging with the community, making sure that they understand the MMO nature of the title and the need to be always connected.
“I’m disappointed that we didn’t do a better job communicating that upfront. I’m disappointed that we had a rough first couple of days in terms of underestimating how people were going to play the game and how the server infrastructure was going to hold up, but we responded the best we could, we got people to fix it as fast as we could,” he said. “We had a majority of people come through who had a good experience and a bunch of people that didn’t and that’s not acceptable, but at the same time we tried to do make-goods with free games, we’ve been fixing and constantly tinkering with the experience and it’s an experience that we want to continue to evolve over time. It has to be an online experience like an MMO where you bring out new events, new kits, new places to go, and that’s more the vision for where SimCity is going.”
Even with its problems, however, the game did quite well, selling over 1.1 million copies in its first two weeks, which Gibeau noted makes it “the fastest-selling and biggest SimCity we’ve ever built.” Gibeau believes that part of the problem is the entire situation snowballed when the media started covering it.
“Some customers have had problems, and you’re in the media; you know how some things can snowball, and unfortunately that’s what happened here. We did the best we could in order to respond to that and made adjustments to the service but the game is continuing to sell through at a much higher expectation than we thought. The servers are now at 100 percent and there’s plenty of capacity… and we’re not the first or the last company [to have a problem like this] – Activision Blizzard, Steam, Ubisoft…everybody’s had this problem and it was our turn I guess,” he said.
EA games has been caught out making bogus claims about its SimCity claiming it needs a server to function. The outfit has been responding to requests from users that it abandon its DRM and allow for a version of the game that does not need to log onto a server. EA insists that it needs the servers to work and that it would take the company ages to reprogram the game so that it can work independently.
Maxis’ studio head, Lucy Bradshaw went on record saying that the software offloads a significant amount of the calculations to EA servers, and that it would take “a significant amount of engineering work from our team to rewrite the game” for single player. But that is complete rubbish according to a SimCity developer who has got in touch with RPS to tell us that at least the first of these statements is not true. He claimed that the server is not handling calculations for non-social aspects of running the game, and that engineering a single-player mode would be a doddle.
He told Rocketpapershotgun.com that the servers were not handling any of the computation done to simulate the city you are playing. They are still acting as servers, doing some amount of computation to route messages of various types between both players and cities and doing cloud storage of save games, interfacing with Origin, but doing nothing for the game itself.
Kotaku said that the game was happy for 20 minutes before it realized it wasn’t syncing to the servers and the DRM kicked in. Game play can’t be using the servers at all. For some reason EA is determined to keep its DRM up and running even if it means killing the game completely.
I haven’t played any of the Dead Space games, so I can’t comment on the criticisms that Dead Space 3 sold poorly because of game content or the way in which it dumbed down the gameplay experience to appeal to a broader audience. I can talk about how I see the microtransaction and other changes that vocal fans derided fit in with Electronic Arts’ broader strategy.
The games market is polarizing. The big are getting bigger (see Grand Theft Auto and Call of Duty beating first week sales records year after year) while the niche is becoming more viable (see every indie game on Steam) while the middle is getting squeezed (see THQ, Eurocom and dozens of other midsize developers). The emergence of digital distribution has brought along a bigger change than many people realized, driven by two different properties:
- It is cheaper than ever before to distribute content
- It is possible to have unique, personal, one-to-one relationships with every customer
The strategies that EA are putting in place reflect this reality.
The variable demand curve
The past 30 years were about putting games in boxes, shoving them in shops and trying to sell as many as possible. The price was basically fixed at around £30-40, so the only way you could make more money was to do more volume, i.e. sell more copies. You could also try to maintain the price for as long as possible by restricting price reductions and limiting trade-ins. What you couldn’t do was to connect with your fans in any meaningful way.
We no longer live in that world, except perhaps for the very biggest blockbusters. We live in the world where there is a bewildering choice and variety of games available to us. At the same time, development costs for AAA games are enormous and rising, while the market is not getting bigger. In fact, that subset of the market is shrinking as players are distracted by the many different ways, times and devices they can play games on.
There is only one solution. It is to find a way to use the initial launch of AAA game as a starting point in your relationship with fans. It is to start the long process of turning games from one-off purchases to long-term relationships. It is about using games to engage with and retain players, to convert some of those players into fans and to convert some of those fans into superfans. In the process, niche AAA games that are not viable using the blockbuster, fixed-price-massive-volume model can become successful long-term businesses.
Viewed through that lens, everything that EA is doing makes sense. It is trying to use its games as the starting point of the relationship. Sometimes those games are free (as in most of its mobile, tablet and online strategy). Sometimes they are paid (as in its console strategy). What they are trying to achieve is a revenue model which means that those people who love their games, who keep playing, who are vocal and demanding, are given an opportunity to spend lots of money on the products that they love. It is the only way for niche AAA games to survive.
I don’t know why Dead Space 3 didn’t do well. I don’t know if it was about poor design decisions, a change of focus or gamers voting with their wallets and not supporting a game with microtransactions on principle (EA will have data on how many users engaged with microtransactions. Answering the other questions will be harder).
But I don’t think gamers should view any rumored cancellations of blockbuster projects as a victory against microtransactions. Finding a way for the biggest fans to pay lots of money to get things they truly value is the only way to support niche AAA games (and by niche, I mean anything outside the top 4 or 5 games released every year). EA may not have got the exact model right yet, but they are experimenting. The failure of the experiment does not mean that EA will abandon microtransactions: it means that it will abandon anything other than blockbuster games and tablet games.
Is that what you really want?
Nicholas Lovell is director at GAMESbrief, a blog about the business of games. He provides business advice on free-to-play and paymium design. He will be giving a masterclass on how to make money from free-to-play games in San Francisco on Sunday March 24, just before GDC. You can also book one-to-one surgeries.
Electronic Arts is consolidating some of its online gaming efforts. The publisher is taking its free-to-play gaming hub, Play4Free, and folding it into its online storefront, Origin.
EA already has a free gaming section set up on Origin, with links to all of the Play4Free titles. The same section also plays host to additional EA efforts like Crossfire and more casual games from the publisher’s Pogo casual gaming brand, including Word Whomp and Monopoly: The World Edition.
The Play4Free brand has been home to seven of EA’s free-to-play online games, including Battlefield Heroes, Battlefield Play4Free, and Need for Speed World. Even with the additions, the Origin label doesn’t extend across all of EA’s PC microtransaction titles; Tiger Woods PGA Tour Online continues to operate apart from the Play4Free brand, and the game’s official site gives no indication that it will be moving to Origin. Additionally, EA runs a number of games on Facebook, including The Sims Social and Outernauts.
Play4Free was announced in 2008, and officially went live with the 2009 launch of Battlefield Heroes. Origin is a comparatively younger endeavor, having been unveiled and rolled out in June of 2011.
While Blizzard has been busy answering questions about whether World of Warcraft would be going fully free-to-play in the future, the company could also switch StarCraft II to run on the business model. As reported by PC Games N, Blizzard designer Dustin Browder directly addressed the possibility in a panel discussion at the Valencia eSports Congress last week.
“That’s definitely an option for us at some point down the road,” Browder said, adding, “I don’t think there’s any reason why we wouldn’t, except to make sure we do it properly, that we don’t make any mistakes, and that we are supporting the fans the way we’re supposed to.”
Browder did note that some common free-to-play treatments could be problematic for the game, creating circumstances where balance would be thrown off because players who haven’t bought everything in the game don’t have access to the same assortment of units. He mentioned selling entire races separately as one possible solution to that problem.
Blizzard already uses a variety of business models with StarCraft II internationally. For example, South American players can purchase the game at retail, but must pay for subscriptions if they wish to keep playing beyond the six-month mark. A similar model was used in China, where players were able to enjoy the beta for free, then asked to pay a monthly fee for access to both the single- and multiplayer modes.
Electronic Arts is mulling over selling itself as it finds itself in trouble trying to grow its business amid competition from free online gaming sites.
EA has been approached by private-equity giants KKR and Providence Equity Partners about a potential deal and no one is talking about it, which is probably a sign that it is being taken seriously. While EA is the maker of popular games as “SimCity” and “Madden NFL” and has a market value of $4.17 billion things are not going that well.
EA has had mixed results in recent periods as interest in consoles has dried up and free-access online games have taken their toll. Last month, EA reported fiscal first-quarter earnings fell 9 per cent. EA executives are thought to be considering selling the company for a $20 a share so that it can move into the free games market.
A new Army of Two reboot is headed to the Xbox 360 and PlayStation 3 in March 2013. The new title that is in development at Visceral Games will be called “Army of Two: The Devil’s Cartel.” The game will be a total reboot of the franchise, taking it in a new direction, and it will be powered by the DICE-developed Frostbite 2 engine.
The game is said to feature a far grittier tone that is more mature. It will be an intense title that will feature new characters Alpha and Bravo, who will find themselves on the streets of Mexico in the middle of a drug war. The game will offer two-player split screen co-op game play that will be available over Xbox Live and the PlayStation Network, as well.
Despite rumors of a four player co-op mode that was considered for an Army of Four, sources tell us that it is not part of the title. The focus will be on two player co-op, which is what it should be. The news from EA confirms multiple rumors that the studio has been working on a new Army of Two title for quite some time in between being focused on the Dead Space franchise.
Following Activision Blizzard’s earnings announcement, the publisher held its investors call to discuss its results and the industry at large. Chief Executive Bobby Kotick was asked by an analyst about the challenging marketplace this year and why sales have been down at retail.
“You have a very difficult macroeconomic environment, when you look at the things that can generally have an impact on the consumption of entertainment – unemployment data is very concerning, and when you look at the challenges in Europe there are a lot of things that are going to affect the macroeconomic outlook. We are also at the late end of the cycle, and the late end of a console cycle is always going to have its share of difficulties,” Kotick began.
He then proceeded to lay some of the blame at the feet of his competitors, which he said are not necessarily doing the industry justice by shipping less than stellar games.
“I also think you’ve had, unfortunately, a stream of products that are less than adequate from some of our competitors. The demand in the marketplace is for great quality products. If you look at the success we’re having it validates that there is an opportunity for great quality products but I think at this stage in the cycle, it’s challenging for anything other than great quality products,” he said.
Kotick added that other sectors, particularly mobile, are having an impact on how much money consumers are willing to spend. Beyond that, many gamers are happy to keep playing online games for longer stretches of time instead of rushing out to buy new products.
“There’s also a lot of competition for entertainment dollars – you look at mobile games and what’s happening there and the pricing there that’s having an impact,” he continued. “And I also think that a lot of the games we make, like Call of Duty, that are multiplayer games offer a lot of replayability, and when you have the opportunity for replayability in an economic environment like this, you’re going to spend more time playing the games that you have.”
“But I will say that if you look out at the next five years, there’s a lot of reason to be hopeful and enthusiastic, but the next few years are going to be challenging,” Kotick concluded.
A new report from Cowen and Company states that the recently settled case between ex-Infinity Ward studio heads Jason West and Vince Zampella and Activision settled to the tune of ‘tens of millions.’ Analyst Doug Creutz believes that while the settlement was undisclosed, the two Call of Duty executives walked away with a very healthy sum.
The comments from the firm come just a few days shy of financial reporting for Activision. Creutz notes that Activision will more than likely ignore the settlement when discussing the outlook for the company during the earnings call as it feels investors will see the sum as negligible going forward.
Activision is looking at healthy sales overall from the Blizzard side, thanks in part to an expected 8 million units sold for Diablo III, says Creutz. The game pushed past 6 million units sold in May, beating out earlier predictions of only 5 million forecasted. Blizzard’s next release, StarCraft 2: Heart of the Swarm, is more than likely not going to ship until 2013, adds Creutz.
EA is also gearing up to release its financial report as well. Creutz believes that EA will be reducing sales forecasts for upcoming titles, notably Medal of Honor: Warfighter. The game is expected to only sell 1.44 million units, a sharp decline from Creutz’s previously forecast 2.33 million. The analyst also had sobering news for BioWare’s The Old Republic, which he believes will continue to see rapid declination in subscribers to around 500,000 users overall.
Electronic Arts is one of the publishers in this industry that is at the forefront of the digital transition. The company recently had its first year of digital revenues over one billion dollars, and now EA is expecting that number to jump closer to $2 billion (guidance of $1.7 billion in digital revenues this year). For EA Labels boss Frank Gibeau, the business is clearly at a tipping point.
We asked Gibeau point blank when the company will have most, if not all, revenues coming from digital products. It’s not as far off as one might think.
“It’s in the near future. It’s coming. We have a clear line of sight on it and we’re excited about it. Retail is a great channel for us. We have great relationships with our partners there. At the same time, the ultimate relationship is the connection that we have with the gamer. If the gamer wants to get the game through a digital download and that’s the best way for them to get it, that’s what we’re going to do. It has a lot of enhancements for our business. It allows us to keep more that we make. It allows us to do some really interesting things from a service level standpoint; we can be a lot more personalized with what we’re doing,” Gibeau enthused.
“We’re going to be a 100% digital company, period. It’s going to be there some day. It’s inevitable”
“But if customers want to buy a game at retail, they can do that too. We’ll continue to deliver games in whatever media formats make sense and as one ebbs and one starts to flow, we’ll go in that direction,” Gibeau continued. “For us, the fastest growing segment of our business is clearly digital and clearly digital services and ultimately Electronic Arts, at some point in the future – much like your question about streaming and cloud – we’re going to be a 100% digital company, period. It’s going to be there some day. It’s inevitable.”
The fact that more and more of the industry is going digital opens up new avenues for EA and other gaming companies.
“For us, we’re focused in on the fact that the gaming market overall is broad. You have more people playing games now than ever before in the history of the industry. There are more markets available to us – Asia, Brazil, Russia – a bunch of emerging markets that are legitimate and growing fast. We have more devices that we can publish across now. We used to publish across three platforms; now we’re publishing across 14 or 15,” Gibeau said.
“The advent of IP televisions and streaming – we’ll be prepared for it. That’ll be a way that we’ll generate content and deliver it to customers in a high quality way. The next generation of hardware is going to come out. It’s difficult to speculate what generation next would be after that, but there are opportunities in cloud and streaming that are very interesting to us and we have relationships with Gaikai and other companies where we’ve investigated a lot of that stuff and we clearly see our IP and our capabilities on the digital services front translating over very easily there.”
Gibeau believes that some industry observers and investors are not grasping the complete picture. And part of the reason for that is the constant decline we’ve seen through NPD’s monthly retail reports. Gibeau went so far as to say that EA all but ignores NPD’s data now.
“I think one of the problems with this industry right now is that people tend to look at it like they’re looking at an elephant through a straw. They only see a little parts of it and they’re not looking at the total picture, right? Between Facebook, social, mobile, free to play on PC, Asia, consoles… it’s a vibrant, growing, huge market. An occasional bad report from NPD, which measures a sliver of what’s actually happening in gaming gives people an erroneous impression,” he stressed.
Gibeau continued, “My point is it’s an irrelevant measure on the industry. It’s totally irrelevant. We don’t even really look at it internally anymore. We’re more focused on our services and how we’re connected with consumers. The number of Nucleus accounts we’re growing, the amount of engagement time that we have, the amount of services that we’re running – those are more important metrics for us than unit sales according to NPD and North America. So your original question is about what comes next. It’s growing. It’s booming. It’s big. Things are good. If cloud and streaming come on line at scale, we’ll be in the position to do it and we’re excited about it.”
Everyone was wondering the other day about some of the titles missing in action at E3. It would appear that the mystery behind Rainbow 6: Patriots not being shown has been answered by UbiSoft. According to Tony Key from UbiSoft in a discussion with IGN, he stated that the game was, “…still in active development”, but “the best thing for the brand was not to bring it to the show right now.”
While a trailer was released last December that looked like the game was very promising, then news was released that changes to the team were taking place, with Jean-Sebastian Decant taking change of the title. Whispers behind the scenes suggested a number of issues going on with the development team and the project schedule, but none of this ever seemed to be confirmed by multiple sources.
While Key said that the project was slated for the current generation of consoles, he did suggest that the full schedule of titles at E3 to show contributed to the decision not to show Rainbow 6: Patriots. While this is all well and good, Key had no additional release date information. Our sources tell us that an 2012 release is pretty much impossible and a late 2013 release is likely; but it could even slip into early 2014, depending on how development remains.
This news coincides with a report that Digital Chocolate is laying off some 180 employees across their offices worldwide, include their headquarters in San Mateo, California. The report from TechCrunch also noted that Digital Chocolate president Mark Metis has been named interim CEO. According to the report, half of the employees in the San Mateo and Bangalore offices are being laid off, and offices in Mexicali, Armenia, and Sandlot offices in Bothell, Washington and St. Petersburg are being closed. (Sandlot was purchased by Digital Chocolate in 2011.)
Digital Chocolate has been in business for 8 years, with over $60 million in venture capital funding from Kleiner Perkins and Intel, among other investors. The company has produced titles on Facebook, iOS, Android, and the web, among other platforms. According to AppData Digital Chocolate currently has over 6 million MAU (monthly active users), down from 8 million MAU a month ago. This is down from a high point of 29.8 million MAU in December of 2010, due mainly to the success of Millionaire City, which had 12.9 million MAU at the time.
Trip Hawkins is the founder of Electronic Arts and 3DO, and Monday May 28th is the 30th anniversary of the day he formally incorporated and founded Electronic Arts. Hawkins also worked at Apple from 1978 on, when the company had only 25 employees; when he left Apple had grown to 4,000 employees. He spent 12 years at EA as CEO and Chairman of the Board, then spent 12 years at 3DO, and now 8 years at Digital Chocolate.
Hawkins plans to continue working in and around the game industry: “I will remain involved in digital media and games and be available for opportunities including mentoring, consulting, teaching, speaking and writing,” Hawkins wrote on his blog. His personal website is at www.triphawkins.com.
Electronic Arts had an excellent fourth quarter of its fiscal year, performing at the high end of its previously announced guidance. Some of the key highlights: earnings per share improved over 20 per cent from last year, and digital earnings improved by over 60 per cent. EA showed revenue growth with improved margins with improved cash flow. It was an excellent performance all around, although EA’s stock price hasn’t reflected investor confidence yet.
Reading between the prepared lines of earnings calls it’s pretty straightforward: EA is rapidly moving to, as they themselves stated, “become the leading pure-play digital entertainment company.” Even though over $2.5 billion of its revenue comes from packaged goods right now, John Riccitiello said he can see that EA will derive more than half its revenue from digital in the near future. That’s easy to believe, when EA is telling us that packaged goods will continue to decline in sales over the next fiscal year, while it projects digital to continue a torrid 30 to 40 per cent growth rate.
Of course, this is a tricky thing to manage, and there will be casualties along the way. EA admitted as much when ity talked about a “slight restructuring” that will mean some job losses, though it didn’t specify how many. Still, EA noted that headcount stood at 9,200 in March, with 70 per cent of that in R&D, and it expects to grow to 9,700 by end of FY13. While EA didn’t say specifically, it seems a pretty good bet that the jobs lost will be in packaged goods, while digital goods gains more employees.
EA is well on the way to making its transformation into a mostly digital company, which will bring its margins up to the lofty ranges enjoyed by companies who don’t worry about shipping boxes to stores. One of the figures EA noted was that it’s gone from 67 packaged goods in 2009 to about 14 today, while increasing to 25 different online offerings. EA’s brands are in the process of transcending their original platforms, to the point where EA no longer thinks of something as an Xbox game or an online game; the game is its own entity, and each platform just happens to be where one instance of the game can be found.
When the transformation of EA is complete, it will look a lot more like Zynga in some ways, earning most of its revenue from digital sources. Both companies have similar amounts of cash on hand. Zynga is still far smaller in terms of revenue, but it’s trying to catch up. EA still has a huge advantage over Zynga in that EA’s revenue is diversified over so many different platforms. Zynga, right now, is completely at the mercy of Facebook. Of course, this does give Zynga much greater focus; it doesn’t have to worry about all the dozens of different platforms that EA does.
Next gen console investment was singled out in the earnings call by stating a commitment to spending $80 million on the development of next-gen titles over the course of the fiscal year. That may sound like a lot initially, but it’s the equivalent of a couple of mid-range console titles, ignoring for the moment that next-gen consoles may have higher development costs due to higher resolution. EA noted that this is the first time in its history it will be able to go through a console transition and still grow sales and earnings… because this time the digital goods are more than making up for the costs of new console development. Really, too, it’s a function of the scale of new console development; it’s just a much smaller part of EA’s overall business now, so the costs don’t hurt very much.
It will be interesting to see how Activision compares its progress in digital revenue to EA’s. Activision seems to be more firmly wedded to revenue from console games, though they are hoping Blizzard will change that with its lineup of new games starting with Diablo III. EA is clearly gunning for Activision’s World of Warcraft audience, and promises a renewed effort to increase Star Wars: The Old Republic subscribers. Still, 1.3 million paying subscribers is a far cry from WoW’s 10 million. EA seemed a bit sensitive over the falloff in SWTOR subscribers, being careful to point out that the game isn’t in the top 5 moneymakers and represents a small part of its overall profits. Despite that, there seems to be a great deal of effort in the works for new content and marketing efforts to expand the audience.
E3 promises to have some interesting head-to-head comparisons in product and marketing strategies between the industry giants. As EA goes digital, can it hang on to solid sales in packaged goods?