Electronic Arts may have reached its financial nadir. Stock in the Madden NFL 13 publisher is trading above $13 as of this writing, up from this year’s 14-year low beneath $11, but still down more than 50 percent from where it started the calendar year. This is during a period when some of EA’s most profitable properties are still showing growth. Madden NFL 13 sold 900,000 copies in its first day on shelves, a 7 percent boost over 2011. Who says that EA’s audience has reached its saturation point?
As EA has watched its market cap plummet from more than $18 billion at the end of 2007 to just over $4 billion today, it has spent gobs of capital trying to recover. It’s spent billions developing new intellectual property that failed (Mirror’s Edge), excellent games with outdated business models (Star Wars: The Old Republic), and it’s acquired dozens of studios in a bid to diversify (PopCap). Digital revenue’s grown, mobile revenue has grown, even EA’s console game business has stayed steady but none of it’s been enough.
Free-to-play games and cross-platform play are two pillars in EA’s plans for the future. A tripod is more stable though, so what will be EA’s third leg? Proprietary engine technology according to EA labels chief Frank Gibeau. Rather than spend huge sums on developing new technology for each game or licensing engines like Crytek’s CryEngine or Epic’s Unreal Engine 4, EA’s Dice-developed Frostbite engine will be the money-saving, revenue-generating machine that EA has lacked in the last console generation.
“[Frostbite] is tailor made for next-gen hardware, so we’re in really good shape from a technology standpoint, which is where we had our misstep last time,” Gibeau told Bloomberg (via Gamasutra) in a new interview.
When John Riccitiello took over as Electronic Arts CEO at the beginning of this console cycle, he emphasized the creation of new intellectual property as the key to success. The failure of games like Dante’s Inferno, Bulletstorm and Mirror’s Edge as well as the middling success of others like Dead Space and Army of Two has led some to say that EA’s pursuit of success through AAA IP is a losing strategy.
Gibeau says that Frostbite will allow EA to more carefully invest in new IP. “We’ve already started 3 to 5 IPs that we’re going to launch in those first 24 months of the next generation. EA Sports is there with all of its power, and you also see some really big brands like Battlefield coming out.”
EA appears to have covered its bases. Gamers should brace for a future where they pay for EA games in small, constant increments. EA’s shareholders should expect a turn around, if not a return to the glory days, because of that change.