[For the Record, 2:47 p.m. PST March 20: This post has been updated to include remarks from an EA spokesman.]
John Riccitiello ended his tenure as the chief executive of EA on Monday, holding himself fully accountable for the company’s recent disappointing financial returns. Electronic Arts has long been one of the big players in the video game industry but recently has fallen short of revenue goals amid public relations disasters.
Riccitiello took the reins of the company in 2007, built around tent-pole releases, sports titles and licensed tie-ins, and he shook things up.
“Back in 2007, EA was at its zenith. John told employees that they may think they’re on top, but the company was just a few years away from disappearing. He said that the same digital transformation that disrupted newspapers and music, was about to clobber games. He told the executive team that we were likely doomed — but we could survive with radical change,” an EA spokesman told Hero Complex.
Mobile and social initiatives took off; the company launched its own digital distribution platform on the PC, called Origin; and Riccitiello strove to make individual games virtually self-sustaining, with in-game purchases, social features and stat tracking.
“When John returned to the company as CEO in 2007, he told employees: “We need to change Madden NFL from a thing that you buy…to a place that you go.” That became a rallying cry for EA’s digital transformation – the process of moving from a business based on selling discs at retail, to a business based on serving online games directly to the consumer,” EA spokesman’s said, pointing out that digital games and services will soon account for a majority of the company’s revenue.
But how did EA’s relationship with many gamers sour to the point that jokes about Riccitiello surged through social media? Peter Moore, EA’s chief operating officer, quickly condemned the ribbing. This is a company that, after all, won an online survey for “Worst Company in America” in 2012, beating out the much-loathed Bank of America. Let’s look at the successes, and missteps, that characterized Riccitiello’s tenure at EA.
Origin: Valve Corp.’s Steam was, and still is, the largest player in the digital distribution market. At any given moment, 2.5 million to as many as 6 million users are logged on, and the current number of games available is rapidly nearing 2,000. But Riccitiello’s EA sought to carve out its own slice of the digital pie, launching Origin in 2011. A platform primarily for EA’s titles, and now required to run many of its PC releases, Origin recently hit its record for concurrent users at 1.3 million.
‘The Old Republic’: Six years, 800 developers and $200 million — that’s what it took to bring “Star Wars: The Old Republic” to gamers. The multiplayer extravaganza was released in December 2011. As the Los Angeles Times reported in January 2012, to recoup its massive investment on the multiplayer game, EA would have had to snag more than 1 million customers willing to spend $60 to buy the game and an additional $15 a month to play for years on end. In addition, EA also had marketing and upkeep costs, and it also had acquired “Old Republic” developer Bioware/Pandemic in 2007 for a reported $860 million.
The game started off in 2011 with more than 1 million registered users, but as the months wore on, players began to drop away. EA decided to make “The Old Republic” free to play eight months after its release, citing subscriptions as a “barrier” to players. Whether the change, enacted in November 2012, has resulted in higher revenues than the traditional subscriber model is unknown.
Catching up to ‘Call of Duty’: Under Riccitiello, EA sought to tackle Activision’s behemoth “Call of Duty” franchise head on, looking to topple the bestselling series with releases in the “Battlefield” and “Medal of Honor” franchises. Things were looking up with the release of “Battlefield 3,” which has sold around 15 million copies since its October 2011 debut, with additional revenue pouring in from the “Battlefield Premium” subscription service.
But last year’s “Call of Duty” opponent, “Medal of Honor: Warfighter,” was a miss with critics, and sales paled in comparison to “Call of Duty: Black Ops II.” Even Riccitiello admitted that “Warfighter” was performing below expectations. As a result, the entire “Medal of Honor” franchise has been put on the bench, at least for the time being.
Mobile and social: Between 2009 and 2011, EA made two sizable acquisitions to beef up its resources in social and mobile gaming. EA paid more than $300 million for startup Playfish, then $750 million for PopCap Games (the figures represent a stock-cash combo). Since then, EA’s non-retail offerings have swelled, including wildly successful freemium titles “Simpsons: Tapped Out” and “Real Racing 3.” But it’s been a rocky path for PopCap, which had layoffs last year.
Games as individual services: As opposed to making games an all-inclusive single purchase, either at a storefront or online, EA has consistently built additional revenue streams into its titles. Examples: Day 1 downloadable content in “Mass Effect 3”; subscription-based services that provide regular content updates, as in “Battlefield Premium” for “Battlefield 3”; and the inclusion of micro-transactions in the full-priced title “Dead Space 3.”
New methods for monetizing games have raised the ire of fans, and EA has been at the forefront of this industry-wide trend. After harsh reaction to the DLC in “Mass Effect 3,” it came as no surprise that forums and blogs were set alight by comments from EA Chief Financial Blake Jorgensen in February that all EA titles would eventually include micro-transactions.
Jorgensen said EA was adding micro-transactions “into all of our games … either to get to a higher level to buy a new character, to buy a truck, a gun,” and he said “consumers are enjoying and embracing that way of the business.”
That might be an overstatement.
Jorgensen later clarified that his remarks were limited to mobile games, but the topic is definitely a sore subject for die-hard fans.
‘SimCity’: The most recent headline-grabbing title from EA didn’t exactly spark the sorts of conversations they would have wanted. The title, which requires online access to play, underwent a tumultuous launch, with customers fuming over their inability to play the game and Amazon temporarily pulling the title from its digital offerings.
Financial disappointment: Despite EA’s gigantic size and sizable acquisitions during Riccitiello’s time at the helm, and the expansion of several successful franchises, the company has continually disappointed investors, with EA’s stock dropping more than 68% since the end of 2007. Ultimately, as Riccitiello pointed out in his departing letter, this was why he stepped down.
“It currently looks like we will come in at the low end of, or slightly below, the financial guidance we issued to the Street, and we have fallen short of the internal operating plan we set one year ago,” he said. “And for that, I am 100 percent accountable.”
– Morgan Little | @mlittledc