Former Disney, Activision and EA exec Mitch Lasky has warned EA that consoles will present the platforms with the most risk going forward, suggesting that in tethering themselves to the console model going forward, the company wil find itself "with bloated teams, high production costs, and packaged goods marketing and merchandising", none of which bodes well for the books.
"As counter-intuitive as it sounds, console is the wild card for the future of EA, the platform with the most risk," Lasky wrote on his blog. "As everyone knows, the console business has been declining at double-digit percentage rates year-over-year for the last few years. At the same time, the option value ascribed to a possible re-invigoration of the console market from the launch of new hardware this Christmas has produced what some are calling a “dead cat bounce” for EA and Activision, who have the greatest exposure to the new consoles. In order to be a player on the new consoles, EA will need to greenlight a dozen titles, and they will be very, very expensive – given EA’s penchant for big spending, the need to support multiple hardware platforms simultaneously at launch, and online features, this could be close to a $1 billion R&D expense. And given the customary annual refresh in the sports genres, it’s necessary to keep spending year after year.
"In a particularly telling interview, EA’s out-going CEO described the launch of new consoles as “the light at the end of the tunnel.” I’m worried it may instead be the headlights of an on-coming train. The console business, even digitally-enhanced, is just a completely different business than the mobile and online free-to-play businesses. The two businesses require different people, different infrastructure and logistics, different team sizes, different development cadences, different marketing strategies, and very different revenue recognition models. Despite the considerable differences in scale and scope, mobile and free-to-play PC are actually much more alike than either is like console.
"Further, I think you could easily take the position that there will never be a return to the installed base level that Sony, Nintendo and Microsoft saw with their c. 2005 consoles. They’ve essentially lost the living room. I watch my own children, sitting on the couch, ignoring the massive HDTV hooked up to every game console in existence and broadband internet, playing Temple Run on the tiny screens of their mobile phones. To use the old parlance of by-gone console industry analysis, there is likely to be a massive fall off in peak-to-peak margins."
Lasky's point is that in focusing their attentions on two increasingly distinct markets - console and mobile/F2P - EA run the risk of tearing themselves apart. Moreover, the change of leadership at the top has led to increased factionalism and greater power in the hands of "the old guard" at a time when fresh ideas are rather needed.
"EA has a dilemma. By yoking their business to the new consoles, they hamstring the company with bloated teams, high production costs, and packaged goods marketing and merchandising that is not, in my opinion, additive to their other business opportunities. Console investment doesn’t position EA well for the future. There are few economies of scale on the audience aggregation side — unless you think like a feature film company and view the massive TV advertising spend on console games as having a “brand halo” that benefits the mobile and online games. The only way EA benefits is if console players come online and authenticate with EA rather than Sony, Microsoft, or Nintendo. Otherwise, EA can’t really do anything to leverage them cross-game or cross-platform. And the console manufacturers are not likely to be easily dis-intermediated.
"But if EA doesn’t support the new consoles, they are going to feel strongly that they have missed an opportunity for quick, if ephemeral revenue growth. It’s super-seductive for their senior management, who see the console business as their wheelhouse and who are dubious about launching new franchise intellectual properties through mobile or online free-to-play. Because of this, if they go all-in on console, it’s going to get the lion’s share of the attention of management, and the big, talented teams of developers. It’s going to demand TV advertising and massive retail merchandising presence. It’s going to require sharing audience with Microsoft and Sony, who have their own online ambitions. It is fraught with peril and execution risk, and demands a nuanced long-term strategy. For me, EA Games needs the biggest re-think – that division has been pretty undisciplined about product selection, cost control and marketing spend in the past, and represents the biggest downside risk on the new platforms.
"So, in the end, I think there is a lot to work with, but a lot of hard, cost-cutting work to be done to get EA back to greatness. They don’t have the management team to execute against all of these opportunities simultaneously, and recent management losses haven’t helped, leaving the old guard with greater power and stripping the company of some much-needed new thinking."