Brad King (EEG News) cites an article from Technology Review claiming Electronic Arts (EA) intends to diversify in order to minimize exposure to the cyclical console game release schedule. EA seems to be considering involvement in other media (e.g. music and movies) as well as broadening its game title and platform portfolio. This activity raises an interesting question: what is diversity (in a business revenue sense) when it comes to games/worlds genres?
While the symbiosis between hardware and software is often clear. Sure consoles represent a good example of this. Are there other notable relationships between games and consumers? Can these relationships be characterized in general terms, or must they be product-centric, such that a view towards diversity has to be pieced together case-by-case?
I suppose one problem is that its hard to get beyond a parochial view. If we're lucky we might believe that we have got a handle on just a handful of niches. Yet the diverse demand of gaming (and their interrelationships with other media) will likely be hard, I imagine, to spot from niche trendlines. This is where large corporate entities with plenty of numbers and departments of researchers likely have an edge.
Nonetheless, is there any cunning worth discovering here - beyond just strapping the rosy goggles and lashing oneself to some rocket du jour fueled by a particular retail whim?
Could one ever say, ever want to say: "If I were building a portfolio, genre-by-genre... I'd start with an MMO that involved sunglasses, add a racing-game, consider an arena shooter, and throw in a dating sim with alpine skiing... and yes, pass one of those Spore thingies! " Where would you start, or would you not even bother to try?
I've often wondered whether big companies producing games in multiple genres should just throw them all together in a big game world, but what does knowing that the football players you race past are real people add?
Posted by: Jim Purbrick | Jul 01, 2005 at 11:07
From a public company standpoint, predicable and steady income is high valued. So, finding an uncorrelated income stream that will smooth earning volatility is probably a key business objective.
However, they can’t just go into an unrelated business without proper due care.
So where to start and where EA is heading?
1. Gradual move towards online gaming
2. Further extension of owned-IP franchise
Further extension of owned-IP franchise is an established strategy that is picking up pace. Three good examples of successful franchises are Mario Brothers, Star Wars, and Sim Everything franchise. Each must have generated a few billion of revenues over the years. Even a very monoline franchise like Madden series of games have generated over a billion worth of revenue over the years. In the case of Mario Brothers, there are now racing, platform, RPG, sports, educational and other types of game based on this franchise.
Gradual move toward online gaming revenue will leverage the benefits of the online platform and reduces the effects of console hardware cycle. Currently console hardware controls the cycle and extracts a sizable % of the gross as royalty. Gradually building and controlling their own online gaming platform will reduce dependency on console manufacturers and provide access to a variety of clients and hardware. The speed of transition depends on adoption; the battle by the hardware manufacturers to dominate the home’s TV box (media controller) may slow the open platform approach.
A good test case of these two emerging trends is the execution of the King Kong franchise. The unprecedented coordinated marketing of this movie indicates that the coordination and extension of this franchise across media and product will also be unprecedented.
Frank
Posted by: magicback | Jul 01, 2005 at 11:11
How interesting.
I think there are 2 trends in business, the one you cite, i.e. buy up smaller companies to create a big company, netscape to aol to time/warner, (or take any phone company merger), or the opposite, companies spinning off parts (motorola spinning off freescale, bell spinning off lucent).
The arguments for creating one big company is the same, i.e. combine and compete, while for spin offs is the opposite, i.e. focus on core business. So they all have their justifications.
What I find ironic in this is that the one growth business (i.e. the game market seems to be expanding), and one of the leading companies is seeking to go into other markets that aren't growing. Recent news talk about how this is one of the worst years for movies. (Side note: isn't movies pretty cyclic anyhow? One block buster for several duds?). The same problem exists in the music world.
As far as game diversity, I think that is the best policy. You spread the risks around different game genres, similar to how you would diversify a stock portfolio.
There is no doubt that players focus on only a few genres to begin with. One may play sport games, but not rpg/action adventure games (similar to one likes action movies over love stories).
Posted by: darin | Jul 01, 2005 at 12:04
Frank, do you see EA moving toward more online gaming? From my POV it looks like anything but that: they've tried and shut down Majestic, Motor City Online, and Earth and Beyond, and I doubt The Sims Online or even the venerable Ultima Online will be around this time next year. This isn't doom and gloom, just looking at the public numbers and where EA's management sees value.
It may well be that more of their PC and console games will contain an online component (especially as the next console generation comes into play), but I don't see how that helps them diversify or regularize their revenue stream, especially across the multi-year cycles of the console sector that often seem to drive EA's stock price.
At this point, I'd sooner believe an EA-backed music label than I would an EA-backed MMOG game studio.
Posted by: Mike Sellers | Jul 02, 2005 at 17:04
Mike,
The painful fact for EA that their revenues and stock prices are controlled by the console cycle is the main driver to diversify.
Now looking at the entertainment sectors that are forecasted to have growth, and the growth online games (the broad category) is outpacing other areas such as PC, consoles, arcade, etc.
Now looking at the entertainment sectors that has a large market but EA has low market share in, traditional media entertainment sticks out.
So the apparant strategy for the industry is to.
1. Continue to leverage console gaming into online gaming.
2. Continue to leverage console hardware into the home enterainment appliance of choice.
3. Maximize your IP via licensing.
EA is from the software side and is unlikely to compete in the fight with Microsoft (and other) for the control of your TV (as they have done for the web browser and PCs), so they are extending:
1) into the growth area of gaming: online games
2) into the biggest entertainment market: movies, music, print, etc.
Success in the online gaming will depend on the natural development of this sector and success in traditional media will depend on how much they can maximize their IP.
As for games, perhaps it has been demonstrated too well in the marketplace that consumers don't care much for MMOGs and are just happy with MOGs. If EA can get people a good community of sport fans pay $50/yr to play in their 3D fantasy sport leagues instead of the free league offered by Yahoo and others, will I consider them successful.
Frank
Posted by: magicback | Jul 03, 2005 at 02:08