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Electronic Arts makes big play for online services

01 июня 2009

Free or low-priced online services have squeezed profits from many businesses. But John Riccitiello is placing a big bet that the practice can make money in videogames.

Two years into his stint as chief executive of Electronic Arts Inc., the videogame publisher on Friday is unveiling plans for an online Tiger Woods golf game -- one of its first such offerings in the U.S. based on a popular game for consoles -- that could be subscription based. It will be available in the fall. Last year the packaged Tiger Woods game sold 1.92 million units in the U.S.

The Silicon Valley company earlier this week made BattleForge, an online strategy game that it released in March for $49, free to play. It is also launching a free multiplayer shooter game called Battlefield Heroes next month and is considering making an online version of its popular racing title Need for Speed.

EA's moves are the latest sign of how the videogame industry is being reshaped by the Internet. Game players are downloading more games through console networks such as Microsoft Corp.'s Xbox Live and playing against each other online.

Most online services of major videogame publishers tend to be add-on components to traditional console games or experimental small-scale games. Mr. Riccitiello, however, believes online versions of its major console titles can attract a bigger audience. EA would be able to offer free-to-play games or charge affordable monthly subscriptions that give users extra content.

Another money-making tactic, popular in countries such as South Korea, will be to sell inexpensive virtual items that improve or enrich game play. Players of the new Tiger Woods title, for example, might purchase a better golf club.

"The console business at best appeals to 100 million people," says Mr. Riccitiello, contending that the online market is much bigger."We want to make games a place to go, rather than a thing to buy."

For EA, which has posted losses for nine straight quarters, the strategy holds the promise of generating a steady flow of revenue from users instead of one-time payments for titles.

But the strategy faces several risks. Some consumers that now pay for gaming, for example, might be content with basic offerings.

EA, moreover, plans to invest on such games when most of its revenue comes from traditional disk-based games. The company has spent $150 million in each of the past two years to invest in new online technologies and new types of games such as the online version of Tiger Woods.

The company doesn't disclose spending for individual games. Most Web-based offerings, however, are simpler and cost less to make than conventional videogames. David Cole, an analyst at market-research firm DFC Intelligence, says such offerings are typically made for less than $2 million. The low cost helps make the genre attractive, because it can produce big profit if a game becomes a breakaway hit.

The risks increase, however, as companies make more sophisticated offerings. Mr. Cole estimates that EA's Battlefield Heroes could have cost as much as $10 million, a small amount compared with packaged titles -- which sometimes cost as much as $50 million to produce -- but pricey for the free genre.

Questions about the strategy come as some investors and analysts believe Mr. Riccitiello is spending too much on unproven projects -- particularly when the company is struggling with weak sales and high game-development costs."The question is how EA should pace that change," says Tim Ghriskey, a fund manager for Solaris Investment, which holds EA shares. Mr. Ghriskey says he wants the company to ultimately show that it can increase its sales.

Mr. Riccitiello defends his strategy. He predicts such a digital strategy will eventually allow EA to nearly double to $6 billion in revenue -- a goal he set out last year before the economy collapsed.

DFC Intelligence estimates that revenue from downloaded or online games in the U.S. will nearly triple to $7.9 billion in 2013 from $2.9 billion in 2008. Sales of games for consoles, by contrast, are expected to increase by just 28% over the same period -- though at a projected total of $24.3 billion.

Mr. Riccitiello, who returned to lead EA after a stint at an investment firm, tried moving the company in the online direction nearly a decade ago when he was president and chief operating officer. At the time, EA invested about $350 million into a gaming site, ea.com, which it turned into a subsidiary.

The effort failed.

This time, instead of creating a separate business, Mr. Riccitiello has assembled a team with online experience. His deputies include Chief Operating Officer John Pleasants, who oversaw the transformation of event-ticketing company Ticketmaster Entertainment Inc. from a brick-and-mortar operation to an online company.

One challenge is to find ways to differentiate online titles from the more expensive console games. Following tests with users, EA opted to change Battlefield Heroes to focus more heavily on social networking, reducing the focus on game statistics that are common for console games.

The jury is out on Mr. Riccitiello's strategy. Rival Activision Blizzard Inc., for example, has used downloadable content mainly as a way to provide extras to packaged games. Speaking about Web-based games, Activision CEO Bobby Kotick says "we think those are great long-term opportunities, but right now, it's really inconsequential."


Источник: Total Telecom

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