Amidst the tide of rapidly advancing hardware, software, and internet technologies, companies in the video game industry must constantly evolve to stay competitive. Electronic Arts Inc. (EA), one of largest game software development and publishing companies in the world, is currently experiencing both incredible highs and lows as it transforms its business model to capitalize on emerging opportunities and succeed in a shifting landscape.
New modes of competition, interaction, and engagement
The shift of gaming to online and mobile has been every bit as transformative for the industry as the move from the arcade to the den and TV room. With the advent of 4G/LTE communication networks, expanded wireless LAN and Wi-Fi coverage, and ultra high-speed home internet connections, gaming experiences have become more connected and social than ever before.
Low-latency connections have led to the rise of new classes of games rooted in persistent online worlds and multiplayer experiences, rather than single-player stories. Led first by massively multiplayer online role-playing games (MMORPGs) and online first-person shooters, recent years have seen the rise of the multiplayer online battle arena (MOBA) and battle royale (BR) games. Although these genres exhibit diverse gameplay styles, the most successful releases feature large social components and robust gameplay mechanics that support intense in-game competition. Together, these features foster the growth and development of committed, vibrant communities who keep returning to the same game worlds for long periods of time.
Celebrity streamers and fans at a gaming tournament in April 2018. Photo: Nick Statt, The Verge.
The growth of high-speed internet and competitive multiplayer gaming has also supported the rise of online HD streaming services like Twitch, Youtube Gaming, and various e-sports leagues. The level of audience interest and engagement with pro gamers and Twitch personalities is now high enough for thousands of people to play games for a living.
Together, these forces have served to create a growing network of pro and personality-driven streamers, their audiences, and the wider gaming public. Full-time gamers possess strong financial incentives to play only the most popular games to reach the highest subscriber bases and largest prize pools they can, intensifying the network effects of hit games; the releases best suited for competition and streaming draw the most interest from competitive gamers and streamers, introducing their established audiences to the game and effectively marketing it for free. As audience interest grows in a game, more people try playing it themselves, the potential for a pro community increases, and more streamers begin playing to ride the trend and capture a share of the game’s audience.
The implications for game companies are clear: find the right recipe to feed the streamer-viewer-gamer ecosystem, and you can end up with a runaway, blow-the-lights-out success like Minecraft, PUBG, or Fortnite. Get the recipe just slightly wrong, and the game — no matter how high-budget, well-reviewed, and effortfully marketed — could end up dead on arrival.
A revolution in gaming business models
High-speed internet has also enabled new digital distribution channels, allowing today’s gamers to download purchases directly from platforms like Steam and Xbox Live, and removing the need to buy a cartridge or disc from a store or e-retailer. For EA, the direct download platforms has created the potential for higher-margin sales, as Steam and other digital platforms are obviously asset-light and take a smaller cut of a game’s sale price than a store-based retailer like GameStop.
Additionally, as games have become more focused on social experiences and persistent communities, more and more players are now willing to make follow-on buys for access to expanded content and challenges (downloadable content, or DLC) as well as reiterative small-dollar purchases (microtransactions) for character skins, ornaments, and power-ups. Many of these in-game items cost little to nothing to develop, so the incremental sales they generate are usually extreme high-margin or pure profit.
Meanwhile, the arrival of revolutionary mobile hardware technology (powerful integrated chips, sensitive touch-screens, and high-res LCD and AMOLED displays) has turned every smartphone into a highly capable game platform — and thus nearly every user into a potential “gamer,” dramatically expanding the addressable market for gaming. Mobile also poses a threat to incumbents such as EA, however, as its traditional customer base of PC and console players are now presented with low-cost and increasingly attractive mobile gaming alternatives. Since mobile games can be developed with minimal resources, the Apple and Android App stores are now populated with tens of thousands of games, with hundreds more released each day, and frequently based on free-to-play (F2P) or freemium models. Furthermore, with free open-source game engines (such as Unity and Gamemaker) and unfettered access to digital distribution portals, it is easier than ever to develop and release indie console and PC games.
All considered, the shifting industry landscape has jeopardized several sources of EA’s historical competitive advantage. While EA could once control shelf space through its relationships with specialty and big-box retailers, games are increasingly downloaded from app stores and portals. Third-party developers can release titles direct to consumers, avoiding the need to partner with a publisher. Marketing advantages — including large advertising budgets and special market-power benefits (e.g., the ability to collude with industry journalists by trading preview access for sweetheart review scores) — are disappearing as consumers become more connected and responsive to independent commentators. The games market is more crowded, fragmented, and easier to enter than ever.
Ready player one
Based on all these trends, the prescription might seem simple: more mobile, more e-sports, leverage more data, grow a proprietary distribution platform, et cetera. If it were only so easy — in reality, EA understands these trends, and has already made reasonable reasonable efforts to capitalize on them. For instance, EA’s mobile division (EA Mobile) has been in operation since 2004, did over $600 million in revenue in 2017, and is still growing each year. The mobile initiative is already firing on all cylinders, so in my view, questions of how to best grow it are tactical rather than strategic in scope. Likewise, EA already has its own digital distribution platform (EA Origin), but due to the iron grip of the Microsoft and Playstation Stores on consoles, Origin is effectively limited to being a niche portal for EA’s PC titles. The company even established a competitive gaming division (EA CGD) in 2015, so an e-sports foundation is in place — but for now, it appears there is little pro or audience appetite for current EA titles to be played the competitive level. And as for data, EA already collects a lot of it from players, who are required to sign in to Origin during online sessions; although it is difficult to assess from the outside if EA is fully leveraging the data it collects, anecdotal evidence suggests EA and its peers are finding clever ways to use it to improve player experiences, marketing efforts, and to influence in-game purchases.
Right now, EA should focus on one thing above all: developing and publishing quality, compelling games that are built from bottom-up on the recurrent spending model. What’s the goal? Games that make money over long periods of time: successful releases that foster devoted communities, with high-margin tails fueled by follow-on microtransactions and incremental sales as players stay engaged and draw in their friends.
Naturally, EA’s executive team fully understands the value of this model; after all, this is a $40 billion dollar public enterprise run by highly competent managers. However, I would argue that EA’s recent string of failed releases and controversies — most notably, Star Wars Battlefront II, Mass Effect: Andromeda, Need for Speed Payback, UFC 3, and FIFA 18 — indicates that the company is struggling with systemic organizational deficiencies that are preventing steady execution on the model. Over time, EA has been moving fans of its longest-running series backward, rather than forward: new versions and sequels are more of the same, with no fresh features or innovations, but now with half of the content cordoned within secondary paywalls and hidden in buyable “loot boxes.” In my view, these are clumsy attempts to retrofit old-model game structures with new-model payment fixtures — and in doing so, there is no new value created. As such, EA’s efforts to capture more value necessarily leave its customers less well off, and widespread consumer dissatisfaction has been reflected in weak sales and popular criticism of EA’s business practices. If it wants to remain successful in coming years, EA should make several changes to address these problems.
Screenshot of a “loot crate” in EA’s Star Wars: Battlefront II. Under pressure from Disney and the gaming public, EA was forced to abandon its microtransaction model for the game, which had offered players the option to purchase credits redeemable for the crates in increments of up to $90.
First, EA must refresh its current approach to project planning and development. As we’ve discussed, the most popular contemporary games — releases that gain serious traction in the streamer-viewer-gamer network and attract prolonged engagement — typically succeed because they reward skilled players, encourage serious competition, and promote socialization. EA’s project managers and creative directors should focus more on these aspects as the critical “jobs to be done” while at the planning table. Today, EA releases are often (though not always) viewed easy to pick up, easy to master, and short on content; to keep players coming back, more resources should be directed toward the development of core game mechanics that are deep and nuanced. To improve quality and user experience, EA should opt for longer development cycles, even though that will raise production costs. More time for beta testing, data analysis, and the incorporation of player feedback will eventually pay off in better games with longer life cycles. Longer dev cycles can also help decrease EA’s notoriously high levels of employee burnout and brain drain, and give designers the time they need to do solid work. New incentive structures could encourage project managers to move away from short-term financial targets and instead optimize for long-term audience reach, engagement, and multi-year sales goals.
Second, strategies for microtransactions and DLC implementation should also be a major point of focus during core game planning. For a game with a full $60 sticker price, the trick is delivering enough content and value in the core package to make the consumer feel satisfied. A positive experience with the core product can then bridge gamers into limitless “end-game” experiences, where microtransaction offers are no longer viewed as predatory since the game’s implicit promise of value to the gamer is seen as fulfilled. (A shining example would be Rockstar’s Grand Theft Auto V, one of the most successful games of all time, which led players into the open-ended micropayment bonanza GTA Online after the main game.) Another option is to limit microtransactions to cosmetic enhancements, encouraging players to differentiate their appearances without having to pay-to-win. Finally, EA can release a larger number of games as free-to-play or at discounted prices — as consumers are required to make less of an initial investment, better audience reach is possible, and tolls for additional content access receive are accepted with less contention. In fact, if more new games like this are released on EA’s growing $5-per-month subscription service, EA Access, it could help grow the value of the platform, attract more subscribers, and set the foundation for a new gaming ecoystem.
Third, EA should take a more active role in community maintenance and promoting engagement over time. Full-time community managers must be empowered and integrated on core development teams. Instead of shifting to new projects, lead game directors should be required to stay involved in their projects in the months and years after release, playing active and visible roles in their game communities. Developers should be engaged with the players and fans of their games, incorporating feedback into updates and new content add-ons. To achieve this, EA will have shift from a culture of “fire and forget” to one that encourages project teams to act as long-term community stewards. Refreshing the corporate culture, along with the company’s standard development processes and game models, will take time and concerted effort, but EA’s management team has signaled it is prepared to rise to the challenge.