M+E Connections

Video game maker Electronic Arts (EA) continues to see live gaming services as a major opportunity for revenue growth, and eSports is playing a key role, according to CFO Blake Jorgensen.

The company this year has incorporated some of the same elements into the EA Sports “Madden NFL” Ultimate Team team-building fantasy football mode of its football game franchise that the company added to its FIFA soccer Ultimate Team last year, he said Nov. 13 at the UBS Global Technology Conference in San Francisco. That included the addition of an eSports competition feature open to all players of the game, he noted, adding that since those enhancements were made to Madden Ultimate Team, the company has been seeing a replication of the growth it saw with FIFA Ultimate Team.

Madden represented the biggest component of live services growth that EA saw in its second quarter (ended Sept. 30) compared to a year ago, he said, adding that live services are making business “much more predictable” for EA – something along the same lines as what Software-as-a-Service (SaaS) and other subscription businesses typically achieve. A declining part of EA’s business is now dependent on new game title releases, he said.

“Competitive gaming has been a big opportunity for us for a long time,” he told the conference, adding: “We’ve been doing competitive gaming around FIFA and Madden for many years, and what we’ve done in the last couple of years is make that much more formal.”

But he said: “The thing to remember about eSports though is, at the end of the day, you’ve got to make money by getting people engaged. And so, having a tool to engage them like Ultimate Team is a great opportunity.” To that end, he explained that it’s not just the professionals competing in eSports competitions who are important. “We like the bottom of the pyramid as well,” he said, pointing out that many consumers dream of being in a sports championship of some sort but can’t, yet still spend money on sports. Therefore, it’s important to boost consumer engagement in its sports franchises, he said, telling the conference: “Deep engagement is driving a huge amount of eSports activity. It’s not just what you see on TV. It’s all the stuff underneath it that we’re really excited about.”

There were two big surprises for Jorgensen in the company’s second quarter, he said. The first was data showing full-game downloads of the latest FIFA and Madden videogames were up 9 percentage points year-over-year, he said, noting that, for most games, EA expected an increase in full-game downloads of just 5% a year. He said: “That’s a huge signal” for EA and an important data point because full-game downloads are “much more profitable for us than selling through a retail channel.”

EA see consumers buying an increasing amount of their games via digital download, he said, pointing out 63% of EA sales were now digital. What we’re seeing is “possibly an inflection point,” underscored by rivals Activision, Take-Two Interactive and Ubisoft recently reporting similar data, suggesting that “we might be seeing something beyond a trend with a simple individual game,” he said.

The second surprise for him about the second quarter was that EA reported live service revenue grew 22% after forecasting just 10% growth for this year, he said, noting EA “beat that handily” in the first two quarters.

Meanwhile, it’s a big positive for EA and other game makers that the current video game console cycle is being extended by Microsoft and Sony updating their Xbox One and PlayStation 4 platforms, respectively, with new hardware offering significant new features before introducing entirely new consoles that aren’t compatible with current-generation game software, he said. What we’re seeing is much more like the PC game business than the traditional game console cycles of years past, he noted.

“We’ll continue to see new platforms evolve over time,” he predicted, adding EA’s “working on some streaming opportunities.” But he added: “I don’t think that’s going to necessarily replace the console business. What it will do is it’ll open gaming to a much broader audience that will be able to access gaming without having to buy a console or might even buy maybe a subscription to games versus [having] to actually own the games.”

He went on to say: “More people are playing games now than have ever played in the history of the world. And we think that’s only going to continue grow,” driven largely by mobile games. “Trying to remove any of the barriers so more and more people can come in is what we’re focused on and we think streaming has a huge potential there,” he said.

We’re still not at the stage, however, where a game streaming service along the lines of what Netflix provides for movies is plausible. “Where you are versus the data center is one of the big drivers” of that possibility and there’s been “a massive proliferation in data centers due to spending” by Amazon, Apple, Facebook, Google and Microsoft, he said. “Today, you can rent capacity from Microsoft, Google and Amazon, and if you want, you can knit together your own data center network doing that, but it’s a huge opportunity for all those players to look at how might they either add gaming into what they’re doing or support gaming in some fashion. And Microsoft started talking about it publicly. They’re very interested in it. And we know there are other technology players we’re working with that are also very interested in it.”

But that kind of a major streaming game business “still needs to evolve,” he said, noting that faster bandwidth, for one thing, is needed in consumers’ homes. EA has conducted tests where “we’ve gotten the latency down to virtually zero,” he said, predicting: “I think you’ll see a commercial offering probably in the next two to three years from us and a partner.”