Electronic Arts In-Depth, Part 1: The Two EAs

"There is a much better return on the investment when you own everything." - Frank Gibeau, Executive Vice President of North American publishing at EA

IMAGE(http://www.gamerswithjobs.com/files/images/EA_logo.jpg)

I first conceived of this series of articles while researching Electronic Arts for the recent Maximum Verbosity, Invasion of Privacy Policy?, an examination of what EA now claims was poor editing in their Privacy Policy that appeared to give them the right to retrieve credit card information for customers signing up to play EA games through Xbox Live. EA has since rewritten their Privacy Policy, creating a separate segment explicitly stating what information is transferred when signing up to play EA games through Xbox Live. During the process of researching that article and watching how it was received, I realized how predisposed many are toward assuming the worst of Electronic Arts.

Gamers are no strangers to hyperbole and grand meaningless gestures. It's perhaps not our most attractive trait, but it's certainly one that pervades countless discussions, and often infects the writing of those who presume to analyze the industry. Second perhaps only to politics in its strange ability to galvanize and polarize, arguments of gaming are notoriously venomous. So it stands as a point of some notoriety to say that EA is possibly the most widely maligned company in gaming. The question I pose is simply whether this infamy is deserved. In the days after publishing Invasion of Privacy Policy, I began researching and writing an article aimed at answering that question.

The more I researched, the more interesting the topic of EA as a whole became, and the more there seemed worth saying about it. For as deep and detailed as the history of the company is, it seemed that no one had taken the time to critically and neutrally explore the company's long-term consolidation of power or its effects both positive and negative on the industry. EA, as the definitive publishing force in gaming probably deserves an entire book dedicated to its history, its conflicts, its growth, and its ability to adapt to an ever more complex market. For now, I can only offer this series as a surface glimpse into a larger and vastly more complicated discussion on the subject.

When gamers seek to vilify a company, there's no more convenient target than Electronic Arts, a corporation with 3 billion dollars of revenue for 2005 in an industry that generates somewhere between just ten and fifteen billion in total. Between twenty and thirty percent industry share might seem disproportionate to some, to long-time EA CEO Larry Probst it's a good start. Said Probst in an interview with Gamesindustry.biz at E3 2004,

If you take a look at our world wide market share - people think of us as this 800 pound gorilla, but on a global basis our market share is only 20 per cent. We think, 'why can't that be 25 per cent or 30 per cent?' If you look at other companies in different industries, NIKE, for instance, on a global basis, has a 65 or 70 per cent market share. I think there's a long way for us to go in terms of incremental market share in the next three to five years.

EA, by virtue of its resources, is not simply a participant in the industry but a defining force. As a result, both competitors within the industry and critics without have been vociferous in aggressively criticizing the publishing giant at what seems any opportunity. EA is constantly fighting PR battles, and has developed a poor reputation with many who criticize their cutthroat business tactics and assimilation strategy of simply buying franchises, developers, and brands. But this virtually constant PR crisis seems to have had no effect on consumers. EA can, as usual, boast that half of the best selling games of 2005 came from their offices, and now the 2007 version of Madden is shattering sales records in a franchise already considered to be a cash cow. Gamers may profess no love for EA, but the numbers suggest otherwise.

Is Electronic Arts, which appears to be making exactly the games that the broadest market of gamers want to buy, deserving of the widespread criticism, or is it simply a victim of its own success, maligned simply for being biggest dog on the porch?

When you talk about the story of Electronic Arts, you can talk about it in two distinct terms, the era of Trip Hawkins and the era of Larry Probst. In the context of the company's 24 year existence, it is almost reasonable to see Hawkins' departure from the company in 1991 to form 3DO as the end of one EA and the beginning of another. In 1991 EA, which had actually been to that time the driving force in recognizing and even elevating developers from anonymity to notoriety, began to instead absorb the hit-makers and elevate their own corporate brands. In '91 Probst's EA launched what would become a long-term strategy of buying out favored developers by acquiring Distinctive Software which would become EA Canada. Then, in '92, the company famously absorbed Origin Systems, home to an amazing line-up of games and talent. By the end of the decade Origin would be essentially gutted and little more than a front for supporting its only remaining title, Ultima Online.

In the following sixteen years EA would become less a company of partnership, and more one of ownership. EA would go on to acquire Bullfrog, Maxis, Westwood, Tiburon, Dreamworks Interactive, DICE, Jamdat, Criterion, and most recently Mythic and Phenomic. They would make aggressive overtures toward rival French publisher Ubisoft by acquiring nearly 20% of the company's stock. They would become an aggressive pursuer of popular brands and exclusive franchises from Harry Potter, to James Bond, to the National Football League.

There are fundamental differences between Hawkins and Probst that might explain why one can think of EA-then and EA-now as two very different corporations. Hawkins built EA from his own passion in interactive entertainment. The idea for EA, Hawkins suggests, began in 1965 when he "realized that I could 'learn by doing' and was more stimulated playing board games than while reading or watching TV." Hawkins would spend the next 17 years cultivating his idea, and building experience at Apple, where during his 4 years as the company's first marketing executive Apple grew from a $2 million company to a $1 billion company, and as a founding board member of SSI. In 1982 he would finally launch Amazin' Software, the company to eventually become Electronic Arts, and fund it out of his own pocket for $200,000 for half a year. The company was founded with two unique ideas for the industry, first that Electronic Arts would be a publisher for independent artists without its own internal studios, a concept that would end in 1987 with Skate or Die, and second that the company would work directly with retailers and cut out industry middle-men.

Electronic Arts' strategies of increasing the exposure of both the gaming industry and the promotion of "Electronic Artists" proved appealing to developers that were otherwise nameless, and the company's initial 1983 lineup includes some of the most storied titles in gaming history including, M.U.L.E., Archon, and Pinball Construction Set. In the coming years before Hawkins departure EA would go on to publish One on One: Dr. J vs. Larry Bird, Seven Cities of Gold, The Bard's Tale, Mail Order Monsters, Starflight, and Populous.

It would be easy at this point to paint the EA of old as a benevolent and helpful force in a fledgling industry. That would be inaccurate. EA under Trip Hawkins was no less aggressive in its strategies, as illustrated most dramatically by the long and venomous conflict that ultimately ended in EA's acquisition and poor management of Origin Systems. Electronic Arts has always been a company focused primarily on its own growth. One of the original explicitly stated goals for the company, this before the video game crash of the late eighties, was to be a billion dollar corporation within 6 years. It ended up taking twelve.

When Probst, a professed non-gamer, took over in 1991, he changed only the direction of the company, not its aggressiveness, and although Hawkins' tenure includes the release of the most critically impressive of EA's titles, it has been under Probst that EA has launched its most successful franchises, including Madden (first iteration launched in 1990 when Hawkins had resigned as CEO but remained Chairman), Command and Conquer Series, Battlefield Series, Ultima Online, The Strike Series, The Need For Speed Series, and, of course, The Sims, a brand of such importance to EA that its General Manager, Nancy Smith, is counted among EA's Senior Officers.

What changed in the years following Probst taking over was a seemingly subtle, but ultimately significant, shift in the priorities of the company. Where Hawkins was passionate about using innovation as a method toward corporate success, Probst saw success itself as the goal, often at the expense of innovation. Where we speak in terms of individual games as the great successes of EA's first decade, we speak in terms of brand names and franchises as the successes of the second. EA, under Probst, first published and ultimately acquired developers successful in creating innovative franchises such as Origin, DICE, Maxis, Criterion, and most recently Phenomic, but it also aggressively pursued existing book, movie, and ultimately professional sports franchises topped by the inking of an $800 million dollar deal with the NFL.

EA has made no secret of its intentions as a growth company with the resources to go after prime gaming real estate, and the company exploits its unparalleled strength in that respect, even managing to muscle Microsoft out of the sports gaming business when signing the deal to allow EA Sports games to be played over Xbox Live. Not only was Microsoft forced into the position of retiring their XSN line, which admittedly hadn't been a strong contender to that point outside of Links, but they were forced to allow EA to maintain their own game servers outside of Xbox Live. While EA could not charge gamers separately for playing EA Games over Xbox Live, they could manage the servers and force gamers to upgrade to the latest version of their titles by shutting down servers supporting older versions. Microsoft understood as many had learned the hard way before them, that the only way to have a successful console is with the full backing of Electronic Arts.

Some analysts have ascribed the Sega Dreamcast's failure against the Playstation, and even the Playstation's ultimate success over Nintendo, to broad support by the publishing giant. Within the industry and EA it is assumed that, "the momentous decision (for Sega and the Dreamcast, at least) not to provide software support simply came because nobody actually liked it enough to champion ports of software to the platform. An act of omission rather than a act of commission, then, and if anything an even more intimidating display of EA's sway within the industry."

EA, with both a staggering influence and arrogance, has not surprisingly been portrayed as the bully in most of its negotiations with rival publishers, and with those developers and franchises that it acquires. But, it's hard to argue with the success of even its most contentious acquisitions, including the record breaking success of Madden 07, the second in the series since EA acquired the NFL license.

I asked one of EA's more reasonable critics, Bill Harris at Dubious Quality, who has in the past asserted that EA may not be able to maintain its growth, about the success of this year's Madden. He responded,

I think it's easy to break records when you have an exclusive on a pro sport that people love. We all love football. Madden will probably break records every year, but in terms of quality it's still a mid-level product at best that must be designed by Rube Goldberg.

EA's tendency to buy up exclusive licenses for pro sports has had a terrible effect on the sports gaming market.

Which brings up a key question in the discussion on EA's value in the market. Are we talking about how well it serves the quality of the gaming industry, or how well it produces and markets games to appeal to the broadest segment of gamers? To put it in the terms of another industry, are we judging success by who wins the summer box-office battle, or the Oscars? I mention the film industry, because one can talk about how well Madden 07 did in those kinds of terms. With an estimate 2 million copies sold in its first week, at a very conservative estimate of $50 each (conservative considering the increased price for the Xbox 360 version and the Hall of Fame editions) Madden almost certainly grossed more than $100 million in its first week. Or, another way of looking at it, this single title accounted for more than 1% of the revenue for the entire gaming industry in just its first week.

If you're an investor in the company, it suddenly becomes much easier to forgive an $81 million quarterly loss between April and June '06 particularly when one sees that EA's gross profit has grown from $657 million in 2001 to nearly $2 billion in 2005. While EA's stock has dipped from its high of over $70 a share in January 2005, following a number of quarterly warnings, the public departure of key executives including president of EA Worldwide Studios Dan Mattrick who had been with the company for more than two decades, and 2 publicly damning lawsuits filed by its employees, EA remains well ahead of its stock valuation prior to 2003. Probst himself, who cashed in for $12.6 million in 2005, and was the only game related CEO listed on Forbes list of the top 500 highest paid CEOs at #114, is also ranked highly 30/189 in performance vs. pay.

So, what we have from our Two EAs is one that was very successful in being a leader of innovation and fostering talent in the industry, and a second that was very successful in bending the industry to its will and buying talent. The unescapable truth of both versions of the company is the unparalleled success, not simply in building their business but creating products that appeal to the people buying video games. I avoid the word gamers there, because it may not be accurate to say that gamers are the ones who drive the consumer gaming market, as incongruous as that might sound, but that is a relationship to be tackled in the next installment.

Coming next week, EA's relationship with its employees, the EA-Wife scandal, lawsuits, overtime, and some insight from a current EA employee on what conditions are like now. Also, EA's relationship with gamers, and how much does image really matter to a company that is and always has been widely criticized.

- Elysium

Comments

Nicely done. I look foward to part two.

I wonder if EA hasn't learned its lessons about cultivating talent. They have had a string of generally good games outside of the sports arena - the Middle Earth games, Sims, Battlefield 2, Burnout. While these games are hardly original, EA has not yet driven these franchises to the ground (although they did drive Peter Jackson away). I have my doubts about they ability to create greatness in-house (Will Wright being the sole exception) but right now they are showing impeccable timing in their purchases.

A very interesting read, putting a lot of things usually only voiced as vague opinions on a firmer footing. Thanks.

A minor nitpick: The Command & Conquer franchise was launched under Virgin, so it's not technically correct to list it as an intellectual property initiated by EA.

It´s Phenomic, not Phonemic.

Very interesting article. Looking forward to part 2.

Interesting.

Very interesting read. Solliciting for top salary at Escapist?

Great article, can't wait to read more.

I agree, awesome article. I've been wondering if someone was going to write an article about EA that was based on facts and not so much corporate suckupage. I very much look forward to the future parts.

Interesting article, Elysium. Looking forward to reading part two.

Very nice article.

I know I am being sentimental, but I miss the pre-'91 days of EA. I liked the idea that EA highlighted the people who authored the game- so that you (or at least me) could recognize quality, style or whatever. At that time, there weren't too many titles available, that had the pics/bio of the developers on the box. Sure, Infocom did it w/ certain titles... And certainly Activision did it with 2600 games. (David Kitchen? Cool, I'll buy it.)

Can't wait for the next installment.

NemesisZero wrote:

A very interesting read, putting a lot of things usually only voiced as vague opinions on a firmer footing. Thanks.

A minor nitpick: The Command & Conquer franchise was launched under Virgin, so it's not technically correct to list it as an intellectual property initiated by EA.

Tis true. However the C&C we know now is EA. And any C&C we see in the future will be as such. I wonder if we'll see true crossovers? Like Battlefield: Command & Conquer, its getting there, or The Sims: Madden '08 expansion, oh oh! Need for Speed: Burnout!

Huh. So this is what 'gaming journalism' actually looks like. I've been searching for it for a long time, and now I find it under my nose.

Nicely done Ely.

Great Article Elysium. It's nice to see the changes to the Privacy Policy happen so fast. I read the entire section listed under that link and am pretty satisfied without how it was all layed out. EA games are back off the do not buy list.

As far as EA's image is concerned, I think it is really hard for a company as large as EA to keep an untarnished image. People start companies to make money and the bigger you get the more you have to do in order to make more money. That sometimes means you are going to piss off a lot of people.

EA sells games to people who don't know about any of this stuff. That is their market. The people who do care, or say they care, are still going to buy their games.

Very curious to see what part 2 holds.

"Nice one, centurion; loved it, loved it."

EA Exposed!!

Great article! EA is often villified, but I have to think that much of that criticism comes from the unsilent minority of the "hard core" gamers on the internet, rather than the public at large.

EA sells games to people who don't know about any of this stuff. That is their market.

I think this is sort of the problem with a lot of the discussions about what customers buy what products, is the desire to factionalize gamers into "those in the know" and "those who don't". First, EA sells games in every sector of the market, partly because they have such a high percentage of the total products avaialble, and also because they have the resources to reach every potential genre, so it's very likely that nearly every gamer, whether informed or not, has at least one EA game that appeals to them.

But, you do sort of tangentially bring up a good point about how well EA can market to the more casual and less deeply connected gamers. Still, I'm sure EA would be the first to say that they would never be so limited as to make that "their market". Again, I think that's just not thinking big enough.

Remember, we're talking about a company with a CEO that cites NIKE's 70% market share as the sort of thing to shoot for.

Nice research, I'm looking forward to the next in the series.

Anybody with a business card that reads "Gaming Journalist" should return their paychecks and promptly exit the premises at once. Sites like IGN, Gamespot and the rest only wish they had an employee with the foresight to assemble an article of half this quality. Well done, GWJ. It will be sad when Elysium gets hired away.

Down with EA! Down wit.... wait what? They just want to be a successful company? Say it ain't so!

Fantastic article Ely and its definitely the kind of writing this industry needs. Really looking forward to part 2. Now for some observations:

This came to me while reading the Derek Smart threads of old (only saying it once, people), and it was mentioned that developers have gone from being gamers to rockstars. So too have publishers gone from small potatoes to big business. There's no question the EA we know now is creatively stagnant. EA isn't looking out for the gamers, and its no secret the next big game decisions are made by suits and not developers. The thing is, EA is very successful at what it does as a company, regardless of what informed gamers make EA out to be.

Here's to another 6 Sims 2 expansions (pets! woo!), and annual Madden's for the next decade.

But, you do sort of tangentially bring up a good point about how well EA can market to the more casual and less deeply connected gamers. Still, I'm sure EA would be the first to say that they would never be so limited as to make that "their market". Again, I think that's just not thinking big enough.

Tis true, I believe EA is working on an RPG at the moment. I mean, when was the last time EA made an RPG? They really are trying to tap into every market.

edit: I found out that the RPG they are working on is based on LOTR. I'd be much more shocked if they were to make an RPG about angsty teenagers out to save the world.

Shazam wrote:
But, you do sort of tangentially bring up a good point about how well EA can market to the more casual and less deeply connected gamers. Still, I'm sure EA would be the first to say that they would never be so limited as to make that "their market". Again, I think that's just not thinking big enough.

Tis true, I believe EA is working on an RPG at the moment. I mean, when was the last time EA made an RPG? They really are trying to tap into every market.

edit: I found out that the RPG they are working on is based on LOTR. I'd be much more shocked if they were to make an RPG about angsty teenagers out to save the world.

Two years ago.

This came to me while reading the Derek Smart threads of old (only saying it once, people), and it was mentioned that developers have gone from being gamers to rockstars.

Who is a "rock-star"?? I think Mr Smart's head has gotten too big. Outside of a website like this I am guessing no one on the street has even heard of Meier, Carmack, Molyneux, and Garriot.

So too have publishers gone from small potatoes to big business.

There is your problem right there. Too much to risk = no innovative games.

Amazing article! Really looking forward to part 2.

I think your analogy to movies is a particularly good one. In any combination of creativity and industry, the topic of innovation vs success arises. Just look at movies, art, literature, footwear, fashion, medical practice. There will always be a conflict between branching out to try new things and what makes good business policy.

Just to point something out, as you mentioned, the company was founded in 1982. That means at most they spent 9 years as the wonderful innovative, yet aggressive company that we somewhat liked. Take a year or two off that for startup before they get things rolling, and EA has been the innovation stifling behemoth for twice as long as it was the innovating startup. Any identity they had as the innovator is long gone.

Mayfield wrote:
This came to me while reading the Derek Smart threads of old (only saying it once, people), and it was mentioned that developers have gone from being gamers to rockstars.

Who is a "rock-star"?? I think Mr Smart's head has gotten too big. Outside of a website like this I am guessing no one on the street has even heard of Meier, Carmack, Molyneux, and Garriot.

Rockstar was not used in a positive sense. What I mean is the money has gone to their heads and have become less about the games and more about a public presence.

As for too much risk = no innovative games. Yep that's pretty much exactly what I was saying.

Take a year or two off that for startup before they get things rolling, and EA has been the innovation stifling behemoth for twice as long as it was the innovating startup.

Not precisely true. While Hawkins did fund the company for six months with his own 200K, he also innovated the idea of generating venture capital for a tech company. Hawkins had secured 2 Million dollars by the end of 1982, and as mentioned the 1983 lineup of M.U.L.E., Archon, and Pinball Constructor Set had EA as a driving force in the industry by the end of its first year in business. Hawkins came to the party to play.

What would really clean up EA & the gaming industry would be if everyone researched reviews before buying a game. I used to just browse and buy until I was badly burnt by Sierra/Imressions and their totally bugged Lords of Magic. Perhaps over time more and more people (as they are burnt by a piece of crap) will research rather than just impulse buy. Then large companies will be more accountable in making quality games.

Perhaps over time more and more people (as they are burnt by a piece of crap) will research rather than just impulse buy. Then large companies will be more accountable in making quality games.

The industry on a retail and publishing end have done an amazing job of forcing the industry into the reservation model which counters the usefulness of reviews significantly. While a lot of us are savvy, the vaster majority believes it when the guy at EB tells them if they don't reserve a copy of, say, Madden '07 then they aren't going to get one, and that generates a release day frenzy which negates the deeper and better written reviews often coming out one or two weeks later.

Well done, GWJ. It will be sad when Elysium gets hired away.

Oh yeah? Let's see him try to get out of my basement! >_<

Great article, O Bearded One.