Torn Between Two Masters

"I don't think the investors give a sh*t about our quality," says John Riccitiello, Electronic Arts’ CEO.

He’s right.

Oh, I know this is one of those quotes that will be dragged through the mud, locked in the stockades and have lettuce thrown at it from torch wielding villagers, but as is often the case we least want to hear that which is most true. Despite the tone and the brazenness of the quote, he’s dead freaking right.

So, let’s parse a bit here, because taken out of context from the absolutely fascinating interview at VentureBeat, the quote is pretty easy to read in a completely inaccurate way. But, lest one think EA's CEO is setting the stage for equivocating on the uncertain quality of EA’s games, this is in many ways the opposite: an affirmation of the effort tempered by the realism that EA is a business, and investors only care so much about quality in the company’s games as far as that quality makes them money.

Beyond that, they don’t give a sh*t.

Set the stage - VentureBeat alum Dean Takahashi opens the interview with salvos aimed at questioning EA's commitment to quality, and Riccitiello does what all good executives do, which is obfuscate just enough to get to his talking points and answer the questions he wished the interviewer had actually asked. On the heels of a question that pressed the EA CEO on how people should judge the success of his quality initiative, the conversation's tension finally bubbled over into a nice headline.

Here’s the full quote:

*VB: No, I’m thinking more of investors and shareholders. Maybe they can’t tell as easily. The stock hasn’t moved in any great directions.

*JR: I don’t think the investors give a sh*t about our quality. They care about our earnings per share. They wait for it to happen. We had three years where we didn’t make our expectations. If I were an investor, I would wait and see. That’s fine with me.

I don’t want to play Monday Morning Quarterback on Dean’s interview, because according to his profile he’s got twenty years of experience. He certainly earns a score for doggedness by trying to get JR to betray a chink in his artificially blasé attitude about Take Two. But, I frankly love the Riccitiello that’s come out swinging on every question. Even if it is just a distraction.

The most interesting thing about this interview is for me the bluster that hides the real story. In a piece where EA’s CEO is handing out chewy quote-morsels like Scooby Snacks, you can tell an important question has been asked when he becomes suddenly quiet and reticent. Perhaps no answer is more intriguing than his response to the question of Bioware’s sale to EA, a purchase that netted Riccitiello millions of dollars as a shareholder of Bioware's parent company. His answer: No comment. It’s not a conflict of interest.

Ok, John, glad you cleared that up for us.

Again, he’s probably right. It's extraordinarily unlikely that any laws were broken, or at least so broken that a plausible defense couldn’t be established. But, when Riccitiello doesn't want to talk about it, then there's probably a good reason. The purchase of Bioware, a cash-rich transaction quick on the heels of his ascension to CEO, having just been the CEO of Bioware's parent company, remains a murky deal that probably followed the letters of the law if not the spirit. But, put it back into context of the investor quote, and you are reminded that this is a guy who understands the first rule of business: your investors want to be rich. As long as that mandate is achieved, very little else matters. Not even quality.

Riccitiello's responses, the investor remark among them, are a line drawn in the sand; a reminder to gamers and the press that EA’s quality initiatives are writ in water. In a recent interview with Julian Murdoch, Riccitiello said, "At the end of the day, I don't want to be judged on what people think of our business strategy - I want EA to be judged on the quality of our games. I think that's what consumers care about most."

Taken in the context of this latest interview, it's clear that the efforts to push the artistic quality of the company's product are not a mandate from above so much as an initiative by a CEO who is actually showing some interest in games.

This sets up the other reading of the quote, which is a veiled threat. Because, just as Activision has figured out, quality is a luxury and not a necessity for success in the video game industry. In the hierarchy of people to whom John Riccitiello is responsible, this is a reminder that the modern business ethos values investors over consumers, and what they want having a financial stake in the company is not what you want when you are standing at the counter buying the latest Madden. Riccitiello serves at least two masters, and his push for quality is balanced against the need to build a sound balance sheet.

Such is business when you measure revenue with a capital B.

EA has known for a long time that you don’t have to be liked by the elite gatekeepers of gaming cred to turn a fancy profit. It’s just as easy to hock movie tie-ins and slapped together franchises as it is to try and be inventive with games like Spore or Dragon Age. While Riccitiello isn’t saying what people will assume, which is that his dedication to quality is paper thin, the truth is that it could be if he's forced to make a choice.

And, his real bosses, the investors, won’t care either way as long as the money flows.

Comments

Parallax Abstraction wrote:
And I'm not saying quality doesn't matter, I'm saying the "how to" of a business are rarely an investors concern.

That's the bigger meta problem with modern investors today. As long as the company makes money, investors don't care if their products are garbage (to use your tire analogy, remember what happened with Firestone a few years back?), they don't care if their workers are treated like crap, if they use Chinese sweatshops, if they're dumping toxic chemicals into the river or if they're being anti-competitive. That needs to change. People need to stop looking at a business that's making them money, covering their eyes going "I see nuzing!" when that business is shown to be doing bad things. Otherwise, they are complicit in their actions and are no better than the CEOs who make those poor decisions. Obviously, EA releasing buggy, broken games isn't the same thing as a corporate polluter or a company that exploits third-world labour. But anyone who invests in EA company and is OK with a 1% bump in revenue for a quarter at the expense of key products being pushed out early and consumers being screwed over is just being greedy. Profit shouldn't trounce ethics and even though it may be the common way things are done now, it doesn't make it right.

Good luck with changing the quarterly fixation of Wall Street.

Investors will always chase the highest return on their money. If your company won't give them what they want, they'll sell your stock and buy someone else's. And we're not talking Johnny E-Trader who bought 100 shares. We're talking about Mr. Fund Manager who owns tens of millions of shares. If he decides to sell, your stock is on the express elevator to hell, going down.

If EA could improve their quarterly revenues by 1% that would translate into another $11 million, most of which would make it to the bottom line. That would boost earnings per share by a cent or two, which is HUGE to investors. There are some people who would argue that it would be negligent for a CEO to not do so, since they are really beholden to a company's investors, not their customers or even their employees.

As others have said, as long as people continue to buy games of dubious quality, software publishers will not put too much emphasis on quality. This is one case where gamers are their own worst enemies as many just have to have the lastest title as soon as its available. They don't even question is it worth their money, they just buy it.

OG_slinger wrote:

Good luck with changing the quarterly fixation of Wall Street.

I said it needs to change. I'm not nearly delusional enough to think it will.

OG_slinger wrote:

Investors will always chase the highest return on their money. If your company won't give them what they want, they'll sell your stock and buy someone else's. And we're not talking Johnny E-Trader who bought 100 shares. We're talking about Mr. Fund Manager who owns tens of millions of shares. If he decides to sell, your stock is on the express elevator to hell, going down.

If EA could improve their quarterly revenues by 1% that would translate into another $11 million, most of which would make it to the bottom line. That would boost earnings per share by a cent or two, which is HUGE to investors. There are some people who would argue that it would be negligent for a CEO to not do so, since they are really beholden to a company's investors, not their customers or even their employees.

Exactly and that's the problem. "Ethics, customers and employees be damned! I just want my money!" Again, I'm not saying this will change any time soon but it is going to have to one day.

OG_slinger wrote:

As others have said, as long as people continue to buy games of dubious quality, software publishers will not put too much emphasis on quality. This is one case where gamers are their own worst enemies as many just have to have the lastest title as soon as its available. They don't even question is it worth their money, they just buy it.

I don't disagree here. I've always taken the stance that "If you want companies to change, stop supporting them until they do change." Gamers by and large demonstrate every day how we're not very good at this. Everyone complains there isn't enough innovation, meanwhile Halo 3 sells millions while Psychonauts and Zack & Wiki gather dust on the shelves. If people didn't buy the crappy ad platform games that are becoming common lately, these companies would quickly learn why and change. Don't get me wrong, I don't hold only one group of people at fault for the current business climate. These same people have the power to make change, they just have to be bothered to do so.

I think it's more company culture than public company thing. OR at least there are a few exceptions.

...like Blizzard and Nintendo.

So many astericks in the teaser alone.

davet010 wrote:

Games are the best they've ever been ? Graphically maybe, but only a few titles in the last couple of years stand out as great games.

It's not an argument either one of us will win, I know this. But I would respecfully, and extremely forcefully disagree. I will reiterate again: since, oh, October 2005 (Shadow of the Colussus) we have had the best three year period in gaming since I first stuck a quarter in a pong machine at the bar I wasn't allowed into in the mid 70s. I think this has almost nothing to do with graphics.

But like I said, if you've had a crappy three years playing games, there's nothing I will say that will convince you, and if you had some three year period some time in your past where the releases blew you away more, well I missed those three years. Or we like different kinds of games, or, or, or ...

I do think quality wins long term - despite all cynicism, over the long term, markets work, and crappy companies can't make crappy products forever. You can get away with it for a while, but eventually you lose, absent force.

Parallax Abstraction wrote:

I've always taken the stance that "If you want companies to change, stop supporting them until they do change." Gamers by and large demonstrate every day how we're not very good at this. Everyone complains there isn't enough innovation, meanwhile Halo 3 sells millions while Psychonauts and Zack & Wiki gather dust on the shelves.

The mistake you're making here, in my eyes, is you're listening to the opinions of a small group of people and assuming that represents the majority. It's like you're listening to hipsters/beatniks in a coffee bar talk about music and then are disappointed because the latest pop sensation still sells like gangbusters. The majority of the gaming public doesn't clamor of innovation, the majority clamors for another Madden or Mario Party. And, lo! They get it.

rabbit wrote:

I do think quality wins long term - despite all cynicism, over the long term, markets work, and crappy companies can't make crappy products forever. You can get away with it for a while, but eventually you lose, absent force.

Honestly, I think it's a combination of crappy and quality games that wins overall. The crappy or low quality games that you produce, don't require anywhere near the cost that your AAA titles do. Whether it be paying your best people (coders, level designers, artists, writers, producers, game designers) or paying for the requisite changes and innovations in technology, or the time it takes to make sure everything is polished and working, it is an expensive proposition. Yes, those games generally make back their money (if they actually are in the end quality and we all know throwing money at a game doesn't mean it's going to be quality) and sometimes make boatloads of cash (see World of Warcraft), but most developers need something to bring in money while those games are in development. As long as there is a market for lower budget, line toeing, boring, or just plain sh*t games, developers will make them and EA will profit off of them, but as long as they continue to put some of that revenue towards making a blockbuster, amazing game come out every 6 months, I will be a very happy gamer and we will have a very happy market.

But the last thing I want is a company making a great game to go under or have to sacrifice and put it out incomplete because they ran out of time and money. Every game doesn't need to be Bioshock, Halo, GTA, etc, just a 3-10 of them a year is all I need. Hell I couldn't play more than that anyway.

trip1eX wrote:

I think it's more company culture than public company thing. OR at least there are a few exceptions.

...like Blizzard and Nintendo.

Isn't Nintendo a non-public company? I am really thinking that the further away the stock market is from a game, the better it ends up being.

Deadend wrote:

Isn't Nintendo a non-public company? I am really thinking that the further away the stock market is from a game, the better it ends up being.

Nope. You can buy the ADR right here at home: http://finance.yahoo.com/q?s=NTDOY.PK

I too still get the feeling that a large company, effectively owned and partially run (by means of influence rather than direct managing) by their shareholders who just see quarterly profits, is at least much more prone to produce shoddy or mediocre games. the advantage of these huge corporations is their sheer ability to make people buy something through marketing.

If given an equal chance, do you think Kane&Lynch or Army of Two would've sold the way they did without the extreme push of marketing, compared to the plethora of other games out there?
Heck, Crysis had a hard time WITH all the marketing behind it.

And yet then something like Sins of a Solar Empire comes up.

I think this is the same as the food business. If you want a good, well prepared dinner, you don't go to a BK or McDonalds.
But not everyone wants that kind of dinners all the time, because it takes time to prepare and time to eat.
These big fast food chains are doing really well, so apparently many people will eat their stuff, despite the fact that it tastes like ground-up dogmeat. But it's fast, it fills you up, and it's affordable.

But it's not fully accepted yet in our gaming world (outside the XBL arcade) that we pay a lot for one game and a lot less for others, and the big companies such as EA will probably try to keep us buying 'fast food' products at full dinner prices whenever possible, because we can't really check what it really is without buying it first anyway.
yes, demos, but that's like giving someone a baked potatoe chip and telling them 'hey, the WHOLE thing is going to be that good!', while all it is is a british fish 'n chips.

In the end, it's because there is a market for it, I think.. We're still the cause.

This same topic is being discussed in the EA/Take 2 thread so I will quickly reiterate the point I made there.

A lot of people are saying what investors should or shouldn't do, or what they as investors do. The fact is though that the vast majority of publicly held shares are not held by private investors, but by institutional investors. The administrators of mutual funds or annuities or whatever probably don't even know that EA makes games, never mind the relative quality of the games.

All that matters to them is P/E, dividends and price.

All EA needs to do is release games that are good enough to turn a profit, and love or hate them that's what they do. I like what Riccitello has had to say, but it remains to be seen if he can walk the walk. And all that EA needs is for one of their big budget halo titles to tank and any quality drive can go out the window.

It's a Catch 22 really.

Joe Public: "We demand better games. These games are horrible!"
Game Publisher: "We hear your cries and will strive to put out a better game! This game will cost you $69.95 however."
Joe Public: "We demand cheaper games. These games are too expensive."
Game Publisher: "We hear you whines and will strive to put out a lower costing game with less development. This game will cost you $49.95"
*rinse repeat*

The public really doesn't know what it wants. The general public is stupid. We have many many examples of this stupidity in all aspects of life.

However I know what I want and many of you know what you want and in this community of intelligent gamers we generally all want the same thing.
We want quality games. We want games that have a solid development cycle with plenty of time to work out most of the bugs and kinks. We want good story when one is needed, we want good graphics but not at the sacrifice of good game play. We are willing to spend $70 on a game of great quality. The general public might gripe about the cost but in short order if the games are damn good then the increase of $20 won't be an issue.

FeddEx is pretty close with his analogy of fast food versus well prepared meals. Publishers like EA have become the McDonalds of game publishers. For the most part their games are fat infused graphical eye candy with very little nutritious content and they make you feel like crap after you've played them. Every once in a while you however want that fat infused grease ball of a game because it tastes damn good and is completely mindless. Doesn't make it any better and certainly won't be good for the long term.

I blame speculators and day traders!

I blame English majors. They're always yammering about "story this" and "writing that". Hiring writers costs money, you know.

Quintin_Stone wrote:

I blame English majors. They're always yammering about "story this" and "writing that". Hiring writers costs money, you know.

<-- Will work for booze.

By the way, there's some decent conversation about this over at Man Bytes Blog.

rabbit wrote:
davet010 wrote:

Games are the best they've ever been ? Graphically maybe, but only a few titles in the last couple of years stand out as great games.

It's not an argument either one of us will win, I know this. But I would respecfully, and extremely forcefully disagree. I will reiterate again: since, oh, October 2005 (Shadow of the Colussus) we have had the best three year period in gaming since I first stuck a quarter in a pong machine at the bar I wasn't allowed into in the mid 70s. I think this has almost nothing to do with graphics.

But like I said, if you've had a crappy three years playing games, there's nothing I will say that will convince you, and if you had some three year period some time in your past where the releases blew you away more, well I missed those three years. Or we like different kinds of games, or, or, or ...

I do think quality wins long term - despite all cynicism, over the long term, markets work, and crappy companies can't make crappy products forever. You can get away with it for a while, but eventually you lose, absent force.

Yeah I don't know. I think compared to 25 years ago games have been refined and improved and are entirely as a whole better than what came during the Atari 2600 era. But compared to 10 years ago I think that's much less the case.

I see alot of people still playing Diablo2, Starcraft, Counter Strike, Quake Arena, etc...

See I think many of games released today aren't as refined in many ways as those time tested and company supported games. I think there's been enough computing power to do the kinds of things games need to do for awhile now. The move to 3d really delayed gameplay improvements as a whole from what I can tell.

Many games today are released and start over at square one in terms of bugs and playability.

Many games have gotten more bloated over the last 10 years. Sports games & Civilization come to mind. I'm not sure most of that bloat makes for a better game.

Graphically of course everything looks better than 10 years ago.

I do recognize that sometimes I get so invested in an old game that I don't see new games as better even though they might be better especially to a new player. I played alot of Battlefield 2, but didn't upgrade to 2142 because I didn't think the improvements were enough to warrant a purchase. And in some ways it wasn't as good of a game.

Look at the Never Winter Nights community. Do they care if the NWN2 is better in some ways when NWN has this huge community of content and mods behind it and did the job? Do they want to start at square zero there and as far as bugs go? They probably are familar with the problems on NWN too and know how to get around them. etc.

If you're an old CS player then why change? For some minor improvements and slightly better grahics that you don't look at it anyway? Hell there may be as many steps backwards as improvements.

I think gaming production values are better than ever especially during the last 3 years, but I'm not sure games are on the whole as far as gameplay goes. Even if there are improvements I think they are pretty slight outside of production values and are lost on many players considering the time they have invested in older games and the cost to upgrade to play the new ones.

Overall I see many games that I would like to have been graphically updated, but kept most of the gameplay intact. I wish the gameplay would have been improved instead of expanded.

Parallax Abstraction wrote:

That's the bigger meta problem with modern investors today. As long as the company makes money, investors don't care if their products are garbage

That's exactly how sub-prime mortgages became such a mess. Investors didn't know what they were getting into, until they found out the hard way there is more risk with those types of loans.

I wonder how many crappy games are bought because of the novelty value though, and how much of that 'novelty game market' is and will be taken by things like Xbox Live Arcade games? Don't get me wrong -I love quality games and get a lot of replay from them, but sometimes I just want something shiny, new and different. Just to try it out.