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Case Study 9 Electronic Arts Inside Fantasy Sports virtual, Electronic Arts is one of the largest and most profitable third-party video game makers. Exclusive contracts with professional sports teams have enabled it to dominate the sports gaming market. But as gaming has shifted from consoles to laptops, phones, and tablets, it is struggling to stay relevant Can EA regain the pole position in a crowded and contentious market? MIKE SEGAR/Reuters/Landov LLC Founded in 1982 by William "Trip" Hawkins, an early direc- tor of strategy and marketing for Apple Computer, EA gained lion a year to get their logos on digital players. One game, NBA quick distinction for its detail-oriented sports titles compatible Live, offers players the opportunity to switch up the color and with the Nintendo and Sega platforms. Although EA has also re- ceived good reviews for its strategy and fighting games, it left its style of players' logo-friendly footwear . The shoe styles may be the value of brand recognition is very real for compa- heart on the gridiron, diamond, court, or any other playing field nies that pony up for sponsorship. long ago. According to former EA Sports marketing chief Jeffrey Such brand reinforcement isn't limited to sports games either. Karp, EA wants to be "a sports company that makes games." EA's Need for Speed Underground 2, a fast-paced racing game, takes endorsement beyond the omnipresent billboard ads and Ad Revenue In, Ad Revenue Out vehicle logos found in typical driving simulators. Here players re- Word of mouth may still be the most trusted form of advertising, bearing the AT&T logo. The significance may be lost on adults, ceive "text messages" on the screen suggesting game hints, each and EA has always depended on fans to spread its gaming gos- but for a younger generation raised on instant messaging, the pel. But in a highly competitiveand lucrative-gaming market, placement makes perfect sense. EA knows better than to skimp on brand building: it spends two to three times as much marketing and advertising a title as it does It makes financial sense, too. A recent poll by Nielsen Enter- tainment and Activision indicates that this kind of placement may developing it.' EA knows its audience, and it promotes as heavily result in notable improvements in both brand recall and favorable to Game Informer readers as it does to subscribers of ESPN's The brand perception. "I think truly that no other media type can de- Magazine. The realism of EA's graphics set it apart from competitors liver the persuasion that in-game ads can if executed properly," said Michael Dowling, general manager at Nielsen Interactive, long ago, but the energy and talent used to depict that real- Los Angeles. ism might be wasted if EA games didn't include the one ele- ment fans most want to see their favorite players. However , top Losing Ground in a Crowded Market athletes aren't cheap, and neither are their virtual depictions. Players such as Tim Tebow, Donovan McNabb, and Carmelo Until recently, EA's devotion to sports games was a winning as- Anthony expect a tidy sum to promote any product, including publisher. But a funny thing happened on the way to the bank- setit dominated the market as the world's largest video game video games that use their likenesses. EA spends $100 million annuallythree times its ad budgetto license athletes, play changed. Now EA finds itself in third place behind two strong over the course of a few short years, the gaming market radically ers' associations, and teams. It's a complex dance: the FIFA Soc- cer 2012 for iPad, for example, requires hundreds of different competitors whose successes represent areas in which EA needs licenses from a total of 22 club leagues, 500 teams, and 15,000 to double down to stay in the game. Blame the Wii. Or blame Guitar Hero. Both led popular in- players. Cheap? Anything but, though it's doubtful you'll hear EA complain about the 15 million digital and physical copies of terest in gaming away from complex sports games played with FIFA 2011 it sold last year, netting $150 million in revenue in the standard controllers to new types of games, and new ways of in- first week alone. teracting with consoles. Nintendo's Wii has been tremendously popular, and although EA has several successful titles for the plat- form, many of the top gameslike Wii Sports Resort and Super Paying to Be Seen Mario Galaxy 2are published by Nintendo itself. The nontradi- Even the most dedicated Madden fans may wonder whether the tional controller lends itself to movement-based games, not EA's sports video gaming market has enough muscle to shoulder EA's button-mashing bread and butter. gargantuan costs. Enter the promotional alliance. Just as EA pays Emerging nearly parallel with the Wii was the popularity of to license the use of NFL logos in its games, big-name sports Guitar Hero and Rock Band. It didn't take long for casual gam- companies such as Nike and Reebok pay to the tune of $3.5 mil- ers to take up cheap plastic guitars and drum sets, leaving their traditional controllers to gather dust in the corner. Small gaming The company has also seen continued success with older shop Harmonix pulled double duty in this market, first publishing franchises: Battlefield 3 drew favorable comparisons to the com- Guitar Hero, then selling it to EA adversary Activision only to fol- peting Call of Duty franchise and has shipped over 12 million low up with the arguably better Rock Band series. EA came to the units. EA has also recently launched The Sims Social, a popular party late; sensing the market for rock-along music games was Facebook game that has performed well against titles from social sufficiently saturated, it resorted to striking a deal with Harmonix game heavyweight Zynga." to help distribute Rock Band. And the company is showing signs that it's shifting gears to While the Wii's popularity seems to have peaked for the time compete successfully in the new gaming landscape. It spent $300 being and plastic instruments are on their way out (parent com- million last year to snatch up social gaming developer Playfish, pany Viacom recently sold Harmonix for the bargain-basement and it also brought Madden NFL Superstars to Facebook, where price of $50), these emerging trends ultimately diluted EA's it has been intensely popular, scoring almost 800,000 "Likes."12 chokehold on the popular gaming market. Meanwhile, Activision Origin, EA's digital distribution business, which it's been quietly found a comfortable home with the Wii, scoring big hits with sev- building, offers profile management, the ability to connect with eral Guitar Hero titles and hitting the bullseye by porting their friends via chat, and integration of scores and game stats to social massively successful Call of Duty franchise. media and online gaming sites." As of last count, 9.3 million users And then there's Apple. When Steve Jobs launched the iOS installed Origin, earning EA more than $100 million and helping it App Store in the summer of 2008, he decreed that one-third to do battle with rival online platform Steam.14 of the first 500 apps would be games. Before long, specs im- proved in iOS devices to make them serious portable gaming machines. Successive generations of iPad improved ios gaming Playing for Keeps with a large, high-resolution screen, and the App Store suddenly Despite its wild success in the video game market, Electronic Arts became a self-sufficient gaming platform faster than you can say faces substantial challenges to its power by competing game Angry Birds. companies, the cost of doing business, and even dissatisfied At the same time, Facebook was coming into its own as a gamers. Can EA overcome these threats and continue produc- singular destination for simple but time-swallowing games. To- ing the sports franchises that brought the company considerable gether, these platforms heralded a new way of acquiring and success? playing games in which EA had little to no experience: digital distribution. Quick on the draw, however, was Zynga, an upstart publisher who quickly dominated Facebook games with Farmville and Frontierville, among others. Games on iOS and Facebook Discussion Questions are portable, easy, and you can step away from them as long as you like and pick up just where you left off. That kind of gaming 1 is worlds away from EA's traditions, and it's forced the company to do some serious reckoning on its future as well as its executive timeZynga lured former EA marketing chief Jeffrey Karp to take 2. Can you see the principle of management by exception on a parallel position there. at play in any of EA's recent business decisions? Why or As of today, EA is the third-place publisher behind Activision why not? and Zynga, and while things are starting to look up, it's a long, hard road back to the top. CEO John Riccitiello even admitted re- Problem Solving cently, "What we've described as a two-year comeback is clearly taking longer." Control is an essential and important management func- EA knows that the road to riches is paved with recurring sales. tion. It's also something that even the best managers and And though its annualized releases of many popular sports titles organizations can always improve upon. Break the video for some time, they haven't done so for the growing market of game production process down into its various compo- massive multiplayer online games (MMOG), which Activision has nents, a start-to-finish workflow model so to speak. Now been lucratively exploiting for years with Call of Duty and World identify for each phase in the process the control standards of Warcraft. EA's entry into the MMOG fray was last year's Star that could be set so that managers make the process work Wars: The Old Republic. best overall. Especially in the last few years, EA has been remarkably suc- cessful in creating new franchises, which has historically been diffi- Further Research cult in the sequel-heavy video game market. EA's successes include Mass Effect, a sci-fi action series that has sold over seven million What is the latest in Electronic Arts' quest to regain its units, not counting the sales from the recently released third entry former glory as the top gaming publisher? How well is EA in the series. Dead Space, a survival horror series, sold over four positioned for future competitive advantage? Overall, is million units and received significant critical acclaim. EA's executive team still on top of its game