Taming the Gorilla

For over a decade, the performance of Electronic Arts has been a key indicator by which the health of the games business as a whole is measured. The industry's largest third-party publisher for several years, EA has been seen - rightly or wrongly - as the lynchpin of the publishing business, a status firmly cemented by the embellished tales that named it as the "Kingmaker" that killed off SEGA's Dreamcast and slowed early uptake of Xbox Live.

In light of that, what are we to make of EA's present situation? With losses growing significantly in the last financial quarter and around 600 jobs to be slashed at the firm's various offices and studios around the world, is this an indicator which the industry at large should be worried about?

Some people clearly believe so. Reporting on the situation for Variety, Ben Fritz sums up the feeling of several commentators (especially those outside the industry) right on the first line - "Turns out the videogame biz may not be totally recession proof."

It's probably not intentional, but it's hard not to detect a ring of schadenfreude in statements like that. After years of confidently talking about the industry being recession-proof, to be bitten so early by the financial turndown would unquestionably be seen in some quarters as darkly ironic - although the sobering fact of hundreds of people losing their jobs should put a dampener on much of that sentiment.

The reality, however, is rather more complex. First and foremost, the blame for EA's financials doesn't rest with the world's own present financial woes. Several countries may be slowly tipping into recession, but right now, that has nothing to do with EA's figures. I can say that with some confidence - partially because it's simply too early for the recession to be affecting the company to this extent, but mostly because during the quarter in question, EA's revenues actually rose significantly. For the full year, too, revenues are expected to rise strongly.

I've argued before that the games business may not be entirely insulated from recession this time around, since its recent expansion into a much wider range of demographics also leaves it more exposed to pressure on consumer spending. However, that's pressure that we're simply not seeing at the moment, and any impact from recession at present is so utterly minor as to be unimportant.

This is the crux of the matter - Electronic Arts' problems are its own. Here is a company which, for several years, faced stagnation in its revenue figures while costs continued to rise. It's a company which foolishly ignored the importance of original IP creation for almost a decade, leaving it naked and exposed to the whims of partners like Warner Bros. - whose decision to move the next Harry Potter film's release left EA with a massive gap in its publishing schedule.

It's a firm which has suffered from crippling internal inefficiency and from an over-stuffed middle management system which occupied itself far too much with company politics and intrigue. Worst of all, it suffered from a widespread (and not remotely unfair) public perception that it was a "shovelware" firm - throwing out low-quality licensed titles and overpriced annual updates to popular franchises, and killing the talent and creativity in almost every independent studio it acquired.

While EA was the industry's 800-pound gorilla, it could get away with some of that. Its financial prowess and incredibly strong distribution and marketing operations allowed it to hoover up movie and sports licenses, and for years it was sustained by regular releases of James Bond, Harry Potter and Lord of the Rings licensed games, along with annual updates of FIFA, Madden NFL and Need for Speed (tellingly, the only IP on that list that the company actually owns outright).