Taming the Gorilla

The world has changed around EA. The company isn't a Kingmaker any more, even if you accept the proposition that it ever was (the conventional account of the Dreamcast's history is very questionable). Microsoft and Sony have joined Nintendo in building powerful first-party publishing operations for their consoles. Nintendo, in turn, has become an absolute giant, dwarfing anything EA has ever been. Activision merged with Vivendi (and more importantly, with Vivendi subsidiary Blizzard) to create a publisher larger than EA, with a monthly revenue stream from World of Warcraft which is probably worth well over a billion dollars annually. Former minnows like Ubisoft have grown in size and importance thanks to an unrelenting focus on quality and original IP.

As such, it would be foolish to try and read the games industry's fortune from the tea leaves at the bottom of EA's cup. This is a company in a unique situation, a former giant whose inefficiency and inability to innovate and develop has caught up with it over the years. The market as a whole is booming, and while some other companies also face difficulties at present, those have very different root causes and are generally not comparable with EA's situation.

There's another factor which needs to be considered carefully by anyone thinking about EA's problems. Electronic Arts itself is no longer the stagnant beast with spiralling costs that it was two or three years ago. Since the return of John Riccitiello to the company, this has been a publisher in transition, and many of the problems I just outlined are already in the firm's sights.

Riccitiello understands several essential truths which seemingly escaped EA's former bosses - most notably Larry Probst, a man whose hard-nosed demeanor and wealth of business experience in no way mitigates the fact that he oversaw a period of flat revenues, rising costs and critical damage to EA's reputation, both within the industry and among consumers.

Under Riccitiello, we're seeing a transition back to development as the core activity of a videogame company. The company is producing new IP, and some of that new IP is genuinely excellent - within the space of a few weeks, games like Dead Space and Mirror's Edge have helped not only to turn around perceptions of EA among gamers, but also to establish potential franchises which will reduce the firm's reliance on other people's properties.

Evidence for better control of costs is sparse at the moment, but that may simply be because money is being spent to improve areas of the company (its digital distribution strategy is one focus which Riccitiello has discussed) which will be essential for future growth. Controlling costs looks less important when revenue growth is outstripping them, anyway, and there's some grounds to believe that that's where EA is headed.

Not everything has gone right for the company. Not all of its new IP is brilliant, but that's only to be expected, and I sincerely hope that EA's management is serious enough about original IP generation to understand that successes will often be tempered with flops. Public outcry over the use of restrictive (and worthless) DRM solutions has been met with embarrassingly naive and often downright insulting comments, which desperately need to be reined in if EA is to maintain the goodwill it is building so painstakingly. More worryingly, the company's bid to take control of Take Two has been an expensive waste of time. It was an avenue worth exploring (for both firms), but it may have robbed EA of its focus for much of this year.

Set alongside the simple existence of Dead Space and Mirror's Edge, however, these concerns seem minor. The loss of 600 jobs, however, is not minor in any way. It's a demonstration of the fact that the road Riccitiello has set his company upon is a bumpy one - but it's also the only road worth travelling. The alternative was to become an irrelevant, archaic firm which subsisted largely on selling licensed products to a dwindling audience. Instead, there's a real possibility that EA could once again be a true powerhouse - as long as Riccitiello, his management and EA's shareholders can all find the courage and confidence to stay the course.