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EA to lose $17m in profit from GAME’s Demise?

By on March 12, 2012
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At a Wedbush investor conference last week, John Riccitiello, CEO of Electronic Arts, said:

“One of the challenges that we have this quarter is we did flag a risk on one of the major European retailers having trouble, costing us sort of mid-single-digit EPS [earnings per share]. “That now looks like all but a certainty. It was a risk a month ago. Now it looks like a fact, although we’re still praying for the lenders to get rational and keep them in business. You probably know who I’m talking about.” (via the FT)

Electronic Arts has 331.39 million shares in issue. If the impact on EA’s EPS is $0.05 (i.e. 5 cents), that implies a profit impact of $0.05 x 331.39 = $16.6m.

(To me, “mid single digit” impact means between $0.03 and $0.08, making the range of the impact between $9.9 and $26.5).

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I don’t think that is the long term impact: once GAME is removed from the channel, EA will find new routes to market, and this impact is more from the unexpected speed with which GAME has come off the rails.

Yet losing $17m in profit (approx 3% of the guidance for EA’s profit in 2012) is not a negligible amount.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • I agree that mid-range is struggling. I’m not sure I agree that GAME is particularly well placed to help them: to my mind, it was all about chart and pre-owned, with little enthusiasm for anything else. Was your experience different?

  • I’m not sure that GAME itself will take down the mid-level players like THQ, but they are sure-as-hell hurting from the same pressures that are hurting GAME.

  • I know GAME bang on about hardware (and that they sold about 50% of all Vita’s sold in the opening week) but I think it’s hardware that the lack of a familiar, go-in-and-talk, retail venue will have an impact. 

  •  The impact of Games demise isn’t going to be necessarily seen in the performance of blockbuster titles – they will most likely be the last to be hit. It’s the mid-range titles who don’t have the ad budget, the publisher backing etc who might of received a word of mouth boost that will take the immediate hit.

    That’s where retail settings can work well – recommendations of titles you see on the shelves. In time (perhaps) Steam and its ilk will provide an alternate route of recommendation, but I’m yet to be convinced that those channels will serve as a good replacement for physical retail.

  • Anonymous

    People forget that when any part of the distribution chain goes down, it has a knock-on effect to every other part of the chain. In tabletop RPGs, if a mid-level distributor went bust it would probably take a couple of small publishers and retailers with it—invoices never get paid and unsold stock gluts the market at pennies on the dollar. It’s a delicate eco-system, and Game is a pretty big fish.

  • Have you noticed the site has just gone down too – 
    http://www.game.co.uk/ – for “maintenance”.

  • There will definitely be a temporary vacuum. But over the next 2-3 years, it will be mopped up by online retailers, by digital and by new business models.

  • If anyone wants to challenge my analysis, or maths, please do so. I have not had time to be 100% sure of it.

  • Useful insight, as ever. Thanks. 

    I was catching up on how well Mass Effect 3 has sold in the UK, despite not being at GAME and its tempting to believe there’s be no vacuum whatsoever if the group goes. I wondered if you agreed.