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[Gamesbriefers] What’s EA’s future after Riccitiello?
Yesterday afternoon, John Riccitiello resigned from Electronic Arts, citing poor financial performance in the recent quarter as his reason. Presumably the challenges at The old Republic, SimCity and the social division were part of that decision. EA has been in the vanguard of transitioning to free-to-play, in looking for new business models and in adapting to a new, digital age, yet it has consistently been rated by Wall Street as behind Activision in this regard.
What do you think the future holds for EA, and what advice do you have to the incoming CEO of Electronic Arts?
In a way JR sealed his fate over a decade ago with the EA.com debacle. It is my understanding that the failure of that move meant that ever since the board have been unwilling to spin the digital arm of the company into a separate entity, as is the accepted best practice for transforming a company in the face of disruptive innovation.
If the board still block that idea, any incoming CEO is going to have the same struggle on their hands.
It was clear to me during my tenure at EA that the company were going to struggle to even survive in the digital age, let alone become the world’s top games publisher again.
I think John Riccitiello deserves some real credit for managing to turn around the EA supertanker to become a company who will make more money from digital than physical games this year. The purchases of Playfish, Popcap and Chillingo made it a serious player in the digital space. The introduction of the Online Pass system and the growth of Origin (Simcity screw-up excepted) to over 40m registered users have also been real success stories that will be a great foundation for the new CEO.
I think the biggest problem he had was Activision; they have done so well recently that EA have looked bad in comparison. Activision are getting 60% of their revenue already from digital and they’ve built a big new $1bn franchise in Skylanders (something EA haven’t been able to do). Had EA bought Take-Two in 2008 like they tried to, maybe it would have been a different story.
So what next for EA? The new CEO needs to focus on keeping the Playfish, Popcap and Chillingo teams functioning as independent units and retain the talent they have there. He needs to focus on building Origin to challenge Steam. He needs to tweak the EA culture to allow more risk-taking and less ‘design by committee’ so they have more chance of coming up with a truly unique new $1bn IP.
But I also think he needs to focus the company on care and attention to detail. The Old Republic had huge potential, but bad community management and too many bugs created lots of negativity. Simcity is a fantastic game, but poor server planning has again created lots of negativity. Real Racing 3 created even more negativity with it’s nasty initial pricing balance (which to be fair, were changed significantly after launch).
But overall, I think EA are pretty well placed for the future and the shareholders and staff have a lot to thank Riccitiello for.
Who is “he”, Patrick? Next CEO could be a woman.
I agree that EA have been quicker and braver than most on digital and F2P. But with staff draining from Playfish, cuts to PopCap headcount and Chillingo recently losing Angry Birds back to Rovio, can it see through?
I think it’s in a better position than all the other major publishers that have just continued to pump cash in to executing on a dead business model.
My advice to the new CEO would be: Focus culture and get the studios happy again. Keep them nimble, give them freedom. Good games is essential and it’ll only come from good studios and happy staff.
Also, focus. EA has too many fingers in too many pies: Own engines, platform, mobile divisions etc. Slim it down and be totally focused on the three most important things.
I often likened EA to a toy juggernaut which was racing along the highway and then broke into a load of speedy little cars, some were amazing and the others just crashed and burned, whereas Activision may well just be Transformers.
For me EA led by JR have been the progressive company, seeing the changes coming and being initially reactive, but for the last 3 years far more proactive. JR knew what was coming and has challenged the company internally as well as externally taking on analysts on Wall St. What they have done online with FIFA for example has been brilliant. And they have taken risks. But many of the risks have not worked out. That’s the way business is, sometimes. I am not sure some of their acquisitions of great innovative companies have actually worked out, not naming names, but I wonder if the corporate culture has been sometimes too oppressive. Innovation and disruption requires smaller teams of committed people to make bold and quick decisions. Leaders need to be able to lead. What they have done with Origin has been amazing and it is a tribute to the strength of their PC games above everything else, that they have built that in the face of Steam. In mobile they have worked at an amazing pace and have managed to get nigh on 1000 games out. In short EA do many things across a variety of platforms and they have transitioned to digital in an incredible way. It is almost as if they have too many strings to their digital bow.
Meanwhile over at Activision they have played a more cautious waiting game. They have probably had Peak COD, have been utterly ruthless with games that don’t perform and have also run a far leaner publishing ship. They are happy to outsource to suss out who is worth purchasing and once they know they move fast. Activision’s business is far easier to analyse, mainly because they keep it simple and focused. They avoid risk and multilayered activity. Online they have had major and continued success through WOW but that was not something Activision themselves invented, it was a direct result of the merger with Vivendi. Maybe that move alone was the smart move which allowed Wall St to understand what Activision was all about?
Going forward if you are the new CEO of EA, well you will be in charge of some brilliant games and also some games that simply are not number 1 in the space, Battlefield for example. But they do have clear winners. Perhaps now it would be the time to focus on making great games, maybe a few fewer and also ensure that externally simple and direct messages are communicated each and every time.
JR knows more about the games market than most, and has shown he can read the direction better than most. Perhaps he knew that we are entering an age of uncertainty and therefore it was time to move on and perhaps start his own thing up?
I agree that credit’s due for turning around EA to handle digital well. Teething troubles like Sim City should not take away from that achievement.
At the same time, that this has been achieved, in large part, through acquisition demonstrates inherent weakness in larger companies when it comes to acquisition. By all means pat yourself on the back for acquiring an exciting business for a billion dollars, but do question why you didn’t invest in it a few years ago when the smart money did.
That we pretty much always see the founders, so ‘excited’ in the acquisition press release to be working with their new corporate masters, leave once their earn-out is over, is not a surprise. With the money to do what they want, why would they want to be constrained? Those that can, do. Those that can’t, acquire.
EA and all physical publishers have been trapped by retail, prevented from taking full advantage of digital models until very recently. However, there’s a much bigger issue – the older companies are often run by people whose skills have come from the physical product world.
These skills are counterproductive in today’s world. I’ve lost count of the number of ‘people will always want boxed products’ / ‘digital is just another channel’ arguments I’ve had with corporates who lack any real understanding of, or passion for, the change that technology can bring. Most of them are now trumpeting the internet as a revolution, twelve years late.
What EA needs now from a CEO is someone who gets, loves, lives and breathes the technology that is transforming it. When it’s being run by a geek, then it might just complete the transition.
For me Harry’s comment about older companies being run by people who’s skills have come from the Physical Product World is a critical factor. Seeing Kristian Segestrale leaving his role as head of digital simply reinforces this isolating view point to me.
I’ve not worked for EA so all my comments would be guesses, but I have the feeling that the EA Studio system operates in a similar way to the silos I experienced within Sony. The internal competition between these units probably serves to drive innovation, but it also leaves the corporation looking a little schizophrenic. Changing direction in a company structure this way is probably more like herding cats than turning a supertanker.
EA has an incredible stable of IP with teams who take pride in delivering amazing experiences; but more than a decade after I first heard them talking about ‘247 engagement’ with the game brand they still struggle to deliver consistent experiences across different devices.
I believe that the Studio system needs a shake up and instead of being around delivering a gold-mastered product; instead it should focus on building and operating services intended to satisfy the on going passion for the game brands of its fanbase. Vision for the games needs to consider all of the platforms that the players own and how to help them experience their hobby in a relevant way to the form-factors of the devices they use. Not just as a one-time thing, but taking into account how these users can be retained over extended periods of time – months and years. Only then should we assign the right teams to deliver the best gameplay for each of the form-factors with the most appropriate business model to deliver the best value to the customer. Yes I know that’s not what most people expect me to say (me being so often outspoken on F2P).
Changing from a Hit-based retail mindset to a service-led experience is a critical part of what we have learnt in mobile and which is still missing on many console and PC platforms.
Leading these new service teams needs people of vision who are not only great game designers, but also people who understand the essential principles of marketing-led companies. Their role is not to deliver the best possible FIFA or Battlefield game. It is to identify and satisfy the needs of the fans of the FIFA or Battlefield game series across all the mediums available and using the most appropriate business models for that audience.
Perhaps this is the core problem… in the games industry Marketing is associated with people who shoot expensive videos after the game is delivered, rather than the guys trained to understand consumer behaviour and deliver services for them.
Many smart points already made.
The whole business is in a transitionary phase at the moment, and one led mostly by small, nimble companies, so it’s no surprise to see the big companies flailing around a little.
The Sim City situation has been interesting to watch – not so much the servers being rubbish (has a big, online game ever launched without this happening?) more about the always online, always social, totally persistant game design decisions. They don’t seem to have made the game better.
It feels a little like the design rules of the new age have been followed, rather than the spirit. Which seems a good analogy for EA as a whole. There’s an awful lot of buy-in required and an awful lot of stakeholders, so while acceptance of new rules might be possible, understanding of why and how those rules work will be a long and slow process, if it’s possible at all.
So if I were advising that CEO, I’d get the core EA teams to focus on the transition from product to service, with all the manifold repercussions that has for marketing, budgeting, production and, ooh, literally every aspect of the business. And I’d leave the acquired companies to do whatever the hell they want, more or less, so long as they’re making *some* profit. You buy a company like that either for the IP – which you now have – or for the team – which you should leave the hell alone and trust implicitly.
Good point Harry and Oscar.
Yep, sitting right in the middle of a small publisher (Mastertronic) which has almost crossed the rubicon to a digital only business , I know how hard it is to change mind sets and working practices here. It is a constant battle and we have done it through a mix of existing team members seeing the light and changing as well as bringing in fresh, young talent. It is actually nothing to do with age. It is all to do with attitude and understanding of the subject matter and tech. For too many years, games publishers were run by sales, marketing or god forbid, finance people. Relationships were focused on retail buyers or big media companies. Now it is truly about the crowd of fans. If you don’t understand what your fans want, you are in real trouble.
It takes a brave person to let the retail model go, especially when it still brings much needed revenues, but let it go you must. It takes a brave person to let the old school marketing models go, but let it go you must.
Interestingly Activision make a ton of cash from retail, packaged goods, but they don’t seem to get criticised as much as others like EA.
I always wondered if Kristian would be the next CEO of EA (if he wanted to be, which is an entirely different question)
What EA did with FIFA is the thing that sticks in my mind – went back to the drawing board and made it a miles better game than Pro Evo – something I’d never have believed was about to happen in the latter game’s heyday. And then the Ultimate Team stuff on top, which has been fascinating to watch.
I think EA needs razor-smart digital leadership, whether that’s the CEO or his/her right-hand man/woman (at Universal Music Group, the digital boss is now essentially second-in-command for example). And they need to be hella-brave in their decision-making (but these are both obvious and apply to every big games company I guess)
It really hit home to me how big EA actually is when I saw all the names roll up the screen at the end of Mass Effect 3 and then reminded myself that this was just one part of EA! Ergo, I do think it is impressive that JR as CEO would take on the challenge that he has over the last few years the very head-on way he has done. That said though I do think there is a tendency to romanticise the efforts made rather than actually look at the results.
Assuming this data from November is accurate, EA still has a long way to go.
Harry, I am interested in your anti-acquisition [sentiment] given their predicament. Are you saying you think they should invest in new studios and markets on a more internal basis? If so, I’m not sure I agree with that personally.
I think my overall point would be that while EA need more Real Racing/Firemint style successes, remember that all successes are not equal.
No easy answer to this. Many of the big publishers’ big franchises over the years have come through acquisition. But we’ve seen way too many good studios acquired and subsequently closed. Great for the studio founders and their investors, who cash out;less good for the acquirer and the studio staff. Ironically, one of the better acquisitions has to be EA’s purchase of Maxis – key talent stuck around for a long time, and the Sim brands remain strong 20 years later. Maybe a good example of giving acquire companies the space they need to keep innovating.
Should EA open a load of of new studios? No, but neither should it pay nine or ten figure sums to buy the last big thing. There’s a middle ground somewhere where publishers can find and nurture new developers, and help the best ones maximise potential. Whether EA is nimble enough for that, time will tell. Personally I think they’re moving in the right direction.