Is it time to say game over?
Electronic Arts' dominance of video games makes resistance futile for competitors
REDWOOD CITY, CALIF.--You have to feel some sympathy for the two workers planted in the lobby of the corporate headquarters of video-game maker Electronic Arts. Working there is like doing eight hours of sensory-overload hard time at an upscale arcade. The place is filled with plasma screens and projection TVs, all hooked up to game consoles playing EA's latest offerings such as Battlefield: Vietnam and The Lord of The Rings: The Battle for Middle-Earth, or giving sneak previews of coming releases such as Catwoman, based on the superhero film starring Halle Berry due out in July.
Don't feel too sorry for them, though. Even if the work environment is a bit on the cacophonously kinetic side, at least their job security ought to be pretty solid. Although much of the technology sector is only now recovering from the post-bubble downturn, EA--the dominant player in the $7 billion video-game software industry--is continuing to party, as the cliche would have it, like it's 1999. Except business is actually a whole lot better here than it was in 1999, when the tech sector was peaking.
Back then, the company had annual sales of $1.2 billion. With the industry set to gather next week for its annual E3 game show, EA last week released its fiscal 2004 report, posting sales of $2.96 billion. Earnings have risen from $73 million to $577 million. In 1999, EA had eight platinum, or million-plus-selling, titles. In the past year, it produced 27 of them.
Back then, EA possessed 10 percent of the North American game market. Today, it has captured 22 percent of it. (The next-closest rival is Nintendo, with 11 percent.) EA's stock, meanwhile, has soared from around $20 to over $50 a share, giving the company a market cap of nearly $16 billion. "It's been a terrific story from a number of angles," says Anthony Gikas, an analyst with Piper Jaffray in Minneapolis. "They have good management, best-in-class product, and a leading market share. You could have bought this stock anytime in the past decade and made lots of money."
Oh, and they just scored a big win over Microsoft, a claim not many companies can make. Last month, the planet's largest software developer announced that it was taking at least a year off from its Xbox sports video-game business. At the time, Kevin Browne, manager of Xbox's sports game division, admitted to an industry publication that "we fall short in a couple of areas to our competition." That competition would mainly be EA, which holds an already commanding 60 percent share of the sports game business, led by its FIFA soccer and Madden football franchises.
Bestseller. But EACEO Larry Probst, a get-to-the-point Rumsfeldian character you would never guess spends any time playing games (his current fave is EA's First Night ), claims there was no celebrating Microsoft's misfortune. "We don't celebrate our competition failing but our own products succeeding," Probst says, as he sits and chats in EA's main conference room--puckishly nicknamed the "Bored Room." If so, then there's probably been lots of partying going on. EA's The Sims is the bestselling PC video game of all time, having sold 15 million copies (with Sims 2 scheduled to debut later this year), while the FIFA series is the bestselling game ever, even making the Guinness Book of World Records. The entire series has sold more than 1.2 billion units. And last Christmas, 11 of the 17 titles EA released each went platinum.
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