Is it time to say game over?
Electronic Arts' dominance of video games makes resistance futile for competitors
EA would like to expand on its dominance in the United States with marketing pushes in Europe and Asia. EA has roughly a 30 percent market share in Europe now, but Probst hopes to boost sales there during the next five years to 60 percent of company revenue from 50 percent currently. China is the big lure in the largely unexploited Asian market. "That is going is to be a billion-dollar business for someone someday," Probst says. Of course, the problem there is turning interest in gaming into actual sales. "If you go into Shanghai right now and go into a retail store right now, you'll see we have incredible market share and representation on the retail shelf--except that we get zero revenue from it because it's all pirated," he says. "It looks like EA and plays like EA, but it's not EA."
But EA's strategy isn't just about taking advantage of a growing market. It also wants to reap more revenue per gamer, so it's not just dependent on the $50 games themselves. And that's where online gaming comes in. Probst thinks that through a combination of next-gen consoles with built-in online capabilities and the greater penetration of broadband Internet access, some 15 to 20 percent of EA revenue should come from online gaming during the next console cycle. Of course, online is an area where EA suffered one of its greatest failures. In 2002, the company launched Sims Online, where players could interact with one another through self-created virtual people for $9.99 a month. Expected to attract 200,000 players in its first three months, so far it has lured just 70,000. It's a costly failure the company candidly blames on a boring game that cost too much to play. Probst guesses that future online gaming will follow the cable television model, where you will pay a subscription to access various "channels" of gaming services.
Another possible source of revenue is in-game advertising. Currently, product placement and sponsorship is worth about $10 million to the industry versus $60 billion for television advertising.
Given the expected huge increase in sales from next-gen consoles and the possibility of greater advertising revenues, Smith Barney analyst Jill Krutick speculates that "the diversified entertainment companies could increase their presence in video games." After all, EA has done well by turning popular movie franchises like Harry Potter and LOTR into successful games, so turnabout is fair play. Yet it's not a scenario that particularly concerns Probst. "The major media companies have been in and out of this business repeatedly for 20 years," he says, noting that Atari, for instance, used to be part of Warner Communications, itself now part of Time Warner. "None of them have had any sustained long-term success. They have treated the interactive entertainment business as an afterthought, something to create synergy--whatever that means."
Of course, movie studios do have decades of "intellectual property"--their films--to use as the basis of games. But Probst has his own attack strategy for the movie moguls: It is EA's goal to become a competitor to Hollywood. "Not make movies ourselves, but license out properties for a movie or a television show," says Probst.
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