EA's mistake foreshadows future pain
by Vladimir Cole 
{ Feb 7th 2006 at 2:00AM }
When EA announced disappointing earnings late last week, the company was quick to offer up
plausible excuses for their failure to make their financial goals. Chief among culprits is the basic fact that there
simply weren't enough Xbox 360s in consumer homes, resulting in shortfalls in the sales of EA's next-generation titles.
In the words of EA CEO Larry Probst (pictured at right) during a conference call with analysts: "Our expectation was that more units of XBox 360 hardware would have been delivered to the market in that time frame both in North America and Europe.... I think we really underestimated the impact of consumers sitting on the sidelines and not spending dollars in anticipation of getting their hands on the next-generation console."
If the biggest (and arguably savviest) publisher in the games industry can err so badly, chances are good that other companies also misforecast this transition period as well.
EA's blunder therefore foreshadows pain that other game companies might be feeling right now. The companies that we'd expect to be hardest hit by similar underestimation are those that might have been relying most heavily on the ongoing stream of revenues from current-generation consoles (particularly the PlayStation 2). How bad will it get before the installed base of next-generation platforms is sufficient to sustain cash-starved game developers and publishers?
Reader Comments (Page 1 of 1)
Kworn @ Feb 7th 2006 2:54AM
Maybe they did not sell many because there games were sub par. Even by EA's standards and for £50 a game! Come on.
mofomojo @ Feb 7th 2006 2:54AM
EA sells games like packaged goods. They see quality in brand, not gameplay.
They kill whatever good title they may have by shoveling it out the door and rushing production schedules.
We saw this with BF2. Something that many people who bought it, anticipate the next patch for months on end after release since it was shovelled out, now, many of the people who bought it can't use it.
Sim City was good, but Sim City 4 was very unstable and whored out all your system resources, making it very laggy.
It's funny, cause all those god damned reviewers still continue to claim how mother fucking great EA's games are!!! It's fucking outrageous, you have take EA very very very cautiously since more than 90% of their games are pure, rock hard, columbian shovel-ware and will cease to work and crash all too often.
Even worse, is that their customer service will not work with teenagers (Under 18).
I hope this is one of the reasons that they're going down.
My lord, how I hope.
Don @ Feb 7th 2006 2:56AM
And how long will Sony allow the smaller developers to suffer before dropping the price of the PS2 so that they can increase the sales volumes of their existing games.
I am happy for Sony that they still made a nice fat profit Xmas 2005, but they, and their game publishers stood to make a lot more money if they had dropped the price of the PS2.
Varian @ Feb 7th 2006 3:21AM
What!? But Peter Moore told us that the Xbox 360 launch was 'phenomenal' and that Microsoft was exactly 'where it wanted to be'. (Did anyone tell Electronic Arts that 'It is not a race, it is a marathon'?)
And in the Joystiq article below this, Sony will ruin its PS3 by mistaking they are in the technology market instead of the entertainment market. As the gamer market shrinks and shrinks, the more 'multimedia features' are converged into the consoles and handhelds (yes, you PSP). It is also no surprise that the attachment unvieled for the Xbox 360 was the HD-DVD player, something that will do absolutely nothing for gaming.
If you think EA is having problems, think of the retailers that stock Xbox 360 games and peripherals. I see shelves full of product but no Xbox 360s available!
Majesco has exited the console games market. Take Two looks like its on the road to bankruptcy. Law firms and gay activists are set to sue and alter Blizzard. Even Nintendo has given up on the traditional market it had always competed for.
While the middle publishers have vanished, the big publishers (like EA) have proven not to be immune. Games stores are going out of business. Game magazines and even blogs/message boards have become shills for game advertising.
Anyone see any 'bright lights' for the Game Industry in the next few years? $400 consoles with $60 games? And who knows how much the PS3 will cost... $600? And all this to get the same boring sequels?
At its current rate, the Xbox 360 will not sell as many units as the first Xbox. The way how Sony is focusing on multimedia instead of games with the PSP shows that it intends to do the same with the PS3. "The PS3 is not a game machine," Sony tells us. (Great...) So Microsoft and Sony are simply using gamers (the early technology adopters) to trojan horse in a 'top box' to control our living room?
With the total number of active gamers shrinking day by day, the skyrocketing cost of development and cost of consoles, only one thing can save the inevitable.
We NEED a gaming revolution. At this current course, all we can do is watch the industry slowly shrink and die.
spiffy @ Feb 7th 2006 3:41AM
gogo nintendo!
gamer1 @ Feb 7th 2006 4:20AM
The problem that occurred last year is that gamers had been saving money to buy the Xbox 360 and the best games for the system. EA did not take into account that their target audience for their games would do this; otherwise they would have planned their sales projections according to it. I don’t think it is right for game publishers, such as EA, to blame their losses on the Xbox 360 shortages because of this. Since less Xbox 360s were sold than expected, more game sales for the current generation of systems should have been sold, which should also have actually benefited companies such as EA. It seems like they are misleading the press by insinuating that their company had been focusing a large percentage of their product revenue to come primarily from Xbox 360 software sales, when in actuality, they are multiplatform publisher whose large percentage of revenue comes from their sports lineup on the Playstation 2.
There are two new systems entering the market this year. It will be likely that game publishers like EA will continue to lose revenue because gamers will be saving money for these new consoles. What these companies will need to do is develop quality titles that will compete against what others will be delivering during launch, rather than continue rehashing older titles with minor upgrades. What gamers want to see are games that are pushing the next generation of consoles to the limit; something that we haven’t been able to see or get before. It would seem also that the “attach rate” will be a big factor this year, as many gamers will save up to buy new systems with launch title games and accessories. It will be survival of the fittest for game companies and many companies who don’t take this into account will get hurt.
These companies will need to learn that gamers will not be purchasing as many games this year as they have in the past. Although the sales of next generation console will hurt their sales, they should look to the future as these consoles are, and will be, an outlet for potential revenue. Eventually, after everyone has chosen their system of preference, game sales will rise again and people will stop blaming each other.
lpret @ Feb 7th 2006 4:56AM
From the article: If the biggest (and arguably savviest) publisher in the games industry can err so badly, chances are good that other companies also misforecast this transition period as well.
Well, that's not entirely true. One thing you learn when listening to conference calls with investors is that most CEOs are quick to take credit and even quicker to place blame externally. Sure, the 360 didn't sell gangbusters, but then again, there are a lot of reasons their weak earnings could be their own fault. As others here have mentioned, unimaginative titles as well as weak customer relations have created quite the cesspool. This is all happening while the gaming industry as a whole is growing in terms of gross profits -- incredible!
mirobin @ Feb 7th 2006 5:11AM
EA missed their target by over 100 million dollars. That's 1.6 million games at $60 apiece. Microsoft missed their sales targets by 250k units by the end of december (that's what they've stated at least). That would mean that they expected to sell 6-7 games per console.
Riiigghhtt...EA's numbers don't add up if you ask me.
Alex K. @ Feb 7th 2006 6:39AM
hey EA, maybe Xbox 360 isn't a good console to develop for, obviously about 300,000 people have one.
Maybe you should actually have developed for a good console while you had the chance, I dunno, like the DREAMCAST.
LordAlu @ Feb 7th 2006 7:15AM
EA don't seem to realise the reason they haven't sold many of their 360 games not because there is a "low number" of 360 users, but because all their 360 games were frankly pathetic. They released cut-down, feature-stripped versions of their best games and expect to sell them for £50 apiece! FIFA 06 (Road to World Cup) was the most rubbish attempt at a football game i've seen, Tiger Woods had an astonishing six courses (compared to the Xbox version's fourteen), Madden just didn't work properly, and Need for Speed was identical to its XBox counterpart, with a little bit of extra shine to it! Come on EA, if you're gonna make next-gen games, actually MAKE next-gen games, rather than putting our poor rehashes and then blaming Microsoft for your ineptitude!
gamer1 @ Feb 7th 2006 7:31AM
Yeah, I agree with mirobin. The numbers don’t add up. Not only did EA not have 6 games at launch for the Xbox 360, the games that they had for the Xbox 360 were of mediocre quality, such as FIFA, Tiger Woods, and NBA Live. There were many better titles that people would have wanted to buy instead.
EA could have sold many more copies on Playstation 2’s 100 million user install base with titles such as Madden, SSX, NCAA Football, and NBA Street. At $50 a game, they would only have only needed to sell 1 copy out of every 50 users to have met their goal.
hohum @ Feb 7th 2006 7:37AM
All of these excuses are a red herring. This happens EVERY single console transition. Go back and look at the numbers. EA's only fault is that they should know by now that this happens in console transitions. It's a combination of a few things:
1) Price drops on 'old gen' games hit revenues. Go look at how prices have dropped lately on Xbox only titles
2) People buying new consoles spend so much money on the consoles there is less money for games. Wallets are depleted.
3) People wait. Rather than making investments into old gen games, people save up and wait for the consoles to come out so they can figure out which one they want.
gamer1 @ Feb 7th 2006 8:22AM
Here is a link from IGN.com that shows how EA did on their Playstation 2 side in comparison to everyone else.
http://ps2.ign.com/articles/684/684395p1.html
If you ask me, it doesn't look like they did so bad there.
kip @ Feb 7th 2006 8:35AM
What's funny is that this sort of transition has been consitently seen in every other manufacturing tranformation through time. Lag in adpotion due to manufacturing where demand far exceeds supply increases the search for alternatives. Becasue of competitve reasons, the large multi platform gaming co's could never come up with a "last hurrah" type of game but rather get sidelined by software companies toying with manufacturing. I think this has the potential to really hurt the PS3 as well as Nintendo if they are unable to 1. have main product ready but also 2. have a game everyone needs to get. The issue here is that you have a multi-stage software development/manufacturing issues that unless you have asmall niche clientele, you need to know what you are doing in order to get it right. Balmer and co have fallen flat on this one and his quote of even an XBOX 360 not being in the Balmer house,true or not, hurts the chances of it being a hit as the tradtional best time for gaming and gaming sales is almost over. Could it be that Microsfot is waiting for a late spring/early summer release to capitalize on all the kiddies on summer vacation, maybe. And that could be the key to further perpetuating their strategy, though such a large lag really only allows consumers to start lookking for alternativs. I picked up a couple of bargain bin games and plan on capitalizing on price reductions while publishers are starved waiting for more platforms to come out.
MacAttack @ Feb 7th 2006 8:47AM
Honestly EA games are of low quality, even with a shortage of 360 consoles a game like COD2 did phenomenal with a crippled online play imagaine when they come out with a patch. So EA you just suck don't blame the 360!
Thomas @ Feb 7th 2006 9:05AM
I like how EA blames the gamers for sitting back and waiting, instead of Microsoft for the shortages.
At the local Gamestop, there was a LONG reserve list. They had to turn down requests for more reserves because they couldn't expect more units. And then Microsoft added on another screw by not even sending as many units as promised, and it wasn't until this month that JUST enough units arrived to give to the last few unlucky reserve-holders.
It's not that the system wouldn't have sold well(America loves its xboxes, and parents will buy their whiney children ANYTHING for Christmas), it's that Microsoft decided to screw over the American market in favor of flooding Japan with consoles(Who don't want them), giving the rest of the people in the states enough time to see that the release of the 360 was accompanied with very few releases(a number that doesn't look like it'll change anytime soon), none of which warrant buying the system. Especially AFTER Christmas. ("Happy Valentines Day! Here's an overpriced system with a crappy lineup!")
Of course, I also hate EA's games, but that's just me. The average gamer in the States seems to love them, if one is to judge by the sheer number of sports games that end up in the USED bin.
portorikan @ Feb 7th 2006 11:01AM
I bought Madden for my 360 and regretted it a whole lot. I mean, I was up in the air between Madden and Condemned, and Kameo and what did I pick up? Madden. Big mistake. The game froze temporarily periodically.
A lot of features were missing and the way it was set up online was just not there. I played a few games online, played a few games offline and basically it just sat there while I played Zuma and Geo Wars.
I've since picked up Condemned and this game is amazing. If you've got a 360, you NEED to get this game. Scares the crap outta me. I have never been more scared of mannequins in my LIFE!
Anyway, I blame EA's problems with the 360 on poor port and effort. If the game were half as good as that video they showed, it may have been better. I think they lied to consumers and that's what's hurting them.
SuicideNinja @ Feb 7th 2006 11:22AM
"Microsoft decided to screw over the American market in favor of flooding Japan with consoles"
Hardly. Even if they would have given the US those consoles, the reserve filling problem would not have been much better off. You make it sounds like they sent a million units over to Japan or something. Just because the 360 didn't get sold out in Japan doesn't mean they have hundreds of thousands of them sitting around.
Anyway, if this problem bleeds over to the PS3 and the Revolution, let's hope this doesn't mean a next-gen drought for software.
PoppaJr11 @ Feb 7th 2006 11:27AM
You put out mediocre games you will get mediocre sales.
cheatah @ Feb 7th 2006 11:53AM
Apparently Activision isn't having any problems....
http://news.teamxbox.com/xbox/10185/Activision-Reports-Financial-Results/
Thomas @ Feb 7th 2006 4:08PM
Post #19, Suicide Ninja
http://www.gamespot.com/news/6141064.html
http://www.gamesindustry.biz/content_page.php?aid=13575
http://www.cdrinfo.com/Sections/News/Details.aspx?NewsId=15808
http://www.extremetech.com/article2/0,1697,1916090,00.asp
http://www.kotaku.com/gaming/xbox-360-japan-launch-guide/index.php
"Microsoft has confirmed selling 900,000 Xbox 360s in North America, 500,000 in Europe and something between 0 and 100,000 in Japan. Either way, it adds up to 1.5 million." I'm going to assume that in those numbers for North America and Europe they're also counting Core systems.
Given the lackluster sales of the xbox 360 in Japan, there are indeed hundreds of thousands of units (Premium, Japan didn't have to deal with the Core nonsense) still sitting on store shelves to this very day. Heck, you could probably pick up a nice used version cheap. Less than a Core unit in the States. Heck, the Premium only cost a little more than the Core version in the states.
Granted, if those hundreds of thousands of units were in the States, there'd still be a shortage problem. But not as bad a one. Certainly a lot more people who wanted premium versions would be happier.
boo @ Feb 8th 2006 8:01AM
Why are companies trying to beat there annual net profits records from previous years. for example, EA could make $100 million in profit in 2000, 2001 they could make a net profit of $200 million, 2002 profit of $300 million, 2004 profits of $400 million, In 2005 Ea have a net profit of $350 million and then they say there is a crises and they make excuses for it. They still made more money in 2005 than they did in 2002, but no they're not happy because there not making more and more money every year.
I don't blame the sales of hardware because there is a hell of a lot more PS2's, cube and Xbox's now than there was in 2002. EA shouldn't be relying on more hadware sold, EA should be selling to the same audience from previous years. The reason why that's not happening is because the same audience have seen it, played it before. Look at Tiger Woods games, FIFA games just to name a few. It the same bloody game with very little updates in gameplay, and EA try to convince you otherwise, that they change a lot in terms of gameplay, but they're just trying to sell you thier products. EA's best games are from the 3rd party developers, like Critereon who make Burnout and EA get the praise for it.
I've had enough, EA are doing my head in just writting about them.
dan white @ Feb 9th 2006 12:25AM
I think we all agree from the above comments that EA sucks ass cracks, I've been pissed since they basically bought out the 2K football series which they knew kicked ass. Then they put out a bunch of other games and what happens well there severs suck for anything online i believe burnout revenge was the first decent online experience that i had,then the crap, well you give me 60 bucks and i'll give you half the coures for tiger woods (360) i mean WTF that game was soooo thrown out the door it wasn't even funny. I just wish they would keep gettting involved in games i see comin down the pike cuz i hate to buy anything EA anymore because i want them to suffer and i think that is the point i'm tryin to make. It's not because there weren't enough 360's to sell there crap onas much as i believe people don't want there crap games anymore ,so let's all quit buyin EA for 6 months and see what happens!!!!! GAME ON!!!! DOWN WITH EA, cuz YOU SUCK!!!!