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Opinion: EA's inability to turn a profit demonstrates a wider industry malaise

Today's gamers won't fit neat into financial qtrs

Opinion: EA's inability to turn a profit demonstrates a wider industry malaise
You have to feel sorry for EA.

It's been the behemoth of the games industry since 1982.

For decades, its stock was the closest thing you could get to investment grade, rising steadily as it saw off the challenges from the likes of Acclaim, GTI, Infogrames, THQ... remember them?

Now, however, it finds itself in a similar position to those companies.

Its stock is grinding down and down; it hasn't been this low since 1999.

It now obscurates its official financial numbers, preferring to headline metrics such as trailing 12 months performance rather than the Generally Accepted Accounting Principles (GAAP) numbers.

As analyst Michael Pachter puts it, even CEO John Riccitiello can't understand why.

'But John, you're five years into a three year turnaround,' Pachter wryly commented to him over dinner, perhaps apocryphally.

Wrong time

The big problem for EA is it's been doing pretty much everything right.

It has smart and experienced executives and staff. It's fairly well funded and has been prepared to spend cash to acquire companies big and small - Firemint, Bight Games, PopCap, Playfish etc.

It has great brands and it's accelerating its transition to games as digital services; no small issue for a company built on its ability to blockbook miles of global retail shelf space for high quality console games that always arrived on budget.



And it's not just making this transition in North America and Europe as its work with GREE in Japan and Nexon in Asia demonstrates. It's even successfully launched its own Origin cross platform social network and distribution channel.

One small glimmer of hope is that EA Mobile continues to grow. It's small - a mere 7 percent of total sales - but it continues to experience double digit growth.

But still the best news EA seems to generate now is that its losses are narrowing or are smaller than analysts expected. It hopes to breakeven for FY13, but likely will make another yearly loss - its fourth in five years.

Where now?

Of course, the problem is a wider one for the entire game industry; EA has only been hit hardest because it was in the strongest position. In that sense, it's a poster child for the wider malaise.

In the world of digital content - social and mobile games and MMOGs - it's almost impossible to turn around the oil tanker you require for success in the retail goods business.

Not only is most of your development experience wrong, but your cost base is also completely wrong.

No matter how much you spend on restructuring and acquisition, it's trying to build the plane in mid-air - hard to do generally and almost impossible when you're a company with $4 billion in annual sales and you have to meet your quarterly figures.

Even Zynga and Facebook are now proving that the frictionless and promiscuous gamers of today can't be corralled into neat three month periods.

It's something even Activision Blizzard will have to grapple with as Call of Duty becomes a mature product and monthly subscriptions for MMOGs become a thing of the past.

And that's my investment grade advice.

Contributing Editor

A Pocket Gamer co-founder, Jon is Contributing Editor at PG.biz which means he acts like a slightly confused uncle who's forgotten where he's left his glasses. As well as letters and cameras, he likes imaginary numbers and legumes.