I have always been baffled as to why the PS3 would be the top revenue generator for consoles for EA.

It didn't make any sense.

Therefore, I had to take a look at EA's earnings release for the most recent quarter - Q1 Ending Jun 30, 08

And just as I suspected, XBox sells more software, according to EA's own definitions than the PS3.

Reported Revenue by Platform (GAAP):

PS3 = 139 = 17%

XBox = 81 = 10%

Wii = 79 = 10%

PS2 = 57 = 7%

Total of 44% of GAAP revenue is derived from consoles.

However, reading deeper into the financials, EA itself considers its Non-GAAP numbers to be important in comparing prior quarters to recent quarters.

They also use their Non-GAAP numbers to evaluate their acquisitions, as well as their own internal results.

If you go by their non-GAAP numbers, the result are as follows:

XBox = 81

PS3 = 68

PS2 = 40

Wii = 39

Why the difference?  Basically it is because of "Change in Deferred Net Revenue (Packaged Goods & Digital Content)

PS3 = 71

PS2 = 39

Wii = 18

If you add these numbers - they will equal the GAAP numbers.

Do you notice what is missing?  XBox revenue.  That is, the GAAP and non-GAAP numbers are the same for XBox.

continued.. 

Though note that in the previous quarter, PS3 beat the XBox 138 to 128 million in revenue. Again, XBox required no such GAAP/non GAAP adjustments.

To explain - in GAAP terms, they are generally required to recognize the revenue from "Change in Deferred Net Revenue (Packaged Goods & Digital Content)".

That is, EA is recognizing revenue, that in the past, they were "spreading out" for a longer period of time, from my understanding.

QUESTIONS:
Are there "ONLINE CONTENTS" in PS3 EA games, that are not available in X360 games?
eg. UEFA, Army of Two, Burnout, etc.?

My actual opinion - is that EA were shipping out goods, that:
(a) were not paid yet - that is, until a longer than normal period of time
(b) getting some revenue that is spread out over time, rather than just one time

It seems strange that only PS3, PS2 and Wii have it, but not XBox.

continued...

In conclusion:

1. Have to take a look into it, cause it now piqued my interest.

2. I speculate than Sony, is getting EA to ship out goods so that they can also recognize software revenue - thus making their financials look better

OR

3. Sony is paying EA to maintain servers/services to facilitate online play of their games

Any other insights would be welcome.

Note that this only happened last 2 quarters.

In the previous quarters, EA actually recognized more non-GAAP revenue and had lower GAAP (reported) revenues.

The adjustments basically started Q1 FY 08 (end Mar 08).

So something is definitely strange regarding PS2, PS3, Wii, PSP revenues.
Again, XBox revenues don't require adjustments.

Strange indeed.

DISCUSS AND AS ALWAYS, LET ME KNOW IF YOU HAVE ANY QUESTIONS.

In terms of revenue recognition (or when sales can be recorded as revenue), I believe EA is recognizing their revenue along the same lines as Apple recognize their revenue for the iPhone.

iPhone sales are recognized over a 2 year span ... so the $500-600 Apple receives per phone is recorded as a monthly revenue of $20-$25. I believe this is what EA's doing also, except over a 6 Month period instead of 2 Years.

You probably need to look back as far as Q3 FY2008 to figure out exactly what was sold that allowed this revenue recognition.

It depends.

For example:
In Q1 to Q3 08 - PS3 had GAAP revenues LOWER than non-GAAP

In Q4 08 and Q1 09 - PS3 had GAAP revenues HIGHER than non-GAAP

Again, I want to understand why they are having to adjust their GAAP and non-GAAP numbers for PS3, Wii and PS2, when XBox numbers don't need adjusting.

My gut feel, is the online component (hosting servers) has something to do with it.

Most likely, in Sony's (Wii, etc.) example, they pay EA some sort of "hosting fee" for the online component.

@bumidan - I don't think they would defer a hosting fee even in a non-gaap report. Gaap/non-gaap you would recognize this revenue during the quarter it was generated. Plus EA doesn't host anything for Sony.

@Bumidan - EA accounts for their revenue from downloadable content differently, I think its because they consider the Xbox360 to be a more reliable generator of it, they account for expected revenue at the date of sale rather than many months later, thats as far as I've heard on the subject anyway.

Are you saying that EA isn't reporting any revenue for their 360 online content? What if EA and MS worked out a deal?

No licensing fees for all DLC revenue?

You are probably looking in the wrong area for the difference. Remember that the PS3 is probably earning EA the most income in Europe, while the Xbox is earning them the income in USD. With the current weak dollar it means EA is probably earning as much as 10-15 USD more per copy of a game sold in Europe compared to each game sold in the US. That quickly adds up.

Also in terms of bookkeeping I would assume the Xbox is treated differently because the business between EA and Microsoft is between two US companies, so they do not need to do any special bookkeeping to keep tabs of fluctuations in currency value. Sony and Nintendo however, being Japanese companies probably means EA gets a lot of their payments in Yen, and since SCEE is basically a independent company the way Sony is organized it is likely that SCEE payments to EA comes in the form of Euros.