New EA CEO says video games are "boring"

[Sullla]

Wow, vehement responses from some of our posters. Seems like I hit a nerve here.

vizunary, I'm not disagreeing with you. This being a sales website, I'm simply discussing the business side of things, and no third-party has been as successful in that regard as Electronic Arts. If you don't like their games, there's nothing wrong with that - I also think that many of their recent franchises have grown stagnant. I just think it's silly to rain abuse down on the head of a company that consistently dominates the sales charts, and turns a profit every year. I think we'll just have to agree to disagree on this one.

Legend11 - dude, you need to calm down a bit. Did I say that no one has created profitable games for the 360? No, not at all, and you could certainly come up with examples to the contrary. What I said was that EA's costs have been rising at a very noticeable rate over the past few years, and almost all of that increase has gone into rising development costs. I don't doubt that some titles have proved to be very profitable; I'm merely point out that the general trend has been rising development costs, decreasing profits:

FY04: $511 million R&D costs, $577 million total profitFY05: $633m R&D, $504m profitFY06: $758m R&D, $236m profitFY07: $1041m R&D, $76m profit

Now there's no guarantee that those are two are related, but it does seem likely, doesn't it? EA specifically states that their marketing expenses (p.114) remained constant at 15% of overall costs, and ditto for administrative costs (slight increase from 7% to 9% of costs). But R&D costs jump from 26% to 34% of net revenue! (p.115) It's difficult to escape the conclusion that higher development costs are significantly driving up expenses - and hurting the overall bottom line.

You asked for a specific breakdown of expenditures per platform versus profits for each. (Jeez, is this becoming a homework assignment now? ) This is very difficult to find, because EA provides lists only for revenue generated by each console, without mentioning the costs associated with each one. (You can find the revenue listing on p. 112, for the curious.) It's impossible to make year on year comparisons here between any of the new consoles, because the 360 was so new in March 2006 and the PS3 and Wii didn't even exist. About the only thing I'd mention is that EA's Wii revenue was non-existent for this past fiscal year (less than 2% of the total), so that kind of provides indirect evidence for what I was saying previously. EA did 50% more revenue in sales from the PS3 compared to Wii (94m versus 65m) - I can't prove it, because EA doesn't list costs by console, but I'm going to guess that the costs associated with developing for PS3 were probably significantly higher than that for Wii.

About the best I can find on this issue is EA's justification for why their R&D costs are skyrocketing:

"We have incurred increased costs during this transition as we have continued to develop and market new titles for certain prior-generation video game platforms while also making significant investments in products for the new generation platforms. As we move through the life cycle of prior-generation consoles, we will continue to devote significant resources to the development of prior-generation titles while at the same time spending more for the new generation of platforms and technology. As a result of these factors, we expect research and development expenses to increase in fiscal 2008." (emphasis added)

Bingo. EA has been paying significantly higher development costs, and they expect them to keep going up for the forseeable future. I mean, it's not really that complicated. Of course, EA's not about to cut off support for any platforms in the forseeable future; they've always developed for everyone (except the Dreamcast, but that's a long story) and done quite well that way. I never suggested that EA would be cutting off development for the 360 or PS3, did I? What I did was explain why adding more resources for the Wii makes a great deal of sense from a fiscal standpoint.

I only bring up Take-Two as an example because the company gets tons of praise from Internet fans, but their company is a total mess. Everyone hates EA, and everyone loves Take-Two. But which would you invest your money in? (This is not meant to be a "hardcore" versus "casual" discussion.)

I'm tired of digging up numbers now; you're welcome to do some hunting and add to the discussion. I hear a lot of people making claims, but not a lot of reading the actual numbers put out by each company.