The Players

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To address the problem, the board focused on corporate and creative measures, initiating "a big push in terms of efficiency, better 'owned' IP, creation and delivery, more of a focus on operations," says Brown. Last summer the company restructured its business around four divisions: EA Games, EA Sports, EA Casual and a separate division for its popular Sims franchise. It gives the group a fresh framework, says Brown, and introduces new priorities for him as CFO. "To the extent that we can enable and enforce autonomy and agility while maintaining all the advantages of scale, common systems [and] common reporting, we'll get the maximum operating leverage," he says. It could be a long journey. In the fiscal year to April 2008, revenue rose but the company reported a $454m loss. The board expects to report a profit for next year, although its losses continued into the first quarter.

Mauricio at Arete Research says launching 14 brands in one year is risky given marketing costs. Conversely, Brown claims EA's line-up is "the best I think we've ever had." The CFO says that the company balances its portfolio to ensure it has an offering for almost every type of player: gamers who like the idea of Littlest Pet Shop are a different demographic from those eager to buy a game called Face Breaker.

The company is also using M&A to buy brands. At the time Brown spoke with CFO Europe, EA was in the middle of a $2 billion takeover bid for Take Two Interactive Software, the company behind the wildly popular Grand Theft Auto series. EA's hostile tender offer expired in mid-August after being extended several times since February, but the companies have since entered confidential talks that could lead to a deal.

In all, it's an exciting time for Brown to return to the EA fold. He left a COO post at one of its California studios in 2000, then was CFO of two software firms before returning to EA as finance chief earlier this year. The company's focus on quality is the same, he says, but opportunities in the casual and online markets have changed the game for finance chiefs. When a new title takes off today, "there are multiple ways to expand that and monetise it," he says. One such new revenue stream is in-game advertising, which the company has been working on for almost two years. In the latest instalment of racing franchise Burnout, for example, players speed past billboards advertising clothing brand Diesel and vehicles emblazoned with the Gillette logo.

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Another new revenue model has been developed with an online football game that EA launched in collaboration with FIFA in South Korea. It's free for gamers to play, but they must pay for extras such as new kits for their virtual footballers. Brown won't confirm whether the company makes more from these micro-transactions than it would from selling the game as a packaged product, but claims that FIFA Online generates about $1m a month of revenue, split between several parties including the football association. In its latest results, EA's overall digital revenue — downloads, micro-transactions, in-game advertising and the like — rose by more than 25% to $342m.

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Catch Them if You Can
At Activision Blizzard, Tippl reckons that with games such as World of Warcraft the company has lessons to offer the digital industry about how to develop dependable revenue streams from an online community. "These are things that Facebook and MySpace and so on still have to figure out how to do, and it's a big step from offering a product for free to charging for one," he says. "We are already there. We are already monetising that user base, and as a result I think we have a big advantage over many of the media companies."

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Media companies are keen to catch up. Disney has been investing more in its inhouse games development studio, while Warner Brothers has invested in UK publisher SCi Entertainment. "Gaming companies are attractive targets for media players," says Williams at BMO Capital Markets. "As the consumer today is looking for more dynamic and interactive forms of entertainment — and these games really represent that — I think other companies not currently in the games category will get more aggressive to find a way into it."

Tippl is not concerned. "It's one thing to identify a fast-growing segment that is very profitable. It's another thing to actually figure out how to get your piece of the pie," the CFO says. "Video games have many unique features and require different skill sets from the music business or the movie business. We are quite comfortable with our position."

Economic woes do not seem to be keeping games industry chiefs awake at night, no doubt to the envy of those in other industries. CFOs and industry experts agree that the games sector has proved reasonably recession-proof in the past — consumers who enjoy video games consider them good value for the hours of entertainment they get. Tippl sees no reason for that to change, credit crunch or not. He reasons that consumers have little else to take up their leisure time. "They can't afford to drive anywhere because the gas prices are so high. They can't afford to dine out, so they're going to spend more time at home," he says. "What else are they going to do? They've got to be entertained somehow."

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Tim Burke is senior staff writer at CFO Europe.


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You Got Flagshipped!

As any keen video game player knows, there are plenty of pitfalls along the path to being a winner. That goes for the publishers and developers of the games too. And it seems that the smaller the publisher or developer, the more pitfalls it faces, especially if it is too reliant on only a few games which may quickly fall out of favour with gamers. "Small guys can win [in this industry,]" says Phil Stokes, an entertainment specialist of PricewaterhouseCoopers. "The question is, can the small guys win consistently?"

It's a question that SCi Entertainment, a UK-listed publisher that owns the Tomb Raider franchise, has struggled to answer. Its shares have fallen as takeover speculation failed to produce a bidder, and the board given a shake-up, with former CFO Phil Rogers taking over as CEO in January this year to head a turnaround. Analysts claim the company has been too reliant on too few brands. The company now expects its results for the year to July to show a loss of up to £100m (