Electronic Arts released their 2nd Quarter earnings report yesterday, and the numbers weren’t looking so good. Despite beating their estimates, they showed a significantly increased loss from last year, $381 million, up from $340 million in 2011. Though income is actually up from 2011($49 million versus $17 million last year), the earnings report seems to reveal a continuing trend of expenses consuming profits.
The 2nd Quarter report came with a warning to investors that Q3 would be “soft” due to a number of factors. In short, just about everything EA had in the pipeline has come out, and several of those titles performed far below expectations.
“We are managing the ups and downs. Our Q1 and Q2 were better than expected. Our Q3 appears soft, due mostly to Medal of Honor,” said EA CEO John Riccitiello. Both Riccitiello and newly appointed CFO Blake Jorgensen place the premature blame for EA’s next quarter on the failure of Medal of Honor: Warfighter, a game that is (deservedly) bombing at the moment. How sad. Maybe if they had allowed Danger Close to actually finish making it before releasing it things would have turned out better? Nevertheless, EA is quoted as planning to support Warfighter with additional marketing over the holidays, because everyone knows crap turns to gold if you pump more money into it.
Surprisingly, EA’s Sports division is also staggering a bit, with the cancellation of the latest NBA game seen as another contributing factor to the next quarter’s projections.
“EA Sports is committed to basketball and we will publish a basketball game when we can match the quality of franchises like Madden NFL, NHL Hockey, Tiger Woods PGA Tour and FIFA soccer,” said EA labels president Frank Gibeau.
The recent Free-to-Play conversion of Star Wars: The Old Republic was also a topic of interest during the Q&A session, however it was felt that the transition happened so recently that it’s success or failure could not yet be judged.
Does this less-than-stellar quarter mean that EA is likely to go bankrupt anytime soon? Probably not. But reporting loss after loss in your earnings reports doesn’t look good by any stretch of the imagination. EA touts its digital success as one of its most thriving areas at the moment, but I can’t help but wonder if that success is exaggerated. A year after launch, Origin claims to have over 30 million users, but does it really feel like that is the case? Does anyone actually use that service over Steam for anything but the few games that are exclusive to it? I suspect several million of those supposed “active users” are either bots, scammers or people who hopped on board one-time-only to exploit the store on the several occasions that it has broken.
What’s more, EA seems to be holding the Battlefield franchise up as one of their cornerstones going forward, when their estimations of its future success may be way overblown. While Battlefield 3 did ship an impressive 12 million units, Battlefield Premium has managed only 1.3 million as of August. With EA basing so much of their business model on dragging additional revenue out of titles through DLC, is it really a good sign that their big FPS series can only manage a 10% retention rate after less than a year? They flat out said in yesterday’s conference that they would be dropping support for Battlefield 3 from here on to work on Battlefield 4, exactly one year later, a move that I’m sure a whole lot of gamers are going to be pretty pissed about.
Again there’s that underlying problem: EA just can’t stop pissing off their customers.