Q2 ‘Shaping Up Well’ for Electronic Arts, COO Says

Q2 is “shaping up well” for Electronic Arts, with NCAA Football 11 “off to a good start,” Chief Operating Officer John Schappert said Tuesday on an earnings call. He didn’t say how many copies had been sold, saying only that EA’s “retail checks” indicated that this year’s entry in that game series was “doing well” compared with last year’s version. Madden NFL 11, meanwhile, “has solid pre-orders” that “are pretty much on par with last year and our marketing is just kicking in,” he said.

EA “successfully launched EA Sports Online Pass to build loyalty and online participation” in Q1 ended June 30, CEO John Riccitiello said. Based on early Tiger Woods PGA Tour and NCAA Football results, Schappert said, EA is “pleased to see 60 to 70 percent of online connected users” of the new entries in those game series “redeeming the code” for Online Pass. The service provides gamers with online features and bonus content. “The level of online play amongst our user base is up from last year, and revenue from paid downloadable content is also up,” Schappert said. But he said it’s “too early to tell” how Online Pass has affected used-game sales for the titles it has phased the service in for. Revenue from Online Pass has been “pretty immaterial” so far, but “we think it’s a nice draw to get people into the game and play online,” he said.

EA ended Q1 with 7,758 employees, down from 8,948 a year earlier and 7,842 at the end of Q4, said Chief Financial Officer Eric Brown. Twenty-one percent of EA’s employees “are now in low cost locations,” he said. The company made about $28 million by selling its minority stake in Ubisoft last month, he said.

"Much of the weakness in the” game market “is related to the Nintendo Wii and the music category, where EA has less exposure,” said Brown. But, he said, “We are starting to see signs of strength in the high definition console software market, which we estimate is up 21 percent” this calendar year from a year earlier. That’s been “driven by the Sony PS3, which is up sharply on its attractive price point,” Brown said. “Microsoft is also starting to gain traction with its new, enhanced Xbox 360 form factor,” he said. “This trend plays into our strength given our share position” on the two HD consoles, he said. EA now has 52 million monthly active social game users, he also said.

The company shipped 3 million copies of the new game 2010 FIFA World Cup South Africa in Q1, and Brown said that result “offset” the performance of Skate 3 and Tiger Woods PGA Tour 11. In catalog games, Battlefield: Bad Company 2 “continues to be a strong” performer for EA, and it shipped 1 million copies of the title in Q1, he said. Madden NFL 10, meanwhile, “continued to generate sales, meeting our expectations, selling in a cumulative total of more than 6 million units through the end of Q1,” he said. FIFA 10 “benefited from the success of the World Cup, with life-to-date” shipments growing to about 11 million copies, up 10 percent from the previous year’s FIFA title, he said.

It has been reported that packaged game sales are down 9 percent from a year ago, Schappert said. But he said it’s important to recognize “the disproportionate impact of the music category, where EA has limited exposure” and where plastic accessories tend to distort software sales numbers. In North America, adjusting for music games, packaged game sales are down only 4 percent from last year, Schappert said. It’s also important, he said, that “by some estimates, as much as 25 percent” of the games market in western regions of the world are “not counted in industry data reports” such as NPD’s. “Digital revenue streams not captured” by sales data services include digital game downloads, massively multiplayer online game subscriptions, mobile revenue including the iPad, payments for virtual goods in free-to-play browser games, console downloadable content and social network gaming and advertising, Schappert said. So despite the position of some industry observers, “We believe games are healthy, particularly where EA leads -- on high definition consoles and in digital,” he said.

EA’s Q1 GAAP revenue improved to $815 million from $644 million in Q1 last year (CED Aug 4 p5). But the company said non-GAAP revenue fell to $539 million from $816 million. The decline had been expected because of a smaller game release slate, but the result still topped the company’s forecast of $460 million to $500 million, it said. Offsetting that decline some was “strong digital revenue growth,” EA said. It swung to a GAAP $96 million profit, 29 cents per share, from a $234 million loss, 72 cents. But its non-GAAP loss widened to $78 million, 24 cents, from $6 million, 2 cents.