EA Looking to HD and Digital Downloads for Future Growth, CFO Says

Electronic Arts is driving toward $750 million annual revenue from digital business, Eric Brown, chief financial officer, said during a webcast from the Credit Suisse Technology Conference in Scottsdale, Ariz. The company generated $430 million from digital content in fiscal 2009 and that grew to $570 million in fiscal 2010, driven largely by downloads for extra content including micro-transactions for free-to-play games, social network games from Playfish, and map packs for Xbox 360 and PS3 video game players, Brown said. Full-game downloads have also been a key driver for the company’s revenues for fiscal first half 2011, which ended Sept. 30, he said.

Worldwide, the video game software industry is seeing growth rates of 15 percent annually, with “a lot of growth coming from digital,” Brown said. Packaged media has seen strong growth for the same period, he said, increasing from “a couple of hundred million dollars” to nearly $4 billion for the calendar year ended 2009. Sales for calendar year 2010 should be up 7 percent overall, he said, with digital continuing to expand. Gains will be offset by a contraction in standard-definition software for dedicated handhelds including Nintendo’s Wii and DS and the Sony PSP from under $14 billion to $10.5 billion for the year, he said. Growth in HD platforms will only partially compensate for the drop in SD sales with HD platforms expected to see growth from $11.4 billion to $13.3 billion, he said. Citing recent NPD numbers for the industry, he said, “It’s important to drill down one or two layers to see what’s going on in HD platforms versus SD."

With a falloff in sales of standard-definition game titles, EA has 80 percent of its packaged goods portfolio weighted toward HD consoles, Brown said. A primary company objective is to grow digital business to be a higher percentage of overall sales that “matches the 40/60 digital versus package split that we see in the market worldwide today,” he said. He noted that the company introduced a digital version of Battlefield Bad Company 2 that was downloaded to players’ hard drives. “That was $16 million net revenue against pretty modest single-digit R&D” spending of under $10 million, he said, calling it “high ROI for $16 million of revenue.” Brown also said the company will ship the much-anticipated Star Wars MMO sometime in its fiscal 2012, which begins April 1, 2011. He wouldn’t give a specific date.

In western regions, EA is seeing a shift away from feature phone revenue to smartphone sales, Brown said. The segment represents an $11.7 billion market, he said, with $1 billion now coming from smartphone sales including iPhone. Brown said EA has number one market share for the Apple OS products and held seven of the top 16 iPod apps as of mid-November. He also said games for Kindle “were doing well,” adding that Monopoly for Kindle “is off to a good start.”

To generate more digital revenue, he said, the company is turning to new models such as the card pack it introduced in fiscal 2009 for Ultimate Team on the PS3 and Xbox 360 platforms. Players buy cards in packs of 10 to try to put together the best team for competitive online play. Citing “interesting elastic behavior,” he said players have spent $500, $800 and even $1,000 to put together a top team. Serious soccer fans and competitive players have driven the net digital revenue for the card packs from $15 million to $31 million, he said.