EA Stumbled With ‘Active 2’ Over Holiday Season, CEO Says

The EA Sports Active 2 fitness title that Electronic Arts released late last year sold weaker than expected over the holiday season, CEO John Riccitiello told a Goldman Sachs conference in San Francisco Tuesday. EA added a bundled heart rate monitor to its second Active title -- a move that “cost money” and created the need for the title to be sold at more than the typical $50 price, he said. The game was released at about $100, about twice the price of most console fitness games.

"We found out this holiday there was absolutely no appetite in the marketplace for that premium price, and we got clocked,” Riccitiello said. Retailers have since drastically cut the game’s price on the PS3, Wii and Kinect for Xbox 360.

"A lot has changed” at EA, Riccitiello said, saying it was “the leading player” on console games seven years ago, when packaged games accounted for about 80 percent of game sales industrywide. “I think it’s fair to say that” EA “dropped the ball” on the transition to the current console cycle, he said. Its intellectual property “deteriorated,” and it “didn’t really have an answer for the rise of digital,” he said.

But EA has “made a dramatic number of changes” to adapt to changes in the business, slashing the number of titles the company releases and “dramatically strengthening our intellectual property portfolio,” Riccitiello said. Digital is now EA’s “fastest-growing business,” but that market remains “enormously fragmented,” he said. “On balance,” the free-to-play business model in which consumers pay no up-front cost for a game but then pay for micro transactions for the title “is a better model” than pay-to-play downloadable games, Riccitiello said. “A free-to-play micro transaction game often will achieve a far higher number of users than a game with an up-front cost."

EA’s recent earnings forecast for fiscal 2012 “incorporated the assumption, not the belief, but the assumption that there may not be an NFL season” due to a possible work stoppage, the CEO said. “I have every hope in the world that the NFL and the Players Association will come together, resolve the differences” they have, and there will be an NFL season, he said. EA negotiated a deal with the NFL under which “we don’t get hurt as much as we otherwise would” if there’s a lockout, Riccitiello said. EA also extended the deal it has for the publisher’s hit annual Madden NFL game series, he said, not providing specific terms. The company releases new Madden games each August, to coincide with the start of a new NFL season.

EA’s Dead Space 2, meanwhile, is selling stronger than the first Dead Space game did when it was released, Riccitiello said. The sequel has “only been in the market a couple of weeks,” but sellthrough is “about double” what sales for the first game were in the same time frame, he said.

EA continues to hope for growth in its first-person shooter and massively multiplayer online (MMO) game businesses, Riccitiello said. The publisher has especially high hopes for the coming online multiplayer Star Wars game that its BioWare studio is developing, he said. Riccitiello praised Activision Blizzard’s hit World of Warcraft MMO, calling it “one of the greatest products invented” and “probably the most profitable individual entertainment property ever.” But he said “we're going right at it” with the Star Wars title, saying “we want to take share” away from it.

A good sign for the game industry and the relationship between game publishers and retailers is that HD videogame sales were up 20 percent this past holiday season versus the 2009 holiday season, the CEO said. “Most big box retailers or even media retailers don’t have a whole lot of 20 percent growth stories.” And Riccitiello said “we drive retail traffic” with the 50-60 AAA games released by the industry each year because “millions of consumers” turn out in the first 24 hours or first week after such titles go on sale.