Post by sfscriv on Mar 20, 2013 4:20:19 GMT 1
Forbes
John Riccitiello Steps Down As EA CEO - Why, And What Now?
18 MAR 2013
by Daniel Nye Griffiths
EA CEO John Riccitiello will step down as Chief Executive Officer and from the Board of Directors, effective March 30, it has been announced.
Alongside this announcement is a note that its expected Q4 results will be “at the low end of, or slightly below previously issued guidelines”. Consensus on EA’s Q4 earnings is around $1.08 billion, with EA revenue forecasts between $1.025 billion and $1.125 billion.
While a successor search is initiated, Riccitiello’s duties will be handled by Larry Probst, who will transition from Chairman to Executive Chairman. Probst was CEO of Electronic Arts from 1991 to Riccitiello’s appointment in 2007. This is not even the first time he has dealt with Riccitiello’s resignation - he resigned as COO in 2004. Probst is likely to be seen by investors as a safe pair of hands, to give the board a chance to vet a suitable replacement.
Riccietello said in the press release announcing his departure:
"EA is an outstanding company with creative and talented employees, and it has been an honor to serve as the Company’s CEO. I am proud of what we have accomplished together, and after six years I feel it is the right time for me pass the baton and let new leadership take the Company into its next phase of innovation and growth. I remain very optimistic about EA’s future - there is a world class team driving the Company’s transition to the next generation of game consoles."
And, in a letter to employees, attributed his departure to EA’s financial results.
Riccitiello’s departure comes at a transitional time for the games industry EA has often led: not only are new consoles arriving from Sony and Microsoft to face uncertain markets, but the mobile gaming industry is growing in size and scope, outside the traditional channels of handheld gaming devices.
Electronic Ars longa, PS Vita brevis, you might say. OK, you might not.
However, Riccitiello also took up his duties as CEO at a transitional time, and oversaw a series of significant steps by EA.
Non-mergers and acquisitions
Perhaps the biggest and boldest move of Riccietello’s early time in the CEO chair was the February 2008 bid to take over Take-Two Interactive in a $2 billion merger. Looking back, many would say that Take-Two and its studios dodged a bullet when the bid was abandoned later that year, but the strategic intention was clear - to build a portfolio of games which would break EA out of its perception as “the games company for non-gamers”, driven by EA Sports and Maxis¡® Sims franchise, and give it a dominant portfolio across every gaming vertical.
Following a similar line, Riccitiello’s time at EA, on a corporate level, involved significant acquisitions - notably Bioware and Pandemic Studios for $775 million, Playfish for $275 million and Popcap for an initial sum of $750 million in cash and shares, all with significant bonus and earnout payments above these sums. These were major, ambitious purchases intended to position EA as a leader in previously underexploited areas - mobile and social gaming, but also the MMO market which Activision Blizzard had so successfully monetized with World of Warcraft.
Along with BioWare’s role-playing games expertise, they were assigned the task of taking the money-spinning Star Wars IP and creating a successful MMORPG. Meanwhile, the Swedish developer DICE (renamed EA Digital Illusions CE), purchased before Riccitiello’s return and creators of the quirky first-person parkour game Mirror’s Edge, worked on not one but two rivals for Activision’s huge-selling Call of Duty: Modern Warfare franchise, delivering the multiplayer gameplay of Medal of Honor’s reboot and then creating Battlefield 3, a high-gloss, high-performance multiplayer shooter which sold 13 million copies.
(NBC News: ""Battlefield 3 Premium" service, which racked up 800,000 subscribers in its first two weeks.")
(mp1stdated 31 JUL 2012: "According EA's reports, Battlefield 3 Premium generated $37 million in sales.")
Execution issues
From a business perspective, these were bold, if risky, moves. EA, despite annual sales in the billions, does not generate large profits. And, as is the way of bold moves, some came off and others did not. Medal of Honor in 2010 and Battlefield 3 in 2011 performed acceptably and well respectively, but did not dislodge Call of Duty, and the Medal of Honor IP was subsequently damaged by the poorly reviewed and underselling Medal of Honor: Warfighter, with the franchise being taken “out of rotation”.
The Old Republic, created at huge cost, launched to considerable fanfare in late 2011, but could not sustain its subscription-only model and, although profitable, is now largely free-to-play, as is the EA-published FunCom MMO The Secret World. “Profitable” and “delivering satisfying RoI” are quite different things...
Meanwhile, a growing chorus of dissent was growing regarding EA’s relationship with its studios and business practices. Criticism sparked around the release of Mass Effect 2 and Dragon Age 2 from Bioware, as fans of the originals complained of simplification and streamlining. The rebranding of EA’s digital store as Origin, in clear competition with Steam, and the use of Origin exclusives to push shoppers towards it was fiercely resisted.
These harmonizing strains came to a crescendo with the release of Mass Effect 3 in spring 2012. Although the explosion of protest over the game is largely remembered for a controversy around its ending (and some nasty and distracting displays of misogyny and homophobia in protests around its plotting) other issues - the release of a purchasable DLC pack on the day of release, and a multiplayer component which had some impact on the ending of the single-player game, and permitted the purchase of random equipment packs with cash money - also received significant attention, and were in the longer term probably more important.
The “Retake Mass Effect” movement is, even with hindsight, impressive in its vehemence and creativity, and some of the fun in its wake - such as the Consumerist’s “Worst Company of 2012” award - were possibly taken more seriously on Web Street than Wall Street. However, it certainly defined a narrative for criticism of Riccitiello and his company: that EA, despite his assertion when returning as CEO that it would respect studio autonomy, was pushing BioWare to simplify its game style, to work to the level of sophistication of games consoles rather than PCs, to build in multiplayer (which would become unusable if and when EA shut down the servers) and cash shops and to focus on DLC as a way to spread the work of recouping development costs.
The argument about to what extent EA is responsible for these changes to games, and how much the invisible hand of the market is to blame, will be fought over for a long time to come. Regardless, many sequels - Mass Effect and Dragon Age, but also Dead Space and others - were met with sustained and vocal criticism, and the EA brand was suffering. Meanwhile, EA stock remained significantly below its pre-recession high of just over $60 - since late 2007, it has not troubled $30.
Sim-Plegades
The latest issue, around the long-anticipated remake of SimCity, represents a perfect storm of these issues. Released initially to glowing previews, the retail launch - exclusively through Origin for digital download - was dogged by technical issues, as buyers found themselves struggling both to download the game from Origin and then to connect to the servers. EA’s insistence that always-online play was structurally vital to the game’s engine, was challenged, and under pressure revealed to be primarily based around multiplayer and cloud saves. With the initial server issues now largely resolved, the controversy around the demand for constant connectivity, and the threat it represented to the long-term enjoyment of the game, continues to rumble on.
Despite this, SimCity has sold just over a million copies in its first two weeks of sale, impressive for a PC-only release, and is the most successful SimCity launch yet. In many cases, EA games are not purchased by dedicated followers of gaming culture - and, largely, EA Sports and EA’s mobile divisions have been proceeding without much controversy.
Happy ever after?
Gamers who have set their face against Riccitiello’s EA will see his departure as a victory - certainly, there is likely to be a sort of triumphant afterglow in the wake of his departure. However, two other significant events from different sides of the tracks are also are worth noting. In September 2012, NBA Live, from the profitable EA Sports label, was cancelled after a series of delays. And in January 2013 Arvind Bhatia of Sterne Agee downgraded EA from “buy” to “neutral”, citing doubts that it would meet expectations for the year - doubts which seem now to be being confirmed.
The hope that Riccitiello’s departure will usher in a golden age of studio independence and a return to the former glories of Maxis, BioWare et al may yet prove justified. However, a Chief Executive is there to do precisely that - to execute on a strategy. Riccitiello’s strategy, broadly, was to bulk up marketing, saleability and monetization strategies for traditional core game releases, in order to fund a transition from boxed product sales to digital and to mobile. That challenge, in terms of EA’s production, publishing and profit model, remains.
We may find that Riccitiello was, in fact, providing cover to the producers of these big, expensive releases into the choked pool of big-budget core gaming, and his departure will accelerate a focus on reliable, iteration-friendly sporting franchises such as Madden NFL and FIFA Soccer and on mobile gaming. We may not see another oddity like Brutal Legend, or another non-violent FPS experiment like Mirror’s Edge, in the post-Riccitiello era.
EA stock is up slightly in after-hours trading on the news, at $19.16, having closed at $18.71, down 0.9%.
