January 18, 2005 4:00 AM PST
Electronic Arts plays hardball
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clear that he planned to sell his stake in Ubisoft, EA executives decided they needed to make sure the shares didn't fall into hostile hands.
"Somebody was going to buy those shares, and we thought it was strategically important that we be the one," Brown said, adding that EA currently has no plans to expand its stake in Ubisoft. "We intend to act as good shareholders of that company," he said.
The Ubisoft deal is subject to review by U.S. antitrust authorities, but experts says there's negligible chance of interference in this or other EA deals.
Hillard Sterling, a partner and antitrust specialist at Chicago law firm Freeborn & Peters, said stable prices and ongoing competition argue against any regulatory interference in the video game market.
"Antitrust law isn't meant to perfect the marketplace--it's not enough to say the market would be better off without this conduct," Sterling said. "It would be very difficult to show an antitrust violation in a market like this where there are a number of competitors with new products emerging almost daily and prices are stable or decreasing."
Although the Ubisoft bid mainly rang bells in the business community, consumers complained about EA's business tactics early in December when the publisher announced it had signed an exclusive five-year licensing agreement with the National Football League. The move protects EA's cash-cow "Madden NFL" franchise, which received serious competition this year from "ESPN NFL," a joint project by game makers Sega and Take-Two Interactive Software.
"Sports games are EA's bread and butter," Cole said. "When they start seeing that being attacked, they're going to react very strongly."
Neither EA nor the NFL disclosed the cost of the deal, but Pachter said EA likely paid way too much--this time. In five years, though, when it's time to renew the contract and no other publisher remembers how to make a pro football game, EA is likely to get its payoff by negotiating a much cheaper deal, he said. "They're going to rape the NFL in five years--you've got to respect them for that," he said.
EA's Brown said the NFL came up with the idea of awarding an exclusive license for video games, a practice that has worked well for the league in other merchandising areas. Once it was clear there was only going to be one winner, EA adjusted its bid accordingly to protect the "Madden" franchise.
"I think it's amusing that some of the people who are saying this is bad for the industry were bidding aggressively for the exclusive license," Brown said.
Besides competitors, the NFL deal drew widespread criticism from consumers, including the 17,000 to date who have signed an online petition protesting the deal.
Steve Bell, the Lansing, Mich., computer technician who started the petition, said the quality of "Madden" games has slipped in recent years and is unlikely to improve now that EA has an effective monopoly on pro football games. "They have no competition, so why bother working hard to improve the game?" he said.
Brown said that's not the case, as much of EA's "Madden" revenue comes from repeat customers. "We don't compete with Sega so much as ourselves, and that dynamic doesn't change at all," he said. "Every season, 'Madden' has to get better, so the people who bought it last year will buy it again."
Further behind the scenes, EA last April bought up development
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