January 18, 2005 4:00 AM PST

Electronic Arts plays hardball

A huge software maker uses its dominant market position and mammoth cash reserves to lock out some competitors and buy up others.

Sound familiar? Except this time it's not Microsoft or Oracle that's sparking the charges. It's a company whose specialties include James Bond games and "The Sims."

Electronic Arts, the world's leading publisher of video games, has riled the industry in recent months with a series of unusually aggressive business moves that could hamper rivals and close off competition in some areas of the computer game industry. The company recently bought a nearly 20 percent stake in competitor Ubisoft Entertainment, one of Europe's biggest game publishers, and it earlier bought exclusive rights to make NFL-licensed professional football games.

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What's new:
A series of unusually aggressive business moves by Electronic Arts has riled the game industry in recent months.

Bottom line:
EA's recent maneuvers may be muscular, but they're not illegal, analysts say. What the game giant's moves will ultimately mean for the competition has yet to be seen.

More stories on Electronic Arts

On Monday, EA revealed its latest move: a 15-year licensing arrangement with sports giant ESPN, starting when the broadcaster's contract with rival game maker Sega runs out next year. EA said it will use the ESPN brand and network personalities on a variety of sports games.

Analysts and company executives say such moves, and earlier ones including last year's purchase of game studio Criterion, partly represent the company's attempt to position itself for an industry shakeout expected to accompany a new generation of game machines due to arrive late this year.

"It's downright predatory," said Wedbush Morgan Securities analyst Michael Pachter. "There's nothing illegal or unethical about what's EA's doing; it's just good business for them. They're making sure they have exclusive access to the best middleware out there and the best sports license out there, and they're precluding anyone else from taking out Ubisoft. Microsoft did the same kind of things to improve its position."

EA Vice President Jeff Brown said the company expects that soaring development costs for new consoles due soon from Sony, Microsoft and Nintendo will put at least a few game publishers out of business. EA would rather act now than pick over bones.

"The next couple of years are going to be marked by consolidation," he said. "It is our intention that EA be a consolidator."

Founded in 1982, Redwood City, Calif.-based Electronic Arts has ridden the video game boom of the past two decades to build an empire that dwarfs all competitors. The company has nearly 5,000 employees worldwide and saw revenue grow more than 19 percent--to $3.2 billion--for its 2004 fiscal year. The company's most recent regulatory filings showed it sitting on nearly $2.5 billion in cash. EA shares have appreciated 22 percent in the past year to give the company a market capitalization of $17.8 billion.


Credit: Electronic Arts
Major EA moneymakers include "Madden NFL."

Such growth has given EA tremendous clout in the game industry--influence it most recently demonstrated with its purchase in late December of the stake in Ubisoft, best known for its popular series of games inspired by Tom Clancy novels.

Ubisoft CEO Yves Guillemot said in an interview that until EA convinces him otherwise, "I view this action on the part of EA as hostile."

David Cole, owner of research firm DFC Intelligence, said EA has basic financial incentives to want to take over one of its biggest competitors.

"Look at EA's market valuation now--you've got to support that, and that requires sustained, major growth," he said. "It's like the big dog you have to feed constantly."

But Cole said a full EA takeover of Ubisoft was unlikely given the attitude of Ubisoft executives and EA's tarnished reputation as an employer. "The idea of a hostile takeover is fairly unheard of in this business," he said. "A lot of what you acquire is development talent that can just walk out the door if they don't like the new boss."

EA's Brown said that once Dutch media baron John de Mol made it

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14 comments

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Add your comment
What goes around, will come around, again and again.
I honestly think there isn't anything wrong with what is going on. I think there will be a few very large players in the games industry because of what is going on. However those companies will have the cash needed to develop higher quality games. I think there are a lot of titles coming out with below-par graphics and spotty operation that could be much better if developed by a company with the means to fully polish and refine them.

In any case, this is all cyclical. New companies will emerge. The talent base of game designers and technical grunts will expand. We'll be back to square one in five years.

NWLB
*******
<a class="jive-link-external" href="http://www.nwlbnet.blogspot.com" target="_newWindow">http://www.nwlbnet.blogspot.com</a>
Posted by NWLB (326 comments )
Reply Link Flag
Polish
When I think of EA, I do not think of polish. I think of shameless advertising within a game, a game that was paid for with no discounts. Burnout 3 (while I love the game) lacks polish, but EA sure found the time to shove their horrible "EA Trax" and ads for their games and perfume. But I feel that Burnout 3 was rushed out, probaly because all EA wanted was Renderware and do not care what happens to NFS competetors.
Posted by Andrew J Glina (1673 comments )
Link Flag
What goes around, will come around, again and again.
I honestly think there isn't anything wrong with what is going on. I think there will be a few very large players in the games industry because of what is going on. However those companies will have the cash needed to develop higher quality games. I think there are a lot of titles coming out with below-par graphics and spotty operation that could be much better if developed by a company with the means to fully polish and refine them.

In any case, this is all cyclical. New companies will emerge. The talent base of game designers and technical grunts will expand. We'll be back to square one in five years.

NWLB
*******
<a class="jive-link-external" href="http://www.nwlbnet.blogspot.com" target="_newWindow">http://www.nwlbnet.blogspot.com</a>
Posted by NWLB (326 comments )
Reply Link Flag
Polish
When I think of EA, I do not think of polish. I think of shameless advertising within a game, a game that was paid for with no discounts. Burnout 3 (while I love the game) lacks polish, but EA sure found the time to shove their horrible "EA Trax" and ads for their games and perfume. But I feel that Burnout 3 was rushed out, probaly because all EA wanted was Renderware and do not care what happens to NFS competetors.
Posted by Andrew J Glina (1673 comments )
Link Flag
not that relevant
the most important part of the game industry is the developers. Without them, you've nothing. That said, some of the best, and most popular, games are original titles. You buy a company, you buy the franchise licenses, but the talent, the people behind those games, are free to quit. You develop the next hot, original game, and you'll find someone to publish it. Big fish, small fish, the ocean's not going anywhere.
Posted by mortis9 (370 comments )
Reply Link Flag
not that relevant
the most important part of the game industry is the developers. Without them, you've nothing. That said, some of the best, and most popular, games are original titles. You buy a company, you buy the franchise licenses, but the talent, the people behind those games, are free to quit. You develop the next hot, original game, and you'll find someone to publish it. Big fish, small fish, the ocean's not going anywhere.
Posted by mortis9 (370 comments )
Reply Link Flag
3d0 Part Deux
Now I wonder if EA will once again try their hand at the console market.. Considering they almost have a stranglehold on the publishing for the console market.. They say renderware is not important.. But I see where; when, a game company competes and then all of a sudden EA can just convieniently pull the license and then sue said company for using an unlicensed product... So right there they have a non-percieved monopoly; because, now they have control over a tool which is used by about 90% of current game developers...
If the DOJ was smart they would force some very strong measures on how this "middleware" was regulated, OR, hopefully some open source gurus will develop something better.. ;-)
Posted by nzamparello (60 comments )
Reply Link Flag
You learn something every day
I was going to rant at you about how 3DO was developed by the creators of Amiga and the Lynx, but I checked my facts first and found that you are largley right. (The CEO of 3DO was the founder of EA.) Hmmmm. Scarey. I used to love EA due to my love of the old Bards Tale games but that was a long time ago now.
Posted by Andrew J Glina (1673 comments )
Link Flag
3d0 Part Deux
Now I wonder if EA will once again try their hand at the console market.. Considering they almost have a stranglehold on the publishing for the console market.. They say renderware is not important.. But I see where; when, a game company competes and then all of a sudden EA can just convieniently pull the license and then sue said company for using an unlicensed product... So right there they have a non-percieved monopoly; because, now they have control over a tool which is used by about 90% of current game developers...
If the DOJ was smart they would force some very strong measures on how this "middleware" was regulated, OR, hopefully some open source gurus will develop something better.. ;-)
Posted by nzamparello (60 comments )
Reply Link Flag
You learn something every day
I was going to rant at you about how 3DO was developed by the creators of Amiga and the Lynx, but I checked my facts first and found that you are largley right. (The CEO of 3DO was the founder of EA.) Hmmmm. Scarey. I used to love EA due to my love of the old Bards Tale games but that was a long time ago now.
Posted by Andrew J Glina (1673 comments )
Link Flag
corporate ripoffs
i would just like to inform the general public of how a company like electronic arts makes money from ripping off the general public at will and arbitrarily denying any recourse to their abuse of power if a news source such as cnet actually did the homework a whole new story would come to light it just takes a little research and investigation i found out some very interesting facts and i am just the average american person so it tends to make one think why a company as big as electronic arts is so afraid of the public that they have no customer support contacts or phone number to call and the one option they have is e mail which is never responded to. well in my opinion the public in every country should boycott electronic arts and then lets see how much money they make from our children and maybe they will learn to respect the everyday consumer and provider of their income without customers they would be nothing
Posted by kidgraphics (2 comments )
Reply Link Flag
corporate ripoffs
i would just like to inform the general public of how a company like electronic arts makes money from ripping off the general public at will and arbitrarily denying any recourse to their abuse of power if a news source such as cnet actually did the homework a whole new story would come to light it just takes a little research and investigation i found out some very interesting facts and i am just the average american person so it tends to make one think why a company as big as electronic arts is so afraid of the public that they have no customer support contacts or phone number to call and the one option they have is e mail which is never responded to. well in my opinion the public in every country should boycott electronic arts and then lets see how much money they make from our children and maybe they will learn to respect the everyday consumer and provider of their income without customers they would be nothing
Posted by kidgraphics (2 comments )
Reply Link Flag
If you are getting our hopes up then I will send out my minions to find you, drag you back here and then I'll have my mistresses deal with you.
Posted by merchantsolutions (1 comment )
Reply Link Flag
Forbes Magazine said Ea and Maxis are 'sticking to their guns' and 'defending' THEIR vision of the new SimCity. The bottom line is they aren't listening to what WE the consumer want who actually go out and BUY their product. It's a sad day when companies could care less what their buying public is asking for. So go ahead EA and Maxis. Stick to your guns and we'll stick to ours and boycott your company and every title you produce from here on out.
Posted by scottp23 (5 comments )
Reply Link Flag
 

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