Electronic Arts Essay

Engineers at a New Hampshire based defense contractor, Sanders Associates, developed the first video game. It was created by Ralph Baer who was the manager of equipment design at Sanders Associates. In August 1966 when he came up with the idea of making a game for a television set. In 1967 employee Bill Rusch, assigned to the project, proposed a new game in which the hardwired logic circuit projected a spot flying across the screen. Originally the object of the game was for players to catch the spot with manually controlled dots. Over time, the players’ dots evolved into paddles and the game became ping pong.

Baer tried to find a buyer for his invention but had trouble finding interested parties. Finally in 1971 he struck a deal with Magnavox to produce the Magnavox Odyssey which was sold in 1972. Unfortunately the product was poorly advertised and extremely overpriced and eventually was forgotten by most people. This event marked the beginning of the video game industry which took another 10 years or so to evolve. On May 28, 1982 Trip Hawkins new venture Amazin’ Software was established with an estimated $200,000 personal investment.

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Several months later, in December, Hawkins stabilized the company further with 2 million dollars of venture capital from Sequoia Capital guaranteed. Shortly thereafter the company changed its name to Electronic Arts (EA). They took a novel approach at giving credit to its developers which is one of their early trademarks. EA was the first video game publisher to treat its developers like artists in an industry where developers were more likely to be treated like factory workers.

EA also shared lavish profits with their developers, which added to their industry appeal. Electronic Arts, Inc. engages in the development, publishing, and distribution of interactive software games that are playable by consumers on in-home video game players, personal computers, mobile video game players, the Internet, and worldwide” (www. finance. yahoo. com). They manufacture many different types of games which include adventure, action, role playing, simulations, strategy, and sports. The company has development and production studios situated around San Francisco, Los Angeles, Orlando, Chicago, Vancouver, Montreal, London, and Tokyo.

EA develops their games from within the company but they also collaborate with other game developers to produce the software which EA eventually publishes, markets, and distributes. They also offer a free web site which carries four brands of games which include: Pogo, EA Games, EA Sports, and EA Sports Big. Electronic Arts operates with, or uses four different suppliers in the production of their video games. Sony and Nintendo supply the CDs, DVDs, and optical disks on which Electronic Arts furnishes to make video games.

There are companies that press the disks and convert them into video games. There is a company that makes and prints the instruction booklets. And finally there is a company that packages and boxes the video games for shipment. There are around 250 to 300 million video gamers worldwide that play video games frequently and about 100 million infrequent users. The average age of video gamers ranges from 20 to 40 year old range including preteens, teenagers, and young adults. The average age of video gamers is rising due to the amount of teenagers continuing to play throughout their adult years.

As a result of this game developers are releasing games with more mature content. The video game industry has grown because of several factors including broader game content, the evolution of the video game consoles, better graphics, and the ability to play games online. The software segment of the video game industry was highly competitive, characterized by the continuous introduction of new games and updated game titles and the development of new technologies for creating and playing games.

The developers of software games ranged from small companies with limited resources to large corporations with significantly greater resources for developing, publishing, and marketing video game software” (Thompson & Gamble, 2006, pg. 308). While these companies are in competition with each other they are also in competition with Sony, Microsoft, and Nintendo to get licensed to make games for specific consoles. EA manufactures its games for use with three major consoles in the video game industry.

EA revenues in 2003 for each platform included 37% from Sony’s Playstation 2, 7% attributed to Nintendo’s GameCube, and 9% generated from Microsoft’s Xbox. In 1994, “Electronic Arts was authorized to develop and distribute Cd-based software for Playstation, with all Playstation CD’s being sourced from Sony” (Thompson ; Gamble, 2006, pg. 317). They released 19 new video game titles in 2003 as compared to 18 in 2002. Their relationship with Sony is considered good. In 2001 EA signed a licensing agreement stating that Nintendo would supply all the optical disks for making the games directly to EA.

They released 17 games worldwide as opposed to 5 in 2002. EA believes that they have a strong relationship with Nintendo. In their licensing agreement with Microsoft “Electronic Arts was authorized to develop and distribute DVD-based video games to play on the Xbox; unlike its agreement with Sony and Nintendo, it was not compelled to source its DVDs from Microsoft” (Thompson ; Gamble, 2006, pg. 318). Their relationship was further strained when Microsoft denied the collecting of revenues from online play of Xbox games. It is not clear though whether this would affect their relationship with Microsoft in the future.

There is widespread competition within the development and production of video games. Sega withdrew from making consoles in 2001 and began focusing on the development of video games. They set out to create the world’s best games for all gamers by publishing content on multiple platforms. They were also trying to establish themselves in sports games so they signed on with ESPN. Unfortunately, Segas dreams of making future NFL games was shattered when EA revealed a new 15-year licensing agreement with ESPN, starting when Segas contract runs out next year.

Acclaim Entertainment is a worldwide developer and publisher of software for Playstation 2, Gamecube, Xbox, and personal computers. Acclaim relies on regional distributors to deliver their games directly to retailers and other outlets. They have subsidiaries in North America, the United Kingdom, Germany, France, Spain, and Australia. They target males ages 15-35 and try to develop games for a wide variety of audiences. Activision, Inc. is the leading international publisher of interactive entertainment software products.

The company maintains a diverse portfolio of products that span a wide range of categories including action, adventure, action sports, racing, role playing, simulation, and strategy. Their products are made to be used with all of the consoles to increase unit sales. The company has created, licensed, and acquired a group of highly recognizable brands that it markets to a growing number of consumer demographics. They also have signed agreements with athletes and acquired the rights to movies. In the future they plan to leverage their skills and resources to extend their position in the industry.

Take Two Interactive Software Inc. s another worldwide publisher of interactive entertainment software, hardware, and accessories. They offer products made for the leading hardware platforms and PCs although they publish and develop their games through their wholly owned labels. Rockstar games, Gathering, and Global Star distribute their games to the companies Jack of All Games subsidiary. They are the number one domestic console distributor with operations in 9 countries and 3 continents. In addition, Take Two Interactive Software signed a deal with Major League Baseball. Ubisofts mission is to “amaze an increasingly diverse and growing number of players around the world.

By creating and publishing a quality selection of top-selling games. By driving the Interactive Entertainment experience beyond established limits on all platforms, online and off. And by inviting gamers on a journey across the threshold into our worlds, where they can free their imaginations, test their reflexes, and challenge their minds” (www. ubisoftgroup. com). Unfortunately EAs overwhelming power in the gaming industry has influenced them to buy a 20% stake in Ubisoft, best known for its popular series of games inspired by Tom Clancy novels and their Vijay Singh golf game.

Electronic Arts strives to be the market leader in the production of video games. They invest heavily in technology, developmental tools, and research and development in order to create new and exciting games for consumers. They are expanding their operations to include multiple consoles in multiple countries and in multiple languages. “In the course of creating a number of its games, EA acquired intellectual property and other licensed content from sports leagues, player associations, performing artists, movie studios, music studios, and book authors.

In doing this they established themselves as the leader in sports games. The reason why is because now they are the only game maker that can use the names of these professional athletes. Who is going to buy a sports game that isn’t like real life? The answer is no one. They also are very specific in the games that they produce. They stay away from games with violence, crime, sex, and profanity. They strive to make video games that the company can be proud of. Along with re-releasing their sports games annually they also released “expansion packs” to provide additional characters, new storylines, settings, and missions.

There marketing efforts are always about promoting the Electronic Arts brand of sports games. Just about 70% of their revenue comes from the re-releasing of existing games. Electronic Arts prefers to think of themselves as “a sports company that makes games as opposed to a game company that makes sports games. EA Sports is as much a culture as it is a product” (Thompson ; Gamble, 2006, pg. 320). EA has titles covering almost every major team and individual sport resulting in the domination of the industry.

A company’s competitive strategy encompasses competing with rival companies in order to produce a better product that will better satisfy their customer’s needs and wants. The chances are slim that two companies in the same industry will employ the same business strategy but some of them are often similar. Electronic Arts implies a broad differentiation strategy. A broad differentiation strategy seeks to “differentiate the company’s product offering from rivals’ in ways that will appeal to a broad spectrum of buyers” (Thompson ; Gamble, 2006, pg. 115).

Electronic Arts relies on the strength of its brands, marketing and development prowess, and through acquisitions and strategic partnerships. Atop of the electronic gaming industry Electronic Arts is emerging as the leading developer and publisher of interactive entertainment software for personal computers(Dell PCs), Sony Playstation 2 computer entertainment systems, Sony’s PSP, Microsoft Xbox 360 video game console, Nintendo Gamecube, and Game Boy Advance. The company markets its products worldwide under four brand logos and has more than 33 product franchises that each has reached more than a million unit sales worldwide.

To create its games, Electronic Arts incorporates video, photographic images, motion capture, 3-d face and body rendering technologies, computer graphics, and stereo sound with contributions from storywriters, film directors, and musicians. They also have a strong hold on licensing deals with big name sports figures including Tiger Woods. Recently the company paid 800 million for exclusive rights to make games using players and team logos from the NFL. The increasing popularity of sports games among consumers culminates substantial sales for the company.

As a result, Electronic Arts can put more money into the research and development and the technology of their games. The next element of Electronic Arts business strategy is the company’s ability to develop procedures into efficient, standard, and repeatable processes. By its nature, creativity defies standardization, and Electronic Arts has found a way to balance these two competing business needs. Electronic Arts runs an impressively tight supply chain that enables it to send games for localization in multiple languages and releases them around the world, usually within the same day.

Those repeatable processes have fostered trust between Electronic Arts and its retailers. When the company launches a title to, its retailers all know they will have the new game on their shelves at exactly the same time their competitors will have it. Nintendo historically has been strong in this market. They typically have been positioned at a younger demographic. They tend to be first-party centric in terms of their software, where they control a lot more of their own software sales on their platform.

Their new platform the Nintendo Revolution is expected to be out in the spring. Sony’s array of hardware and software products is creating a new high definition value chain that starts with cameras and goes through projectors and television sets and finally Playstation 3, due out in the fall of 2006. Owning the content as they do is all of the sudden part of the integrated relationship with its devices. Each understands the value of the other and that is what makes Sony so unique, since they make them both.

Microsoft’s Xbox 360 was just released on November 22 with 18 titles as opposed to the original Xbox which was released with only 11 titles. The reason why is because they have more third-party support from publishers like EA and Activision. These two developers alone are producing 9 out of the 18 games available which come from a total of four publishers. Some say that the lineup is a little sports heavy but there is actually a good mix between sports, shooters, first person, action, adventure, and racing games.

Don’t say goodbye to the original Xbox yet, Microsoft says that they have enough parts and supplies to manufacture it through next summer. This will help smaller developers to publish games for the older systems so they don’t have to go head to head with EA and Activision on the newer consoles. In the short term game innovation could become a problem in the marketplace. The soaring development costs for the new consoles will put at least a few smaller game publishers out of business. Electronic Arts is by far the most successful third-party publisher today.

Not only is it the lone computer game publisher to survive the Golden Age (1979-1992) still controlling its own fortunes, but those fortunes have surpassed all others in the industry routinely making over one billion dollars each year. In fact, several classic publishers are now wholly owned subsidiaries of Electronic Arts including: Origin, Maxis, Westwood Associates, and Bullfrog. Electronic Arts success over the years was built upon a huge library of great games. Unfortunately all of these studios were closed except for Maxis leaving many top designers and programmers out of a job and not willing to work for EA.

This has given them the reputation in the video game industry as being bigger, better, and stronger than everyone else in the industry. EA is the leading provider of interactive entertainment and video game software. They generate a strong cash flow, have a clean balance sheet, and have more than 2. 4 billion in cash with no debt. In fiscal 2005, EA’s revenue by platform included 43% from Playstation 2, 16% from Xbox, 7% from Gamecube, 17% from personal computers, and 3% from portable gaming systems.

EA generates 53% of its sales from North America, 41% from Europe, and 6% from Asia. They also will benefit notably from a ten dollar increase in the prices of some retail games. Their revenues grew from 6% in 2005 to 8% in 2006 and are expected to increase by 14% in fiscal 2007. With the increasing price of producing, developing, and licensing games for new technology consoles EA stands above the rest of the competition as the leader in delivering some of the worlds most popular video games.