Case Study 9

Electronic Arts
Inside Fantasy Sports
Electronic Arts is one of the largest and most profitable third-party
video game makers. Exclusive contracts with professional sports
teams have enabled it to dominate the sports gaming market. But
as gaming has shifted from consoles to laptops, phones, and tablets,
it is struggling to stay relevant. Can EA regain the pole position in a
crowded and contentious market?
MIKE SEGAR/Reuters/Landov LLC
Founded in 1982 by William “Trip” Hawkins, an early direc-
tor of strategy and marketing for Apple Computer, EA gained lion a year to get their logos on digital players. One game, NBA
quick distinction for its detail-oriented sports titles compatible Live, offers players the opportunity to switch up the color and
with the Nintendo and Sega platforms. Although EA has also re- style of players’ logo-friendly footwear. The shoe styles may be
ceived good reviews for its strategy and fighting games, it left its virtual, but the value of brand recognition is very real for compa-
heart on the gridiron, diamond, court, or any other playing field nies that pony up for sponsorship.
long ago. According to former EA Sports marketing chief Jeffrey Such brand reinforcement isn’t limited to sports games either.
Karp, EA wants to be “a sports company that makes games.” EA’s Need for Speed Underground 2, a fast-paced racing game,
takes endorsement beyond the omnipresent billboard ads and
Ad Revenue In, Ad Revenue Out vehicle logos found in typical driving simulators. Here players re-
ceive “text messages” on the screen suggesting game hints, each
Word of mouth may still be the most trusted form of advertising,
bearing the AT&T logo. The significance may be lost on adults,
and EA has always depended on fans to spread its gaming gos-
but for a younger generation raised on instant messaging, the
pel. But in a highly competitive—and lucrative—gaming market,
placement makes perfect sense.
EA knows better than to skimp on brand building: it spends two
It makes financial sense, too. A recent poll by Nielsen Enter-
to three times as much marketing and advertising a title as it does
tainment and Activision indicates that this kind of placement may
developing it.1 EA knows its audience, and it promotes as heavily
result in notable improvements in both brand recall and favorable
to Game Informer readers as it does to subscribers of ESPN’s The
brand perception. “I think truly that no other media type can de-
Magazine.
liver the persuasion that in-game ads can if executed properly,”
The realism of EA’s graphics set it apart from competitors
said Michael Dowling, general manager at Nielsen Interactive,
long ago, but the energy and talent used to depict that real-
Los Angeles.
ism might be wasted if EA games didn’t include the one ele-
ment fans most want to see: their favorite players. However, top Losing Ground in a Crowded Market
athletes aren’t cheap, and neither are their virtual depictions.
Until recently, EA’s devotion to sports games was a winning as-
Players such as Tim Tebow, Donovan McNabb, and Carmelo
set—it dominated the market as the world’s largest video-game
Anthony expect a tidy sum to promote any product, including
publisher. But a funny thing happened on the way to the bank—
video games that use their likenesses. EA spends $100 million
over the course of a few short years, the gaming market radically
annually—three times its ad budget—to license athletes, play-
changed. Now EA finds itself in third place behind two strong
ers’ associations, and teams. It’s a complex dance: the FIFA Soc-
competitors whose successes represent areas in which EA needs
cer 2012 for iPad, for example, requires hundreds of different
to double down to stay in the game.
licenses from a total of 22 club leagues, 500 teams, and 15,000
Blame the Wii. Or blame Guitar Hero. Both led popular in-
players.2 Cheap? Anything but, though it’s doubtful you’ll hear
terest in gaming away from complex sports games played with
EA complain about the 15 million digital and physical copies of
standard controllers to new types of games, and new ways of in-
FIFA 2011 it sold last year, netting $150 million in revenue in the
teracting with consoles. Nintendo’s Wii has been tremendously
first week alone.3
popular, and although EA has several successful titles for the plat-
form, many of the top games—like Wii Sports Resort and Super
Paying to Be Seen Mario Galaxy 2—are published by Nintendo itself. The nontradi-
Even the most dedicated Madden fans may wonder whether the tional controller lends itself to movement-based games, not EA’s
sports video gaming market has enough muscle to shoulder EA’s button-mashing bread and butter.
gargantuan costs. Enter the promotional alliance. Just as EA pays Emerging nearly parallel with the Wii was the popularity of
to license the use of NFL logos in its games, big-name sports Guitar Hero and Rock Band. It didn’t take long for casual gam-
companies such as Nike and Reebok pay to the tune of $3.5 mil- ers to take up cheap plastic guitars and drum sets, leaving their

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traditional controllers to gather dust in the corner. Small gaming The company has also seen continued success with older
shop Harmonix pulled double duty in this market, first publishing franchises: Battlefield 3 drew favorable comparisons to the com-
Guitar Hero, then selling it to EA adversary Activision only to fol- peting Call of Duty franchise and has shipped over 12 million
low up with the arguably better Rock Band series. EA came to the units.10 EA has also recently launched The Sims Social, a popular
party late; sensing the market for rock-along music games was Facebook game that has performed well against titles from social
sufficiently saturated, it resorted to striking a deal with Harmonix game heavyweight Zynga.11
to help distribute Rock Band. And the company is showing signs that it’s shifting gears to
While the Wii’s popularity seems to have peaked for the time compete successfully in the new gaming landscape. It spent $300
being and plastic instruments are on their way out (parent com- million last year to snatch up social gaming developer Playfish,
pany Viacom recently sold Harmonix for the bargain-basement and it also brought Madden NFL Superstars to Facebook, where
price of $50), these emerging trends ultimately diluted EA’s it has been intensely popular, scoring almost 800,000 “Likes.”12
chokehold on the popular gaming market.4 Meanwhile, Activision Origin, EA’s digital distribution business, which it’s been quietly
found a comfortable home with the Wii, scoring big hits with sev- building, offers profile management, the ability to connect with
eral Guitar Hero titles and hitting the bullseye by porting their friends via chat, and integration of scores and game stats to social
massively successful Call of Duty franchise. media and online gaming sites.13 As of last count, 9.3 million users
And then there’s Apple. When Steve Jobs launched the iOS installed Origin, earning EA more than $100 million and helping it
App Store in the summer of 2008, he decreed that one-third to do battle with rival online platform Steam.14
of the first 500 apps would be games.5 Before long, specs im-
proved in iOS devices to make them serious portable gaming
machines. Successive generations of iPad improved iOS gaming Playing for Keeps
with a large, high-resolution screen, and the App Store suddenly Despite its wild success in the video game market, Electronic Arts
became a self-sufficient gaming platform faster than you can say faces substantial challenges to its power by competing game
Angry Birds. companies, the cost of doing business, and even dissatisfied
At the same time, Facebook was coming into its own as a gamers. Can EA overcome these threats and continue produc-
singular destination for simple but time-swallowing games. To- ing the sports franchises that brought the company considerable
gether, these platforms heralded a new way of acquiring and success?
playing games in which EA had little to no experience: digital
distribution. Quick on the draw, however, was Zynga, an upstart
publisher who quickly dominated Facebook games with Farmville
and Frontierville, among others. Games on iOS and Facebook Discussion Questions
are portable, easy, and you can step away from them as long as
1. How can feedforward, concurrent, and feedback con-
you like and pick up just where you left off. That kind of gaming
is worlds away from EA’s traditions, and it’s forced the company trols help Electronic Arts meet its quality goals for video
to do some serious reckoning on its future as well as its executive games?
time—Zynga lured former EA marketing chief Jeffrey Karp to take 2. Can you see the principle of management by exception
on a parallel position there.6 at play in any of EA’s recent business decisions? Why or
As of today, EA is the third-place publisher behind Activision why not?
and Zynga, and while things are starting to look up, it’s a long,
hard road back to the top. CEO John Riccitiello even admitted re-
Problem Solving
cently, “What we’ve described as a two-year comeback is clearly
taking longer.”7 Control is an essential and important management func-
EA knows that the road to riches is paved with recurring sales. tion. It’s also something that even the best managers and
And though its annualized releases of many popular sports titles organizations can always improve upon. Break the video
for some time, they haven’t done so for the growing market of game production process down into its various compo-
massive multiplayer online games (MMOG), which Activision has nents, a start-to-finish workflow model so to speak. Now
been lucratively exploiting for years with Call of Duty and World identify for each phase in the process the control standards
of Warcraft. EA’s entry into the MMOG fray was last year’s Star that could be set so that managers make the process work
Wars: The Old Republic. best overall.
Especially in the last few years, EA has been remarkably suc-
cessful in creating new franchises, which has historically been diffi-
Further Research
cult in the sequel-heavy video game market. EA’s successes include
Mass Effect, a sci-fi action series that has sold over seven million What is the latest in Electronic Arts’ quest to regain its
units, not counting the sales from the recently released third entry former glory as the top gaming publisher? How well is EA
in the series.8 Dead Space, a survival horror series, sold over four positioned for future competitive advantage? Overall, is
million units and received significant critical acclaim.9 EA’s executive team still on “top of its game?”

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