Where EA Went Wrong

NOTE: This column was completed several days before the announcement that EA CEO John Riccitiello has stepped down from his position. But this kind of served to make this column more timely than ever. While I don’t really mention Riccitiello below, you can read this as a list of mistakes that led to his resignation.

Last week I accused EA of being brain-dead, tone-deaf, inept, and clueless. I also said that their main problem isn’t greed. I’ll go even further and say that the EA leadership isn’t evil. And even though I said their policies were “brain dead”, I’m willing to bet the EA board of directors is made up of some reasonably intelligent, well-educated guys.

Having said that, this is a company with problems beyond the pricing and convenience issues I mentioned last week. Even if you don’t work there or buy their games – even if all you care about is bottom-line stock price – this is still a badly run company that’s failing to live up to its potential.

Some people defend EA by saying, “They’re making money, so they must be doing something right.” But this is setting the bar really low. EA has some of the most valuable IP in the industry, they have massive clout, they own some of the most prestigious development houses (Maxis and BioWare are the obvious ones) and their products shape the way non-gamers see and judge our hobby. When you look at the way they keep prices high on their back catalog and the way they ratchet up prices with DLC, it’s clear that their products are also the most expensive. If you’ve got popular products and high prices, your profits should also be high, right?

But in reading their financial reports, it’s clear this is not a thriving company. All that muscle is going to waste. Some years are better than others, but even their good earnings are modest in the face of their size. This is like having a major-league pitcher pulling down the salary of your average IT professional. Sure it’s good money, but it’s nowhere near what he should be making.

Sometimes they even post losses. Videogames are growing and growing, reaching bigger audiences and coming to dominate our culture, and yet this videogame publishing juggernaut hums along in first gear, not going anywhere and occasionally laying off a few hundred people. Compare this to Valve, who regularly boasts massive growth (50% last year) that seems much more in line with the growth of the industry as a whole.

So let’s look at why such a powerful company is having such meager success. A disclaimer: This is not financial advice. Another disclaimer: You don’t need to haggle over things like, “But that decision was BioWare’s fault!” or “Actually, Maxis did that!” The leaders of these divisions are people approved or even appointed by the EA leadership, and those people are striving to please their bosses like any sane employee. We’re taking a high-level view of the company here, and don’t need to concern ourselves with the gossipy stuff going on behind the scenes. Ultimately the blame for the actions of a corporation falls at the feet of the leadership, so that’s where we’re putting it.

So we have a powerhouse company in a booming industry that really isn’t going anywhere. Here’s my outsider’s perspective on what they’re doing wrong.

1. Failing to understand different game markets

Have you ever noticed how some people are just really, really offended by the idea that EA sells new copies of FIFA and Madden every year with little more than a roster update? Do you know who doesn’t mind this? People who buy FIFA and Madden games.

This shows a pretty clear difference in what these fans expect from their favorite titles. BioWare RPG fans don’t want yearly releases that amount to an oversized mission pack. The Dead Space Necromorphs can wear out their welcome quickly, and playing a new Dead Space game every year would just burn out the franchise entirely. Yet EA is pushing for shorter release schedules on these action games because yearly release works well for sports games.

Mass Effect probably took three or four years to develop under the then-independent BioWare. Mass Effect 2 took three years. Mass Effect 3 took just two years. Dragon Age 2 was rumored to have been in development for less than a year. I’m sure you can remember the controversies and player frustrations that surrounded these latter two games. While shorter development cycles are crucial for sports games, they’re actually harmful for other kinds of games, and the publisher’s failure to understand this has damaged the names of good developers and (formerly) successful franchises.

2. Crash spending

There’s an engineering joke about the follies of trying to solve problems with manpower. It takes many forms, but the general idea is “If one chef can make a cake in an hour, then twelve chefs should be able to finish the cake in five minutes!” The big publishers keep complaining about the rising cost of game development. But why are costs going up? We’ve been stuck in the same graphics generation since 2005 or so. Since we’re not chasing new graphics, games should be getting cheaper.

The only reason to be spending more is if we’re trying to make games faster by hiring more chefs. But roleplaying games are not sports games, and have different developmental needs. The rules of football (either one) don’t change from year-to-year, but people playing action games want each title to bring something fresh or interesting to the table. It takes time and iteration to balance that gameplay and time to write those stories, and throwing more people at the problem has diminishing returns and a negative impact on quality. Instead of a wonderful arthouse of worldbuilding and experimentation, you end up with a conveyor belt where people crank out 3D models.

This is a massive waste. There’s a limit to how much more work you can do with more bodies. Instead of an incredible game made by 40 people in three years we get a lacklustre game made by 100 people in eighteen months. The game is lower quality, it cost more to make, and the overall brand name is damaged. Sure, you got the game sooner. But since you paid more to make it, the thing also needs to sell more. Everyone loses.

3. Over-reliance on “Blockbusters”

From the EA 2012 Investor Annual Report:

“In our industry, though many new products and services are regularly introduced, only a relatively small number of “hit” titles accounts for a significant portion of total revenue for the industry.”

This is also true in movies and in music. However, this doesn’t mean you should spend all of your time making “hit” games. While a “significant” (note that it doesn’t say “majority”) portion of your income comes from hit games, all the rest of your income comes from non-hit games. Imagine if movie studios only produced Michael Bay blockbusters, because those sold more than others. Overall, you wouldn’t sell more tickets, you’d just split the same number of ticket sales over a large group of incredibly expensive movies, while missing out on the money you could have made from romantic comedies, thrillers, dramas, and other reliable, low-yield genres. Imagine if an automaker quit making trucks, vans, hybrids, minivans, compacts, SUV’s, and luxury cars because mid-size cars sold best. Sales would go down, not up.

EA’s pursuit of hits shows a complete lack of understanding of why people play games or what makes games a hit. Call of Duty is a hit? Then let’s make all games more like Call of Duty! You can see this at work in the Mass Effect and Dead Space sequels as EA pushed for a more gritty action-shooter aesthetic and added multiplayer. Maybe you liked those features and maybe you didn’t, but did those features serve the intended audience? Did they result in enough sales to justify the time and expense it took to add them? Would young dudes flock to see Eat, Pray, Love just because the director jammed a car chase in there someplace? Different markets have different needs.

This one-dimensional view of the industry is incredibly dangerous, because it leads to over-investment in a single market. If all you make is Sport Utility Vehicles, then when the market changes and hybrids become the Next Big Thing you won’t be in a position to take advantage. You spend all of your time chasing trends instead of setting them.

Yes, Call of Duty is a huge seller. You know what else was huge? Minecraft. And in terms of profit margin, Minecraft might be the most profitable game in history. (It outsold Starcraft II by 3 million copies, while having a development budget of basically nothing.) I’m not saying EA should start funding Minecraft clones. (In fact, that would be no better or smarter than trying to make all games into Call of Duty.) I’m saying they should keep a wide portfolio of safe, reliable, low-cost titles so that if (or when) the modern shooter market changes or collapses they won’t see their only source of revenue vanish. And in backing these other games, there’s always the chance that one of them might become the Next Big Thing.

EA is chasing trends and stacking all their chips in the same pile, hoping to hit the jackpot. That’s not investing. That’s gambling. Worse, it’s reactionary fad-driven gambling. This is not how you should run a multi-billion dollar company.

4. The Shortcomings of Origin

While I’ve said before that physical media isn’t going anywhere, it’s clear that digital downloads are going to dominate the market. Sadly for EA, Valve’s Steam service eclipses all other platforms in the same way that Microsoft did for desktop operating systems in the 90’s. EA should be fighting to grab as much of this new frontier as they can get. EA should be terrified of a future where they have to go crawling to Valve to get their game on a platform where someone will actually buy it.

Yet EA doesn’t seem to be doing anything to make their own Origin platform competitive. It would take me an entire column to enumerate all of Origin’s shortcomings. Luckily, I have already written such a column.

In the year since that column went up, very little has changed. Alas.

Wrapping Up

So what’s the problem? I said at the top of the article that the EA leadership isn’t stupid or evil. (Well, their work environment is still reportedly abysmal and that’s arguably worth some Dark Side points on the BioWare morality-meter, but that behavior isn’t related to why the company is making such poor choices.) But if EA isn’t run by morons, and if they aren’t mustache-twirling villains, then what is wrong with this company? How can so much potential go to so much waste, and how did we end up with EA being the most hated company?

I’ll cover that next week.

Shamus Young is a programmer, a novelist, and he thinks that Activision and Ubisoft are probably nearly as bad, but not as interesting to discuss.