One billion users in the next 5 years
A look at the strategy behind EA's aggressive target of using its games portfolio as a launchpad to transform itself into a holistic entertainment company
EA held its first investor day in eight years and CEO Andrew Wilson and his team gave a plethora of updates and a peek into the future of how the world’s seventh largest video game company (by market cap) thinks about its future and the future of video games and entertainment. In the words of Wilson himself:
“We are excited to unveil an in-depth look inside the growing scale and scope of our IP portfolio, as we accelerate engagement and social connection in and around our biggest franchises. We are also introducing new experiences and leveraging innovative technology to serve our global communities and attract new audiences, as we continue to transform our business and shape the future of entertainment.”
Here are the major themes from Tuesday’s event:
Financial performance
Since its last earnings call and the guidance EA provided on July 30, 2024, it reiterated the positive outlook by stating that the company is tracking towards the higher end of its net bookings guidance for Q2 of its fiscal year ending September 2024 as well as for the end of its fiscal year on March 31, 2025. The release of EA SPORTS College Football 25 had already positively impacted the results for Q1 that ended last June - merely due to the anticipation of the game’s release. EA said that five million players played the game within the first 11 days after its release and the full financial impact will be visible when the current quarter ends on September 30 (watch for the stock price to take a dip if the results don’t live up to the already high expectations). The company was confident in its ability to grow at a faster rate than the global gaming industry until 2027 as well as achieve its aggressive growth target of doubling the audience it reaches to over 1 billion in the next five years.
The cynics among us would say that all of this sounds great and is the type of messaging that is to be expected from an investor day the company itself decided to host. So the real question is: How does EA plan to achieve this?
EA’s plan of attack rests on three strategic pillars:
entertaining and engaging massive online communities
creating blockbuster interactive storytelling
harnessing the power of community to accelerate growth in, around, and beyond games.
Let’s shed some light on what this means.
Longevity of IP to unlock massive online communities
There are clear signs that the days of simply adding new games to an existing lineup of a franchise are over. Case in point: The Sims. The Sims 4 seems to be the last installment of the franchise and rather than launching The Sims 5, the goal is to keep worlds like these alive and fresh, while supplementing them with complimentary titles that are additive to the overall franchise universe. So Project Rene, long dubbed The Sims 5, will look and feel much more like a new addition to the entire universe than merely an extension of the franchise by adding the next “version of The Sims.”
The rationale of this approach is to allow for more effective engagement and retention of players. By making it easy for players to stay and experience new content within those worlds - rather than having to start over and relearn a new world with each new game - there’s reduced risk of players churning as they transition to the newest game (that’s, at least, the theory), setting the course for massive online communities for each EA property. EA believes to have six of these types of massive online communities in the market in the next three years: EA Sports FC, American Football, Apex Legends, Battlefield, Skate, and of course The Sims.
While undoubtedly attractive, this strategy will put a lot of pressure on EA’s ability to deeply understand its core users across its portfolio of titles, especially the similarities and differences within and between audiences in order to drive a highly effective portfolio management strategy. Only then can it establish a truly differentiated product strategy and hence cater to distinct audiences and audience segments in a highly personalized way. If the strategy is longevity of the current IP catalog as well as actively managing and retaining an ever growing online community, understanding what keeps players to stick around, engage, and monetize is an absolute must. Analyst’s from Bank of America were excited about EA’s opportunity to build an increasing moat through its large online community, which supports scaling, engagement, and monetization. The opportunity is there - but the execution is the question mark.
Emphasis on transmedia entertainment
The other big angle EA is taking here: instead of looking at each game as an isolated form of entertainment they ship, they treat each IP as an entertainment property that has the potential to be leveraged across different media touch points of the customer journey and grow beyond games - a transmedia strategy (which we have highlighted as a big takeaway from Gamescom this year previously). Case in point, The Sims is getting a movie (did you just yawn? Did you know that Margot Robbie is involved? Still yawning?). While turning games into on-screen IP and vice versa isn’t new, this coupled with the above approach to the longevity of the game itself and evaluating other opportunities regarding merchandise and potentially even physical entertainment experiences is a very potent strategy. It’s also harder to pull off and not every gaming IP lends itself to this approach. The Sims seems like an obvious and good candidate for this given its long standing track record and vast fan base across generations of consumers, but EA does have some other viable candidates across its PC/console and mobile businesses (even the mobile business didn’t get a lot of mentions during the event, this is an area to keep an eye on) that could be a fit here and help accomplish the one billion audience goal.
As a part of this multi touch point transmedia strategy approach, EA also is launching the ability for fans to buy sports gear and apparel inside EA’s own games. This news comes on the back of the recent announcement of ecommerce solution Shopify partnering with Roblox to enable commerce and shopping directly in the games players enjoy. Seeing that 86% of users who buy a virtual item also purchase the corresponding physical item, this is a no-brainer. While the devil is again in the details of the execution of this, especially around ensuring a seamless user experience, the potential of this is profound. Stuart Canfield, EA’s CFO, said. “This could unlock significant value through network effects and a common scale through play, create, watch, connect. We believe in continuous scale.” As a part of its growth plan, EA will consider strategic acquisitions as well. With roughly USD 3 billion in cash on its balance sheet as of March 2024, EA is in a solid position to make some interesting moves on the content, development, and technology side.
Focus on experiences
A key growth driver can be EA’s focus on experiences, especially through its sports app called EA Sports. Initially set to soft launch in Spain this fall for iOS and Android, the app will be a socially-driven app at first and offer a mix of sports content, live sports data, social messaging, interactivity and gaming focused on the global world of soccer - with additional sports expected to be added shortly. This new category is aimed at expanding EA’s audience by entering new markets as well as engaging and growing its communities beyond games.
AI, AI, and more AI
We all knew that this one was coming (it had to, right?). After all, a record of 199 companies of all the S&P 500 companies cited AI in their earnings calls in Q1 this year. EA wasn’t going to miss out on the golden opportunity to leverage the AI hype cycle to add some cushion to its stock price and the forward-looking guidance it gave. As Imran Khan of Venture Beat reported: “The phrase was peppered throughout the event’s announcements, with AI involved in everything from game development to engagement capture in the periphery.” Two notable areas where EA sees a lot of value from leveraging AI are internal development processes and enhanced player experiences. On the development side, AI tools will help with the discoverability of game assets that are ready for use across different games, making a library of over 100 million assets available to developers. When it comes to the user experience, you can envision AI mirroring real-life tactics and momentum in the real world of soccer and seamlessly updating the core experience for any FC player.
Two other areas where AI can have a big impact on EA’s business related to the above efforts on large online communities and creating lasting touch points beyond games: advertising and content recommendations. If EA is able to enrich its understanding of the different audience segments it caters to and feed this intelligence into recommendation engines, it would unlock the ability to personalize both advertising content as well as discoverability of new experiences tailored to the person, resulting in greater engagement and ultimately monetization. Doing that across all of its properties and communities would ultimately position EA as a viable force next to some of the largest social media companies.
Feedback from Wall Street
Analysts from Bank of America, Deutsche Bank, Morgan Stanley, and Jeffries were generally upbeat about the forward looking guidance and the potential upside EA can unlock. Some questions remained regarding the near-term results and the immediate execution of some of these initiatives in order to demonstrate real results. And that may be EA’s biggest challenge of them all - moving quickly enough in this rapidly evolving landscape to seize its opportunity before others do.