Electronic Arts, the world's biggest video game maker, released "Madden NFL 06" on Tuesday. It is the 18th annual version of an increasingly lifelike game that lets players be the quarterback of a pro football team, and that sells millions of copies each year.
In this year's edition, a slice of the field lights up to give the quarterback better vision and throwing precision when he makes a pass. It also lets players follow the athletes' off-the-field activities.
But Steve Perry, 35, once an avid Madden fan, won't be lining up to buy the game. He said he dropped the habit several years ago, after his daughter was born and he tired of spending $50 to get an update of a title he already owned.
"I'm not willing to jump along and buy a new one each time," said Perry, who works in sales for a newspaper in San Antonio. "I'm not going to fall prey to that."
His complaint underscores a potential problem for Electronic Arts, which has suffered financial setbacks this year. Increasingly, industry analysts and game reviewers are wondering if the company's dependence on sequels is a sign that it is losing its creative edge.
By year's end, Electronic Arts plans to release 26 new games, all but one of them a sequel, including the 16th version of "NHL Hockey," the 11th of the racing game "Need for Speed" and the 13th of the "PGA Tour" golf game. The company also relies heavily on creating games based on movies like the James Bond and Lord of the Rings series, rather than developing original brands.
"There's a feeling of franchise fatigue. Gamers are wondering, 'Do I need to buy this game again this year? I just bought it last year,'" said Mike Hickey, an analyst with Janco Partners, an investment firm in Denver, who has a sell rating on the company's stock.
The reliance on sequels and licensed media properties, he said, is "dampening the creative spirit."
Lawrence Probst III, chairman and chief executive of Electronic Arts, dismisses that view. "The teams that work on the franchise properties have a great deal of pride in constantly looking to improve the product," Probst said. Besides, he said, sequels, because they have a steady following among consumers, appeal to Wall Street investors.
He added that the company had a goal of putting out at least one entirely new game every year, and had several major original games in its pipeline.
To be fair, sequels are a stock-in-trade of the industry; nine of last year's 10 top-selling games were follow-ons. "Grand Theft Auto: San Andreas," the No. 1 title from Take-Two Interactive Software, for example, is the fifth version of that game. Reliance on tried-and-true sequels makes it possible to have a steady revenue stream in an unpredictable business.
Probst's defense, however, has not pushed aside worries about the company's continued growth. It recently reported a first-quarter net loss of $58 million, while sales dropped 16 percent compared with the same period last year.
The issue of creative fatigue emerges as Electronic Arts and the rest of the video game industry, while on a high-growth trajectory over the long term, have hit a cyclical soft spot. Consumers have slowed their buying of video games in recent months in anticipation of the release of two new video game consoles--the Xbox 360, scheduled for release from Microsoft later this year, and the PlayStation 3, due out from Sony next year.
Electronic Arts, based in Redwood City, Calif., recently lowered its full-year revenue estimates to $3.3 billion to $3.4 billion, from $3.4 billion to $3.5 billion, in part blaming a delay in the release of its game "The Godfather," which will not be sold until next spring. The eagerly awaited game, based on the mobster movies, was supposed to be out over the holidays, when the game industry makes about 50 percent of its annual sales. But the company said it was still making improvements. The sizable financial effect of that delay is precisely the kind of trouble Electronic Arts avoids by putting out sequels. The company has been profitable over the years because it has been able to smooth out the volatility of its business with games that sell year after year.
A sporting chance
With games based on soccer, racing, basketball and college and pro football, it can churn out dependable sequels, which are often much cheaper to create than brand-new games, which can cost upward of $10 million. Sequels are also somewhat easier to market because they already have a following.
Many analysts say that Electronic Arts's strategy and dependence on sports games--which account for about 30 percent of its revenue--is smart. "Their sports business gives them a leg up on everybody else," said Michael Wallace, an analyst with UBS. "It's the closest thing there is to recurring revenue in this business."
But critics are worried that even if it hangs on to the sports franchise, the company will need to take more creative risks to accelerate its growth.
Indeed, the strategy came under attack last year when Take-Two Interactive began selling its own sports titles at cut-rate prices. Electronic Arts, in response, signed expensive long-term licensing deals to give it exclusive rights to make NFL games and titles using the ESPN brand and logo.
The deals--reported to be $400 million for the NFL for five years and $800 million for ESPN for 15 years--have raised eyebrows among industry analysts who say the high fees could reduce profit margins. Others point out that the investments are necessary to protect the company's position.
The challenge on the sports front has increased pressure to make "The Godfather" the next big hit. Video game reviewers and Wall Street analysts are looking at it as a test of whether the company can create something great from scratch.
"The Godfather game is a big deal for that company," said Greg Kasavin, executive editor of Gamespot.com, an online publication that reviews games. "It if doesn't turn out good for them, it's going to be a problem."
For Electronic Arts' critics and supporters, "The Godfather" and two other original games--"Black," a shooting game scheduled to come out next spring, and "Spore," scheduled for release some time next year and created by Will Wright, creator of the "Sims" games--will be gauges of the company's creative prowess. From a financial perspective, however, Electronic Arts remains the unchallenged market leader, controlling around 25 percent of game sales for the major video game consoles, PlayStation 2, Xbox and GameCube.
Lost credibility?
Its 2004 revenue of $3.17 billion was more than double that of its nearest competitor, Activision, which had sales of $1.36 billion. The company's shares, which have fallen from around $70 at the beginning of March to $59 on Friday, held up even after the dot-com bust. Electronic Arts is "still far and away the best company in the video game industry," said Elizabeth Osur, an analyst with Citigroup Smith Barney. But, she said, "They've obviously lost some credibility" because the executives had to revise their earnings projections.
Wallace of UBS, who has a buy rating on the stock, said that game quality "wasn't up to snuff the last year or so," though he added that he believed that the company's creative engine was still strong. "They will certainly fix the quality issues," he said, noting that the company has historically been good at improving its titles when they become tired.
The sequels generally maintain the underlying mechanics of a game, but the degree of faithfulness can vary widely from version to version; some versions have minimal changes while others practically reinvent the game.
So far, game players seem willing to follow.
Since 1989, Electronic Arts has sold 43 million copies of "Madden," with 60 to 70 percent of those sales made to repeat buyers, said Frank Gibeau, the senior vice president for marketing. And 50 percent of those who buy Need for Speed are repeat buyers, he estimated.
One repeat buyer of Madden is Nolan Cooper, 23, who graduated this year from Long Beach State University and who plans to buy the new version, just as he has for five years in a row. "I buy it for the new rosters and updated features and better graphics," said Mr. Cooper, who was visiting a video game store here recently.
He was accompanied by John Cooper, his father, who works at a UPS warehouse in Sacramento. The elder Cooper offered his own theory on the sequels' successes. "If it wasn't for free agency," he said, "Electronic Arts wouldn't be doing so well."
In fact, Electronic Arts does benefit hugely from free agency, its executives say. Because professional athletes change teams constantly, game makers have a built-in reason to produce updated versions every year.
Still, the gaming audience expects something bigger, better and flashier with each iteration. At least one early review of "Madden 06" was tepid. The review, published last Thursday in The San Jose Mercury News, said that the new quarterback vision feature might interest hard-core gamers but could be too distracting for casual players. At the same time, "Madden 06" won the award for best sports game at E3, the video game industry trade show, held earlier this year.
Meanwhile, one of company's game producers, Phil Frazier, said that the team of 50 developers had already begun work on "Madden NFL 07." "The minute we finish one version, we jump right into the next one," Frazier said. "It's definitely a challenge."
http://news.com.com/2102-1043_3-5825000.html?tag=st.util.print
In this year's edition, a slice of the field lights up to give the quarterback better vision and throwing precision when he makes a pass. It also lets players follow the athletes' off-the-field activities.
But Steve Perry, 35, once an avid Madden fan, won't be lining up to buy the game. He said he dropped the habit several years ago, after his daughter was born and he tired of spending $50 to get an update of a title he already owned.
"I'm not willing to jump along and buy a new one each time," said Perry, who works in sales for a newspaper in San Antonio. "I'm not going to fall prey to that."
His complaint underscores a potential problem for Electronic Arts, which has suffered financial setbacks this year. Increasingly, industry analysts and game reviewers are wondering if the company's dependence on sequels is a sign that it is losing its creative edge.
By year's end, Electronic Arts plans to release 26 new games, all but one of them a sequel, including the 16th version of "NHL Hockey," the 11th of the racing game "Need for Speed" and the 13th of the "PGA Tour" golf game. The company also relies heavily on creating games based on movies like the James Bond and Lord of the Rings series, rather than developing original brands.
"There's a feeling of franchise fatigue. Gamers are wondering, 'Do I need to buy this game again this year? I just bought it last year,'" said Mike Hickey, an analyst with Janco Partners, an investment firm in Denver, who has a sell rating on the company's stock.
The reliance on sequels and licensed media properties, he said, is "dampening the creative spirit."
Lawrence Probst III, chairman and chief executive of Electronic Arts, dismisses that view. "The teams that work on the franchise properties have a great deal of pride in constantly looking to improve the product," Probst said. Besides, he said, sequels, because they have a steady following among consumers, appeal to Wall Street investors.
He added that the company had a goal of putting out at least one entirely new game every year, and had several major original games in its pipeline.
To be fair, sequels are a stock-in-trade of the industry; nine of last year's 10 top-selling games were follow-ons. "Grand Theft Auto: San Andreas," the No. 1 title from Take-Two Interactive Software, for example, is the fifth version of that game. Reliance on tried-and-true sequels makes it possible to have a steady revenue stream in an unpredictable business.
Probst's defense, however, has not pushed aside worries about the company's continued growth. It recently reported a first-quarter net loss of $58 million, while sales dropped 16 percent compared with the same period last year.
The issue of creative fatigue emerges as Electronic Arts and the rest of the video game industry, while on a high-growth trajectory over the long term, have hit a cyclical soft spot. Consumers have slowed their buying of video games in recent months in anticipation of the release of two new video game consoles--the Xbox 360, scheduled for release from Microsoft later this year, and the PlayStation 3, due out from Sony next year.
Electronic Arts, based in Redwood City, Calif., recently lowered its full-year revenue estimates to $3.3 billion to $3.4 billion, from $3.4 billion to $3.5 billion, in part blaming a delay in the release of its game "The Godfather," which will not be sold until next spring. The eagerly awaited game, based on the mobster movies, was supposed to be out over the holidays, when the game industry makes about 50 percent of its annual sales. But the company said it was still making improvements. The sizable financial effect of that delay is precisely the kind of trouble Electronic Arts avoids by putting out sequels. The company has been profitable over the years because it has been able to smooth out the volatility of its business with games that sell year after year.
A sporting chance
With games based on soccer, racing, basketball and college and pro football, it can churn out dependable sequels, which are often much cheaper to create than brand-new games, which can cost upward of $10 million. Sequels are also somewhat easier to market because they already have a following.
Many analysts say that Electronic Arts's strategy and dependence on sports games--which account for about 30 percent of its revenue--is smart. "Their sports business gives them a leg up on everybody else," said Michael Wallace, an analyst with UBS. "It's the closest thing there is to recurring revenue in this business."
But critics are worried that even if it hangs on to the sports franchise, the company will need to take more creative risks to accelerate its growth.
Indeed, the strategy came under attack last year when Take-Two Interactive began selling its own sports titles at cut-rate prices. Electronic Arts, in response, signed expensive long-term licensing deals to give it exclusive rights to make NFL games and titles using the ESPN brand and logo.
The deals--reported to be $400 million for the NFL for five years and $800 million for ESPN for 15 years--have raised eyebrows among industry analysts who say the high fees could reduce profit margins. Others point out that the investments are necessary to protect the company's position.
The challenge on the sports front has increased pressure to make "The Godfather" the next big hit. Video game reviewers and Wall Street analysts are looking at it as a test of whether the company can create something great from scratch.
"The Godfather game is a big deal for that company," said Greg Kasavin, executive editor of Gamespot.com, an online publication that reviews games. "It if doesn't turn out good for them, it's going to be a problem."
For Electronic Arts' critics and supporters, "The Godfather" and two other original games--"Black," a shooting game scheduled to come out next spring, and "Spore," scheduled for release some time next year and created by Will Wright, creator of the "Sims" games--will be gauges of the company's creative prowess. From a financial perspective, however, Electronic Arts remains the unchallenged market leader, controlling around 25 percent of game sales for the major video game consoles, PlayStation 2, Xbox and GameCube.
Lost credibility?
Its 2004 revenue of $3.17 billion was more than double that of its nearest competitor, Activision, which had sales of $1.36 billion. The company's shares, which have fallen from around $70 at the beginning of March to $59 on Friday, held up even after the dot-com bust. Electronic Arts is "still far and away the best company in the video game industry," said Elizabeth Osur, an analyst with Citigroup Smith Barney. But, she said, "They've obviously lost some credibility" because the executives had to revise their earnings projections.
Wallace of UBS, who has a buy rating on the stock, said that game quality "wasn't up to snuff the last year or so," though he added that he believed that the company's creative engine was still strong. "They will certainly fix the quality issues," he said, noting that the company has historically been good at improving its titles when they become tired.
The sequels generally maintain the underlying mechanics of a game, but the degree of faithfulness can vary widely from version to version; some versions have minimal changes while others practically reinvent the game.
So far, game players seem willing to follow.
Since 1989, Electronic Arts has sold 43 million copies of "Madden," with 60 to 70 percent of those sales made to repeat buyers, said Frank Gibeau, the senior vice president for marketing. And 50 percent of those who buy Need for Speed are repeat buyers, he estimated.
One repeat buyer of Madden is Nolan Cooper, 23, who graduated this year from Long Beach State University and who plans to buy the new version, just as he has for five years in a row. "I buy it for the new rosters and updated features and better graphics," said Mr. Cooper, who was visiting a video game store here recently.
He was accompanied by John Cooper, his father, who works at a UPS warehouse in Sacramento. The elder Cooper offered his own theory on the sequels' successes. "If it wasn't for free agency," he said, "Electronic Arts wouldn't be doing so well."
In fact, Electronic Arts does benefit hugely from free agency, its executives say. Because professional athletes change teams constantly, game makers have a built-in reason to produce updated versions every year.
Still, the gaming audience expects something bigger, better and flashier with each iteration. At least one early review of "Madden 06" was tepid. The review, published last Thursday in The San Jose Mercury News, said that the new quarterback vision feature might interest hard-core gamers but could be too distracting for casual players. At the same time, "Madden 06" won the award for best sports game at E3, the video game industry trade show, held earlier this year.
Meanwhile, one of company's game producers, Phil Frazier, said that the team of 50 developers had already begun work on "Madden NFL 07." "The minute we finish one version, we jump right into the next one," Frazier said. "It's definitely a challenge."
http://news.com.com/2102-1043_3-5825000.html?tag=st.util.print
