EA hopes less is more when it comes to games

Electronic Arts defended its decision to slash its release slate for this fiscal year and focus instead on fewer blockbuster titles and a booming digital and mobile business, saying it was a response to a changing reality in the $60 billion gaming industry.

The game publisher's chief operating officer, John Schappert, said EA's strategy of making fewer -- but bigger -- bets makes sense because the market is now dominated by a smaller number of blockbuster games that generate more and more revenue through additional downloadable content.

And the dismal retail sales figures that have been dogging the video game industry are misleading, he argued.

"The macro thing you see happening, is the top five games are about as big as the top 10 a few years ago, and the top 10 are about as big as the top 20," Schappert said in an interview on Wednesday at E3, the most closely watched video game tradeshow.

"Those core consumers, while they're growing, they're also spending more on downloadable content. They're buying fewer games, but they're playing their games longer and they're monetizing them further."

EA will publish 36 titles in its fiscal 2011, which ends in March, nearly half its total of two years ago.

EA had a tough calendar 2009, slashing jobs and narrowing its game portfolio amid an industry-wide slump in video game sales and a continuing transition to digital and casual games.

In May, EA affirmed its forecast for fiscal 2011 earnings, excluding items, of 50 cents to 70 cents a share on revenue of $3.65 billion to $3.9 billion.

EA has had difficulty meeting its guidance.

Before beating fiscal fourth-quarter earnings, Electronic Arts had slashed its outlook and missed its financial targets for several quarters.

Despite what analysts have said is a strong second-half game slate, the company's shares are down 10% this year. EA boasts some of the gaming industry's most venerable franchises such as Madden football, Need for Speed and The Sims.

What it sorely lacks, analysts have said, is tent-pole franchise like Activision Blizzard's Call of Duty or Take-Two Interactive Software Inc's Grand Theft Auto, which rakes in billions and helps make up for lackluster sales of other games.

Schappert said that while EA would love to have such a blockbuster, and the company is working hard to develop one, it does not necessarily need it.

"I don't need one 20-million unit seller, I live perfectly fine in the world with having top 20 titles that sell really well," he said. "My business looks pretty good."

While the vast majority of EA's revenue still comes from traditional packaged games, sales of digital, downloadable and mobile content totaled more than $550 million last year, up 30%, and the company expects to see another 30% gain this year.

"It's going to be a big growth driver for us in the future, and it is a meaningful number today," Schappert said.

EA has already established itself as the top publisher on Apple's iPhone. Schappert said the opportunity on Apple's latest gadget, the iPad tablet computer, is "real and it's big."

The company can charge twice as much for games on the iPad as it does for the iPhone.

Schappert also said that the company is working hard to develop Star Wars: The Old Republic, a massively multiplayer online (MMO) game it hopes will rival Activision's World of Warcraft. It has not announced a launch date.

"I want an MMO, I covet an MMO, and I'm spending a ton of money to make an MMO," Schappert said.

Motion-based gaming and 3D have been the major themes of E3 this week.

Schappert said Microsoft's Kinect motion system and Sony's Move are very different platforms, and EA is supporting both. He said Move is more complementary to existing games, while Kinect will require games to be rewritten in some ways.

Schappert said 3D gaming is for real, but it may take a while. He said the costs to transform a game into 3D are minimal, but would not say if EA planned to charge more for such titles.

EA shares closed down 30 cents, or 1.84%, to $16.01 on Wednesday.