OCT. 30, 2014 • A number of major video game companies released financial results for the quarter ending September 30. Electronic Arts reported net revenue (non-GAAP) of $1.22 billion, up from $1 billion for the same period in 2013. Packaged goods accounted for $767 million and $692 million respectively of that net revenue, while digital sales brought in $453 million, up from $348 million. Primary revenue drivers were FIFA 15, Madden 15 and The Sims 4. Full game PC and console downloads generated $94 million, up 71% from the prior year. Overall, between 10% and 15% of net sales came from digital full game downloads. Boosting digital revenue was the Ultimate Team fantasy league component. EA said aggregate the Ultimate Team player base increased by more than 40% year-over-year, which boosted Ultimate Team revenue 96%. Extra content and free to play contributed $153 million, up 20% over the prior year, led by Ultimate Team services over the same period last year. Mobile generated $115 million for the quarter, up 11% over the prior year. Of that total, $105 million, or 91%, was from digital extra content and advertising. Premium full mobile game downloads accounted for $10 million, down 62% compared to the prior year.
Take-Two Interactive’s net revenue (non-GAAP) for the second quarter declined to $135 million from $1.27 billion for the same period in 2013. In terms of GAAP revenue, the decline was not so bad, down to $126 million versus $149 million for the previous second quarter. That led to a quarterly net loss of $35 million versus net income of $326 million in 2013 on a non-GAAP basis. Once again, results are more favorable on a GAAP basis as the second quarter loss was $41 million in the quarter versus $124 million the previous year. Revenue was driven by catalog sales of Grand Theft Auto V, Grand Theft Auto Online, NBA 2K14, Borderlands 2 and WWE 2K14. The portion of net revenue generated by digital sales was $89.8 million. Of that total, 58% came from virtual item sales and DLC. Overall digital net revenue was down from $105.5 million year over year.
Nintendo Co. Ltd. released results for the six months ending September. Net sales were ¥171.4 billion ($1.6 billion), down from ¥196.6 billion ($1.8 billion) for the same period in 2013. Thanks to favorable exchange rates, Nintendo reported net income of ¥14.3 billion ($131 million) for the period. Wii U units sold in the first six months were up to 1.1 million from 460,000 year over year, while Nintendo 3DS sales were 2.1 million units, down from 3.9 million. Nintendo did not break out digital software revenue.
Impact: Growing the digital business has been a big emphasis for Electronic Arts as its packaged business has been stagnant for years. Digital sales have grown on a slow, but steady, pace over the past few years. In the second quarter digital sales accounted for 37% of revenue versus 31% in Q2 of last year. Much of this is probably attributable to the launch of Sims 4 in early September, a major PC title that many people choose to download. However, extra content continues to grow as well. EA has done something very intriguing with its Ultimate Team product. The publisher’s sports franchises traditionally sold well during their league seasons and languished somewhat after competition ceased while consumers waited for next year’s installment. What these Ultimate Team fantasy leagues have done is encourage players to stay active with the title year round. The trend was noticeable first with the FIFA franchise, and was soon mimicked with the Madden and NHL series. This add-on income is a relative game changer for the sports game business model. Packaged goods sales still carry more weight at EA, but the company is slowly growing its digital business across the board. However, it is interesting to note that mobile was up only 11%. In fiscal 2014 revenue from smartphones and tablets was up 45% and was the major reason digital revenue grew for EA that year. On PC EA actually saw its digital revenue decline in 2014. So it is encouraging that EA was able to significantly grow digital revenue without growing mobile revenue a great deal.
After years of attempts to broaden its content base, Take-Two’s fortunes are still a tale driven by the Grand Theft Auto series. This huge franchise completely overshadows everything else the company does in the years between GTA installments. Grand Theft Auto Online can be seen as a revenue bridge between GTA V and GTA VI, which is a significant reason the publisher’s digital net revenue accounts for 67% of the total. The good news is GTA V launches for Xbox One and PlayStation 4 in November and PC in early 2015.
Unfortunately there is almost no positive for Nintendo, even as some investors were cautiously optimistic about signs of a turnaround. What is most worrisome for Nintendo is that the gamemaker managed to sell only 54% of the number of 3DS handhelds than in the same period last year. In Japan, 1.1 million fewer units were sold during the same six months. In the Americas it was 480,000 less, and in Europe 250,000 less. The 3DS is Nintendo’s bread and butter right now. With software sales for the console at 23.3 million for the period, down from the 27.4 million units sold year over year, that’s a difference of 4 million game units. The Wii U may have seen an increase in units sold, which resulted in a boost in software sales to 9.4 million for the period from 6.3 million year over year, but further serious degradation in 3DS hardware sales will not be compensated by the projected low Wii U growth rate. For Nintendo the real test will be the holiday quarter where they launch some of their big gun games, including new Pokemon titles for the 3DS. Nintendo needs its software franchises to reinvigorate its potential consumer base.