{"id":16904,"date":"2018-10-16T19:11:21","date_gmt":"2018-10-16T19:11:21","guid":{"rendered":"http:\/\/www.dfcint.com\/dossier\/?p=16904"},"modified":"2018-10-16T19:20:30","modified_gmt":"2018-10-16T19:20:30","slug":"electronic-arts-and-activision-blizzard-focus-on-games-as-a-service","status":"publish","type":"post","link":"https:\/\/www.dfcint.com\/dossier\/electronic-arts-and-activision-blizzard-focus-on-games-as-a-service\/","title":{"rendered":"Electronic Arts and Activision Blizzard Focus on Games As A Service"},"content":{"rendered":"

The new DFC report, The Business of Video Games<\/a>, looks at the gap between games as a service and traditional pay-to-play games.\u00a0 As we discussed last week<\/a>, these are two very different segments of the industry.\u00a0 This week we are looking at how two traditional pay-to-play game companies, Electronic Arts and Activision Blizzard, are trying to move into games as a service.<\/p>\n

As we have discussed, there is a huge difference between games as a service and pay-to-play games.\u00a0 Very few products have been able to cross the divide and do both.\u00a0 This has been a problem as more users play games on mobile devices.\u00a0 AAA brands have not translated very well to mobile devices.<\/p>\n

One example of a AAA title doing well on mobile is the recent success of the mobile version of NCSoft\u2019s Lineage<\/a>.\u00a0 However, this was already a subscription MMOG that used a games as a service model.\u00a0 Most AAA pay-to-play versions earn far less on mobile devices or in any games as a service model.<\/p>\n

The two largest pure play video game software companies are Electronic Arts and Activision Blizzard (NASDAQ: ATVI) and Electronic Arts (NASDAQ:EA).\u00a0 For years these companies were basically day trading stocks with investors betting on how many units the latest Call of Duty or FIFA would sell.\u00a0 This has all changed as investors are now looking at the growth potential ATVI and EA could have in games as a service.<\/p>\n

In 2012 Electronic Arts market value was around $4 billion.\u00a0 Today it is hovering at over $30 billion ($33 billion after last week\u2019s decline).\u00a0 Activision Blizzard has seen even more impressive growth.\u00a0 In 2012 its market value was around $10 billion.\u00a0 Today it is over $60 billion.\u00a0 Almost all this growth is because investors are now recognizing long-term potential in games as a service.<\/p>\n

Of course, short-term investing still has an impact.\u00a0 Electronic Arts has seen a recent stock decline as Battlefield V slips and there are concerns it will underperform.\u00a0 However, these are smaller corrections.\u00a0 At DFC Intelligence we receive far fewer calls from investors around individual games (Red Dead Redemption 2 being a notable exception) and many questions asking about the growth potential for games as a service.<\/p>\n

When it comes to games as a service, Activision Blizzard is far ahead of Electronic Arts.\u00a0 This is entirely because they made major purchases to buy their way in.\u00a0 In 2008 they bought Blizzard in a massive transaction with Vivendi (whom they fully bought out in 2013).\u00a0 In 2015 they bought King Digital Entertainment for about $6 billion.\u00a0 Blizzard was the leader in PC games as a service, while King was the leader in mobile games as a service (outside Asia).<\/p>\n

Electronic Arts has not fared so well in its much smaller investments in the space.\u00a0 This included acquisitions of mobile leader Jamdat Mobile, social game provider Playfish and Popcap Games.\u00a0 Nevertheless, EA continues to focus on digital games as a service.<\/p>\n

In fiscal 2019, EA has announced only seven traditional packaged titles.\u00a0 Four of these are new versions of FIFA, Madden, NHL and NBA games.\u00a0 The others include Battlefield V for November and the major Anthem and Sea of Solitude titles for early 2019.\u00a0 That is it.\u00a0 A hot new platform like the Nintendo Switch no longer has a large enough installed base for EA to bother with.\u00a0 For EA it is now all about products that can operate as what the company now calls \u201clive services.\u201d<\/p>\n

\"Electronic<\/p>\n

Electronic Arts\u2019 digital revenue growth in fiscal 2018 was almost all through live services which grew 31%.\u00a0 Full game downloads and mobile games grew an anemic 7% and 5% respectively.\u00a0 Meanwhile, packaged game sales fell 17% and only accounted for about one-third of revenue.<\/p>\n

Electronic Arts now has an impressive lineup of live services that use a variety of business models.\u00a0 They include:<\/p>\n