Since 2007 I have been predicting on here that Electronic Arts (EA) would be bought out. At one stage it looked very much as if Apple were going to be the proud new owners. (And may still be). Now Reuters are reporting rumours that Microsoft will do the buying. Which must be true because they are denying it.
The fact is that EA would be very cheap to buy, because they have been making big losses for some time whilst the industry around them booms. These losses are because something is wrong within EA, fix that and you have bought a bargain.
Expert Wall Street analysts are saying that EA would be a bad fit for Microsoft. They are wrong and here’s why:
- Microsoft are a software company. EA are a software company. So Microsoft would be buying more of the same.
- Microsoft have lots of platforms they need content for. Live (which will ultimately support many hardware devices), Zune, Windows, Windows mobile, the upcoming tablet, the 360 and the upcoming 720 (phoenix) that will run alongside it. Also they must be working on thin client smart TVs. That makes at least 7 platforms.
- EA own a truly formidable portfolio of studios that can be bought cheaply here. Put in harness and properly managed they are an outstanding resource in the industry.
- EA also own a fair amount of original IP. Once again this can be leveraged massively onto all those Microsoft platforms.
- If Microsoft don’t buy EA then someone else will. And that someone else could be Apple or Nintendo, either of which would put Microsoft at a massive competitive disadvantage across many product areas.
- Microsoft have Natal coming. This has future potential beyond that even of Windows. By buying EA they would create a commitment to Natal that would help ensure that this potential is realised.
So how did EA get into the position where their stock market value is a small fraction of their real worth?
- EA traditionally made games using other people’s IP. James Bond, Harry Potter etc. As the industry evolved the consumers moved away from this towards original IP which better used the technical advantages of gaming as a media (non linearity, interactivity and connectivity). EA moved too little and too late to follow the market.
- The boxed retail console game business model on which EA depends is largely broken in this generation of platforms. Only blockbusters work. EA were too late in seeing this and persisted with products long after they should have been dumped.
- Management of an organisation can be done efficiently at minimum cost. The British ran Imperial India with few civil servants, for instance. However it is also possible for management, because they have the power, to become self serving and overly expensive for what they do, with empire building, secretaries, bloated expenses and a pile of other ills. I think that perhaps EA are not quite the mean, lean management machine that they could be.
- EA launched products onto the market that would not work because product quality made them uncompetitive. Warhammer Online is a prime example.
- EA has a long history of buying studios which then went downhill when the EA bureaucracy was imposed upon them.
- Any behavioural expert will tell you that working long hours, especially at something creative, is unproductive. Enlightened game developers realise this and get the best out of their workforce. EA have been long time proponents of development crunch, which surely cannot be a good thing.
- EA marketing owes more to the 1960s detergent industry than it does to modern best practice. They continue to spend massively on TV airtime instead of matching their marketing effort to the behaviour of their customers. Also they seem not to have adapted well to the brand building necessary when you create original IP.
For a long time I thought a global media company would buy EA. News International would be a very good fit, but Rupert seems to be a long way behind the market these days. So now we are in a position where EA seems to have more economic advantage to a platform holder than to a media company. One thing is for sure, they are a very ripe takeover target indeed.