EA: Streaming plus subscription will be the great disruptor in gaming

In the earnings call that followed Electronic Arts' first-quarter fiscal release, both CEO Andrew Wilson and CFO Blake Jorgensen spoke at length with analysts about the publisher's evolving strategy, especially as it relates to changes in technology and the mix of retail versus digital purchasing.

On the former, Wilson stressed that industry is about to see a pretty big overhaul thanks to streaming technologies. There's been a lot of talk about the cloud, and failed services that attempted to bring about a "Netflix of games" in the past, but Wilson believes that day is coming.

"There's a lot of things we're investing in. We do believe there's going to be more change in the next five years than there has been in the last 45," he said. "And we want to ensure that we are on the front line of that transformation and disruption in our business. As we think about those things, we are very focused in our investment. We don't have hundreds and hundreds of people working on these types of projects; we are very calculated and targeted in how we invest and in terms of where we think the greatest return will come.

"For many of those things, we actually think the time horizon is about five years-plus, but things like cloud and streaming we believe is in the 2-5 year time frame. When we think about subscription, we're already seeing return from that and the combination of that with streaming in that 2-5 year time horizon could be very meaningful in terms of revenue addition for us."

"We believe that ultimately the culmination of streaming plus subscription will also be a great disruptor to our business. And you've seen us investing there for a number of years"

Andrew Wilson

Wilson added, "As we think about media consumption over the last five years, the greatest disruptor has been the combination of streaming and subscription. It's changed the way we watch television, it's changed the way we listen to music, it's changed how we think about ownership versus access, and we believe that ultimately the culmination of streaming plus subscription will also be a great disruptor to our business. And you've seen us investing there for a number of years. It was some years ago that we started our first streaming tests, and we continue those tests and we continue to work with other key large scale partners on how we think streaming might work for our business in the future. We saw us launch EA Access and Origin Access, and you should expect us to continue to push in growing the opportunity in and around subscription and delivering more value for our players on both of those vectors."

The other technology that EA seems less excited about in the near-term but that the company is still pursuing is virtual reality. That said, Wilson acknowledged that there's likely to be more mass adoption of AR experiences.

"Not a lot of new news on VR for us and not a lot of new news on VR in the industry. People seem to have come to terms with the fact that VR, while an unbelievably wonderful innovation for how you consumer interactive entertainment and all forms of entertainment for that matter, it's going to take a couple of years at least where it's truly a mass market opportunity," Wilson said. "We are still in the same position we were, we've enabled core VR capability in our Frostbite engine and we've delivered a console experience, and we're in the process of delivering a mobile experience and we'll continue to push the boundaries of 'What's a sports game look like inside VR? What's a first-person shooter look like in VR? What's an action-adventure look like in VR?' And that's really at a design level and something that will start to manifest in the marketplace in the years to come.

"AR I think is more interesting. The notion of a data overlay into your mobile, console, PC games, something that takes things important or interesting about you, whether that's geo data or gameplay data or friends data, that you are able to allow the game to utilize to enhance and extend your experience, I think we're likely to see more of that sooner and certainly our creative teams are really thinking about what kind of data would a player want to use from their real world to augment their virtual world. And you should expect to see more of that from us in the coming months and years."

Earlier in the call, Jorgensen shed some light on how EA sees the digital picture evolving. While the company continues to see more and more growth in its digital sales, similar to what The NPD Group explained to us recently, retail will be around a good deal longer than many of us thought. EA has talked before about wanting to get past the 60% threshold for full game downloads, but the publisher's global nature is actually holding it back.

"We're driving more and more of our marketing in non-traditional ways, away from traditional media and into more of the influencers of the world to drive the message home"

Blake Jorgensen

"The first and most important thing is we're very global. And so while there's high bandwidth speeds in the US and in key major countries like the UK or France or Germany, that's not consistent all through Europe or Eastern Europe or Asia. And so that's probably still the biggest impediment to full game downloads," Jorgensen noted.

"The second piece is, while in the US and I think it's the same in Northern Europe and [other] parts, the cashless transaction methods are fairly well developed, I would say they are not as well developed in other places in the world. So the use of credit cards, PayPal or any type of ePay approach still has a long ways to go, and I would say those two things are the biggest impediment to full game downloads. We know that the consumer, once they do a full game download realizes how easy it is and how effective it is for managing their games, so we don't see consumer resistance. It's really about bandwidth resistance and the ability to pay with a cashless method... We know it'll be a mixed model for a long period of time."

While full game downloads have some barriers to contend with, what is true for EA is that the digital live services impact is changing much of how the company operates, and that has had a pretty notable effect on marketing plans too, Jorgensen explained. Essentially, marketing much like support for an online product has become a year-round endeavor.

"If you've been using historical patterns for marketing spend you should start to think about those differently over time, because as we've said, as we live in a live services world and as we have a bigger and bigger mobile business, we're driving and managing our business daily, not by title launch specifically," he said.

"So what you're going to see is our marketing spend smooth out more across the year but still be dominated by Q2 and Q3 because that's when our biggest properties come out. But we started spending on FIFA months ago or on Madden months ago, and we're starting spending on Star Wars, for example, [and] that doesn't come out until November -- versus the old model where the bulk of spending came 3-4 weeks before you shipped a product, more like a movie [marketing model]. We're moving to a much more ROI-driven marketing structure when we see something that works we continue to fuel it. And we're driving more and more of our marketing in non-traditional ways, away from traditional media and into more of the influencers of the world to drive the message home."