EA trips up on the path from Product to Service

Every now and then, a major publisher goes through a bit of a rough patch in PR terms; the hits just seem to keep on coming, with company execs and representatives seemingly incapable of opening their mouths without shoving their feet right inside, and every decision being either poorly communicated or simply wrongheaded to begin with. At present it's EA that can't seem to put a foot right, from Battlefront 2's microtransactions to lingering bad feeling over the closure of Visceral; every major company in the industry, though, has had its fair share of turns in the barrel.

These cycles come around for a couple of reasons. Part of it is just down to narrative; once something goes wrong for a company, they are scrutinised more closely for a while, and statements that might have slipped under the radar usually are blown up by the attention. Another part of it, though, is genuinely down to phases that companies go through; common enough periods in which the balance between the two audiences a major company must serve, its consumers and its investors, is not being managed and maintained expertly enough.

"Every major publisher is undertaking a strategic shift in a direction they know perfectly well is going to annoy many of their core customers"

Most companies encounter this difficulty from time to time, because the demands and desires of shareholders are often damned near diametrically opposed to those of customers. The biggest problems arise, however, when a firm ends up having to take a Janus-faced approach, presenting a different picture in financial calls and investor conferences to the one it tries to convey in its customer-facing PR and marketing efforts.

That's broadly speaking the situation EA has found itself in once again; forced to be conciliatory and diplomatic in talking to customers about everything from loot boxes to its commitment (or lack of same) to single-player experiences, while simultaneously being bullish with investors who want to see clear signs of progress in the shift towards a set of business paradigms core consumers volubly dislike.

CFO Blake Jorgensen's comments at Credit Suisse's conference earlier this week are archetypal of this genre of corporate communication; from a blunt denial that the company's microtransaction strategy on Battlefront 2 is changing overall to a throwaway comment about Visceral's closure being related to declining popularity (by which, being a CFO, he meant revenue) of linear game experiences, Jorgensen spoke to investors in a way that was quite markedly different from how the rest of the company has addressed its actual customers on these issues.

You can argue quite reasonably that this approach is dishonest in spirit if not in substance; even if the words of each statement are chosen carefully so the investor messages don't technically contradict the consumer messages, the intent is so clearly tangential that consumers have every right to feel rather miffed. I think it's worthwhile, however, to look beyond that to the motivation and strategy behind this - not just in terms of EA's month of bad PR, but looking beyond that to the industry as a whole, because pretty much every major publisher is undertaking a similar strategic shift in a direction they know perfectly well is going to annoy many of their core customers, and they're all going to have their own turn in the barrel as a consequence.

"The business model that has sustained the games industry for decades has started to look frustratingly quaint and backwards"

At the heart of this issue lies the fact that for many investors and executives, the business model that has sustained the games industry for decades has started to look frustratingly quaint and backwards. "Games as a Product", whereby a game is made and sold, perhaps followed up by a handful of add-ons that are also made and sold (essentially smaller add-on products in their own right), is a model beloved of core consumers - but business people point out, not entirely unfairly, that it has many glaring flaws.

Some of those flaws are very real - the product model creates a high barrier to entry (you can't attract new customers without convincing them through expensive marketing to spend $50 to $60 on trying out your game), hence limiting audience growth, and has not scaled effectively with the rising costs of AAA development. More controversially, they dislike the fact that the product model creates a relatively low cap on spending - after buying a game, there's only so much money a consumer can spend on DLC packs (each of which has its own associated development costs) before they hit a hard limit on their purchases.

Hence the pressure to move to a "Games as a Service" model, which neatly - if not uncontroversially - solves each of these issues. The service model can be priced as low as zero to create a minimal barrier to entry, though for major titles with a big brand attached publishers still show a preference for having their cake and eating it, charging full AAA pricing for entry to an essentially freemium-style experience. An individual player's spending may be theoretically limitless, as purchases of cosmetic or consumable items could run to many thousands of dollars in some cases - hence also allowing the game's revenue to scale up to match the huge AAA development and marketing budgets that went into its creation.

"The move towards games as a service is inexorable, and 2018 will bring far, far more of the same"

You can "blame" mobile games for this if you wish, but in a sense they were merely the canary in the coalmine; the speed with which the mobile gaming market converged on the F2P model and the aggression with which it was pursued was a clear sign that the rest of the industry would eventually try to move in a similar direction. The reality is that mobile games shone a light on something a few industry types had been saying for years; that there was a massive, largely untapped audience for games out there, who would never climb over the barriers to entry to the traditional market but who could potentially be immensely valuable customers of games with lower barriers to entry.

The correct height for those barriers turned out to be "free games for devices you already own", and yet this market did turn out to be enormously valuable; and now much of the industry is eyeing up the model that works on smartphones, looking at their own rising costs and shrinking slice of the pie, and wondering how to get from over here to over there.

The problem is that making that crossing - from being a successful creator or publisher of core games to being a successful company in a smartphone-style paradigm - is damned tricky to do when the business model you (and your investors!) want to have is anathema to many of the customers you actually have right now. Not all of them, by any means - plenty of core gamers are actually pretty relaxed about these models, for the most part - but enough of them to make a lot of noise and to potentially put a major dent in the bottom line of a company that genuinely manages to drive them away.

Hence, much of the approach we've seen in 2017 (and prior) has really been akin to the parable about putting a frog in cold water and gradually raising the heat; companies have slowly, softly been adding service-style features and approaches to their games, hoping that the slowly warming water won't startle its occupants too much.

When things spill over as they have done for EA in the past month, it tends to indicate that someone got impatient; that investors were too demanding or executives pushed too hard, and the water started to heat up too rapidly. The course will be corrected, but the destination remains the same. Short of a really major pushback and some serious revenue damage across the board from these approaches - which bluntly seems unlikely to materialise - the move towards games as a service is inexorable, and 2018 will bring far, far more of the same. Whether you view that as the industry's salvation or its ruin is really a matter of personal perspective, but it's a new reality for AAA titles that we're all going to have to make some kind of peace with.