The Art of Diversity

Electronic Arts' full year results, announced earlier this week, were largely unremarkable. The publishing giant's revenues continue to hover around the USD 3 billion mark, and the corner has yet to be turned in terms of controlling the rising costs which are eating away at the firm's margins and profits.

Both of those headline factors are exactly what you might expect on the basis of the last few years of the company's performance. However, one key highlight in EA's report caught our eye - namely the superb progress being made by the firm's casual, online, ad-funded and micro-transaction based products.

Grouped under the somewhat uninspiring heading of digital revenue, these emerging sources of income showed strong, if not exactly exponential, growth in the last years. Revenue is up by 47 per cent across these sectors; while the USD 127 million for which they account is but a drop in EA's ocean of turnover, it's an increasingly substantial drop, and one which no company would turn their noses up at adding to their accounts.

The progress made by EA's digital revenues so far is fascinating, and very promising - but it will be particularly interesting to observe this line in the firm's quarterlies over the next few years. Digital revenues may well be EA's best chance of finally leaving behind the USD 3 billion mark on its turnover and regaining some of the annual growth which made it into a NASDAQ darling for many years.

Moreover, observing the growth in EA's digital revenues is akin to measuring the pulse of the publisher's creativity and innovation. Sectors such as casual gaming, micro-transactions and digital distribution are all fairly widely understood as concepts, but turning those great ideas into solid revenues has proved elusive for the majority of the industry.

EA, with its vast resources and impressively mainstream library of IP and licenses, is arguably best-positioned to exploit such new commercial ideas. However, its sheer size - and resultant inertia and inefficiency - militates against it. The rate at which it actually succeeds in turning over cold hard cash from these emerging sectors is a helpful measure of just how well EA is doing at defeating its inner demons; high cost, low efficiency, resistance to change.

For the wider industry, too, there is a key lesson to take away from the growth in EA's digital revenues. Viewed not as a drop in the EA ocean, but as a revenue stream in its own right, this week's figures stand out as an affirmation of the validity of a number of emerging sectors.

Casual games, online games, micro-transactions and in-game advertising are not fads or niche ideas. Electronic Arts has USD 127 million that says otherwise, and that figure will almost certainly continue to grow in the coming years - and every month, we hear success stories from smaller, more focused firms who are building successful businesses in these sectors.

While there's no doubt that monolithic, boxed PC and console games will continue to be a key pillar of the industry for years to come, their dominance is being eroded at a faster rate than ever. Entire companies are now basing their revenue models on service subscriptions, download sales, in-game advertising and casual, five minute game experiences.

The themes, content and demographics of videogames have widened massively in recent years, accelerated by products like Sony's SingStar and Nintendo's Brain Age. It is inevitable that a similar diversification will follow in the delivery and billing systems for interactive entertainment. The age of the one-size-fits-all boxed game is ending fast - and any games company not seriously considering the impact which this diversified future will have on their business models risks being left behind.