Interview: Electronic Arts CEO John Riccitiello talks E3

Joystiq: What's EA's overarching strategy going into E3? What's the message you guys are looking to communicate to consumers?

John Riccitiello: I think mostly what we're going to try to do is introduce 10 great products. So, but I think the message behind all the products is that -- and we feel very proud that we've got what I think is the best industry lineup. We'll talk about that, I'm sure, on the call. And then, increasingly, what we're doing is driving transformation where there's just a whole lot more to these products than a simple package goods. There's a full series of services and benefits and post release contents. There's a version for the iPhone. There's a version for the iPad. There's a version for social networking that sort of lets you sort of engage in ways you probably never imagined you would.

So, for us it's about Dead Space 2, it's about Medal of Honor, it's about Crysis 2, it's about The Sims console. It's about probably the best Madden we shipped this generation, maybe including the last. It's a rebirth of NBA Live, now NBA Elite, and a lot of really cool titles. Then it's all the rich services that are coming behind it. And frankly underpinned by what I think is the industry's best quality story.

So, you mentioned iPhone and iPad. You guys are awfully bullish on Apple's portable handhelds. Do you guys see a lot of growth in other devices in that market, things like Android or even Palm?

Well, I'm in the middle at the moment of trying to figure out how to program my HTC Evo, an Android.

Oh, did you get one? I'm jealous.

It is wicked cool, but there is a minor problem with figuring out how to keep this thing from going into sleep in about eight seconds. [laughter]

The problem is that I haven't figured this out yet. So, it's sort of pissing me off. But, before I had that -- as long as I keep poking at it, it's brilliant. But, so to answer your question, I actually don't know that I'm more bullish on one handset maker or another. I think Android's ultimately going to be big. We produce content for the Palm. We produce content for everything from the Kindle from Amazon to Facebook and for other social networks.

I guess, the reason I throw those out there is A) they're topical so people tend to write them down. But, more to the point is that people used to think, for example, FIFA is being a packaged goods games. What is FIFA now? It's a great packaged goods game on console. It's an online game service to the PC based on micro-transactions. It's a Facebook game. It's on multiple cellular handsets. It's got an Ultimate Team post-release downloadable card trading game. It's literally 12 months of FIFA. And so I guess the point that I'm making is that we're doing two things. I think we're building the best content in the industry and we're helping drive change or transformation in the business from being simply something you sort of buy and play with for a month or two, into something you engage in on multiple devices over multiple months.

So, speaking of buying things, you guys purchased Playfish. That was your big splash into the social gaming space. Two questions there. Number one, juxtaposed to the last major acquisition from EA which was Bioware Pandemic, the acquisition of Playfish is a lot different, right? It's a much different market. And you guys have not been buying up developers recently. After GDC this year, if you didn't leave thinking that social gaming was the biggest thing in the world and that retail games would disappear in about a month, you were probably at different panels than I was. Could you talk about the competition in that space, companies like Zynga?

Well, first, let me just clarify my point of view. So, for about three years, it's been fascinating. We've been standing up in front of investors and analysts and saying that the industry's going through transformation. I pointed out time and again that the peak to the last cycle, you know, three console companies had 80 percent of the global software in all platforms in all geographies. And I told people I expected that by 2009 or 2010 that the total of package goods was going to be about 50 percent of the industry, and the total of various digital services, whether they be mobile, social network, subscription, micro-transaction, would be the other half of the industry. And that's actually what's turned out. When we published our definition for both, most analysts are now using it.

The other thing that's inherent in that is that does not suggest that package goods goes away or even declines. I think it goes up and in a year when there is the right content, the right hardware plays. You know, when Sony, Microsoft, and Nintendo hit pricing, that'll be a big positive. I'm not predicting when and if, I'm just saying that those are obviously going to move boxes and that moving boxes moves software. So I don't necessarily see, you know, what we get with EA Mobile or Playfish is trading out package goods games. And the reason I don't think that is, by our best estimate as a sector, in 2003 there were about 200 million core gamers and that was it. People that played games on a dedicated device. Now there's about 230 million of those but out of nowhere there's 800 million or more casual gamers. So the total's well over a billion. And you bring new users into marketplace they tend to consume more, which is adding growth. It's just coming from places we're not used to.

We're very proud of our Playfish acquisition. Either we're already a leader in game services with Pogo, five billion minutes a month of online game play, a large subscription base. You know, we had taken Jamdat, taken that and driven it to be the world's leader in mobile gaming around our own IP. And Playfish is the highest quality development talent in the social networking industry. By adding that, it sort of makes EA, if you will, a triple or quadruple threat. You know, strong on PC, strong on console, strong on social, strong on mobile. And last time I checked we're all sort of mobile / social / PC / console people. And I just don't think the world used to work that way, and it does now.

Talking about this expansion into the casual market, Nintendo has obviously had a lot of success with Wii. EA has had less success on the Wii. There have been big hits like EA Sports Active and then disappointments like Dead Space Extraction. I was wondering if you could talk a little bit about EA's plans for Wii. I know you said recently that Nintendo is learning how to be third-party supportive. Can you update us on that?

I think one observation would be that EA's got a low to mid 20s, sometimes high 20s, share on the Xbox and the Sony platforms. And, you know, Sony and Microsoft aren't anywhere near as powerful on that platform as Nintendo is on their own. If you do the math, we have almost the same share on the non-Nintendo sold Wii games, as we have on the non-Sony or non-Microsoft Xbox or Sony platforms.

What I mean, and maybe this is a little bit of a twisted math, if you're following what I'm talking about. So Nintendo dominates their own platform. We're in fact the number two publisher on the Wii. We've enjoyed a fair amount of success. But the reality is that Nintendo is so strong on their platform it is in fact harder to get into the 20s when we are in the teens. We'd like to be higher. We certainly tried. I would not in any way tell you I'm embarrassed over Dead Space Extraction. It was a first rate piece of software. You know, part of what I think happens with that though is that a lot of Wii consumers also own a PS3 or a PC or an Xbox 360, and I think what can happen at times is that the consumer, you know, gets their Dead Space fix on the PS3 and maybe chooses not to buy it on the Wii.

How has EA's experience developing for Wii shaped its view of Natal titles and Move titles?

I mean basically what you do with Natal and Move is, you know, get involved with gesture-based gaming. It's a different control system. You know, the pipelines for development aren't very similar between the Wii and the high def platforms. They're quite different. You know, in terms of mapping controls that's the primary issue. But I think the second issue is, you know, what things are going to be successful. You know, what genres are going to be successful. You know there's a raging debate that will, you know, be resolved by the end of the year in terms of what's going to work. I think Natal and Move bring different things to market. It may be that different genres do better on different platforms. But it helps us with gesture-based gaming but ultimately it's a separate development pipeline.

Where do you guys investing heavier? I know a lot of companies in their various earnings calls seem to be leaning more towards Natal and have a bigger investment in Natal products. Do you guys fall squarely on one side of that fence or the other?

Not really. I mean, remember, we're the number one publisher on the Xbox 360 and the number one publisher on the PS3. They're both really important platforms for us. We try not to choose between our two most important business partners when it comes to high definition gaming.

So, Online Pass was announced recently and I think it was somewhat controversial. It's been explained pretty well but a lot of people, maybe the cynic in everyone, are leaning towards wondering whether Online Pass is going to extend to other EA games, specifically games like Medal of Honor that have a high-profile online component. What are your future plans for Online Pass? Is it being siloed in the sports arena, or could it show up anywhere?

Well, we've always done a lot of interesting things. You probably saw the Cerberus System that supports Mass Effect 2. You saw a different system that was in Army of Two and Battlefield Bad Company 2. Let's understand that, let me see ... you probably once bought albums for thirteen or fifteen dollars at a retail store a decade ago. Maybe you didn't, but I'm presuming you probably did.

Probably did.

You probably still consume music, but I'm willing to bet you probably haven't recently been to a retail store to buy, you know, a fifteen dollar CD. Might have got one from Amazon but the whole process of how you purchase and consume the music has probably changed in the last decade or so because the technologies have changed. In the game business, we're going through a very similar disruptive change. Consumers used to buy and play games for, you know, four, six, or eight weeks, at most! Often two weeks. Game teams used to finish a game and move on to something else. EA wasn't in the server business or the hardware business. We weren't issuing a whole bunch of post-release downloadable content. We weren't paying for bandwidth. And I think the consumer's a big winner in all of this.

We used to sell, if you will, a product that was a fixed product that was done when you put in the box and today we make services for people. And that there's, you know, minor evolutions in the business model that's been reflected in the changes in the way that, you know, consumers consume our content is not to be surprising. I don't know that it's going to end with this. I mean, there could be innovations. Think about World of Warcraft. It's fifteen bucks a month. I don't know if the games, you know without that rich online game service, are going to be fifteen dollars a month, but increasingly many of our games have significant ongoing support that consumers really like.

And so, I think there's going to be a lot of innovation coming here. I think, you know, there's definitely some number of consumers that don't trust the change. I remember the idea of paying for cable just completely blew my mind. Why would you ever pay for television? You know, things move and they change. And I suspect there'll be changes here down the road in different ways. I'm not trying to actually hold anything back from you. I'm just pointing out in the scheme of things, to presume a complete permanence in the way things work in a world moving this fast? A little crazy.

The direction of messaging on things like Project Ten Dollar, you mentioned Cerberus Network, Army of Two, Battlefield, and Online Pass, these are all – I think the quote that came out recently was that, it's not a defensive measure against pre-owned or piracy, but it's about the consumer, it's about improving a consumer experience. One of the things I think of when I think of EA's online games running on their own servers is that eventually, those servers are closed and those games do stop being supported. Do you think that something like Online Pass, the ability to monetize online play would ameliorate that program, would improve the situation and keep servers open longer and keep games supported longer after release?

Well, first off, are you a fairly serious gamer?

I would call myself fairly serious, yes.

Have you ever had a server turned off for a game you were still playing regularly? I mean ever?

Well, here's the thing about me. I get paid to write about games so I am incentivized to move on and keep playing the newest things, but a lot of the people we write for, a lot of our audience ...

I've been in a crowd – we have a lot of interns here – like, I've had a hundred of them in a room and I heard this complaint about, you know, we turn off servers. It's usually two and half years later. It's rarely done. It's not that big of a deal. It's amazing what people can get up in arms over because I got this in a session with 120 interns. This is like a year ago. And I said, "Tell me what games we've turned off?" I couldn't get a single person to name a single title. So, I think you've got a blog issue here. It is definitely a blog subject, but I don't know that realistically any publisher turns off games that are being played in any number. I don't think it happens very much. We're very attentive to what our consumers are looking for.

I look at games like Halo 2, right, a game whose online functionality was recently disabled mostly because of platform changes. And there's still a lot of people playing it. You know, I think people would worry that a successful EA game might be disabled, turned off, phased out in order to upgrade people to newer games. And I think things like Project Ten Dollar or the opportunity to keep games going longer is appealing to some, and I don't know if that is a component of Online Pass or if that's even part of the strategy.

Right. I think you're on the right thing. And the issue here is we're trying to figure out what people want to play and provide as much support and service in that as we can. EA Online Pass is part of that. I think you're going to see more and more services designed to give more and more support for more and more time for more and more games. It's pretty hard to get parts at your Ford dealership for a 1939 Ford. They don't keep them in inventory forever. Nobody promises to support anything forever. When you buy a book, it's sort of done. You can put it in your library, pull it down 100 years later if you're still alive.

But when it comes to technology services, trust me, if you go out and find the RAZR phone that somebody was producing a decade ago, it's pretty hard to make it work. I mean I don't know how to solve it other than tell you we're doing everything we can to support that. And it's a minority of people that think that actually the agenda is something opposite. It's just not true. But I get why the cynics out there sort of like to pull that thread. It's just not very real. And a lot of these things take a lot of effort to support them. So, anyway, the point that I'm getting at is we're going to continue to build better and better services that last longer and longer and make the experience better and better. That's what we're in business to do, and we're really serious about it.

So, quality?

And no, we don't support Jane's Combat online right now.

That was exactly the game I was thinking of! Quality is one of the big rallying points for EA ever since you took over the CEO spot. However, earnings have been rocky especially compared to the big industry rival down the way, Activision. Is there a temptation to fall back into the old way of doing things? I think a lot of people see Activision and EA as having, maybe, even flipped roles. And how do you sell investors that you have a responsibility to and they have an interest in profitability. How do you sell them on a long-term, quality oriented plan when it hasn't born fruit to date?

We make $0.74 more money in fiscal '10 per share than we did in fiscal '09, and we guided to about a 50% improvement in fiscal '11, the year we're currently in, over last year. We had a very profitable year and a very profitable quarter in the most recent quarter and the most recent year. There is no question that the Blizzard part of Activision is incredibly profitable with World of Warcraft. I think that's a great thing, a great product and generates a lot of money. It's tough out there. It always is in business especially in today's economy. But the fact is that if you just drew a line from our F09 to F10 to F11, and just took the Street numbers, you'd see a rocket ship going up and to the right in a very positive way relative to EA's profitability. And no it's not as profitable yet as World of Warcraft – that's why we've got our BioWare MMO, which we're very bullish about but it's not in our current fiscal year.

EA Partners seems to be an increasingly large and increasingly high profile component of EA's publishing plans. And it seems like any given year, most of the major games that EA is promoting are being created by outside companies.

Let's just be clear. It's about 10%. Last time I checked, "most" implied 50. So, it's about 10% and we're really proud of that, but it is about 10%. And it's some of the most important developers in the world, but if you tend to write for a game magazine or an online game site, you live in a world where those announcements are pretty heavily covered so you can miss the percentages. But, this year we're launching a couple of significant EAP titles and 30 EA-owned properties that we're building our own. So, I don't know, it isn't really most, it's not even close to most.

It's really important by the way. And for what it's worth, I'm really proud of the partnerships we've got.

Fair enough, I misspoke there. But could you talk about the trend towards not only EAP with partnerships like Insomniac, Respawn, but then also Activision and its Bungie deal. Is there a trend towards developer owned IPs for high-profile third party developers?

First off, there's not a trend towards EAP. Insomniac, Epic, Valve, id, Bethesda, have been private, independent companies for a decade or more. So, they're the same as they've always been and they've always had publishing partners. Bungie's the one that's sort of a little harder to track because they were independent, then they were owned by Microsoft and they were independent again. But, everybody you named and everybody that I would add to that list that I think you're paying attention to are a collection of strong, independent third-party developers that I'm very proud to be in partnership with.

What's different is that they're now all or mostly partners with Electronic Arts cause we think that we're a better house for supporting the quality they want to bring to market and the market penetration they hope to get. So, I don't think anything has really fundamentally changed other than who they're partnering with. That same smattering of developers was spread out over two or three different first party, primary partnerships and two or three publisher partnerships. And now they're highly concentrated in EAP. I don't know if that much has changed, but there's still no question that these teams are really talented.

The quality drum you've been beating for internal development really hit its peak when Dead Space and Mirror's Edge came in the same year. I think both were really well regarded critically. Both made it onto Joystiq's Top 10 list. Dead Space sold better and it's getting a sequel. Mirror's Edge didn't do as well critically, it didn't do as well commercially, and the only thing we've seen in terms of a sequel is an iPad game. You were quoted as saying, "I think it's a game that deserves to come back." And I was wondering where you think the problems were with Mirror's Edge in terms of marketing, in terms of EA support for the title. And how serious is EA at returning to a game like Mirror's Edge even if it didn't do as well as you had hoped?

We continue to be heavily invested in new IP. I think we have the number one new IP so far this year in Dante's Inferno. We have the number one new IP on the Wii for all of last year with EA Sports Active. We've got new IP in the form of MMA. You'll see some new stuff at E3. We're big believers that our industry needs the juice of innovation and we're excited to bring it to market. We're also bringing back things where we think we really nailed it the first time. Like Dead Space 2 is going to be in our current fiscal year; Medal of Honor and others.

So, as a core, I think we've got a pretty good approach to it. In terms of Mirror's Edge, I think it probably didn't help that it launched when Congress was in session on whether the United States was going to continue as a going economy. I don't know if you remember, but it was right on top of the biggest economic meltdown in history. That was probably a challenging moment to be introduced into the marketplace. So, that was probably was noisy. But I'd say the primary issue with Mirror's was probably not marketing. It was probably a tough window. I told you what that window was about. And the other thing was, certain aspects of, my personal opinion, the level design didn't work very well. So, I think it was atmospheric. Environments were brilliant. I loved the character. I, personally, love the parkour gameplay. I thought it felt quirky jerky, halt and stop, rush and get thwarted in a way that wasn't as satisfying for some gamers that wanted to feel continuous in their gameplay. And I think we got some of that feedback in research. And I can assure you, I experienced it personally. And so, we're actually doing a couple of interesting things with Mirror's Edge. You noticed the iPad game. It's definitely an IP in our portfolio and if and when we've got something to announce, we'll let you know.

Thanks for the time, and best of luck at E3.