EA looks to spend its way through time of transition

In a games industry becoming fragmented by different console generations and the growth of mobile, handheld and online gaming, Electronic Arts is the only company with the arsenal to take on all the risks and opportunities of the new landscape.

EA, the world’s biggest games publisher, announced this month it would increase its research and development spending by 15-20 per cent this fiscal year to around $900m.

The aim is to spend through the console transition, a difficult period for the games industry, to give it global leadership on next-generation consoles as well as online and mobile platforms in the next few years.

“I don’t think there’s another company in the industry that is playing on more different fronts or platforms than EA,” said Larry Probst, chief executive, in an interview with the Financial Times at the video games industry’s E3 show in Los Angeles. “We’ve got a strong balance sheet and we’ve got the scale where we think we can do that successfully. Longer term, we think that’s going to be a pretty significant competitive advantage for us.”

EA has forecast it could fall into a loss this fiscal year as it spends for the future and console game revenues slip. Consumers are losing interest in the current generation of games and not enough of the new machines are going to be available. But it has $2.4bn in cash or equivalents on hand to back its investments in new areas.

“I think [the transition] is taking a little longer this time because you’ve got this staggered roll-out of new hardware,” Mr Probst said.

“There are just more platforms to be addressed with the new consoles, handheld devices, cellphones, casual games and all the online opportunities happening in Asia and other parts of the world – it’s more complex this time.”

With next-generation games more expensive to build, EA plans to exploit its properties across the different platforms to make their development more economic. Its acquisition of the Jamdat mobile games company will allow it to distribute simple casual games on the PC, consoles and handheld devices as well.

There will also be a focus on producing original games in order to avoid the high licensing fees that reduce margins.

“Historically, we’ve always been good at executing strategy, so we’re pretty confident we’re going to be in a good position on all of these platforms going forward,” Mr Probst said.