Electronic Arts: Today’s Most Interesting Consumer Non-Cyclical
In the midst of an unprecedented pandemic where large portions of the world’s population are being mandated to quarantine, face-to-face business is essentially impossible and all non-essential retailers are forced to close their doors, a limited number of corporations have the business plan to withstand the crises. Among them is Electronic Arts, maker of sports video-game franchises NHL®, Madden NFL, and FIFA along with others such as Star Wars: Battlefront and Apex Legends.
According to statista.com, 83% of U.S. video game sales in 2018 were digital, compared to a mere 20% in 2009 (Gough). As a result, physical video game retailers have seen a vast decrease in revenues and sales. Industry leader Gamestop has seen an annual revenue decrease of nearly 14%, from $9.5 billion USD in 2012 to $8.3 billion USD in 2019 (“Electronic Arts”). Despite this decrease in the physical market, video game sales have skyrocketed in the last ten years, thanks to increased internet speeds and digital storage capacity. EA’s annual revenue has grown 38% from 2012 to 2019, in large part due to the convenience that digital purchases represent to customers. In the midst of the current crisis, young individuals, the brand’s largest consumer demographic, have vast amounts of free time and can purchase games with the tap of a few buttons. As a result, EA projects, as few companies do, to increase sales as a direct result of the COVID-19 situation.
Furthermore, the advent of the proprietary sports game mode “Ultimate Team”, in which customers acquire, trade, and sell players to create their dream teams and play against each other, has helped EA’s sales growth. Today, Ultimate Team is by far the most popular game mode for all three of the company’s sports franchises and customers are strongly incentivised to buy packs that contain random players which can help the customer’s team. In fact, roughly 59% of the company’s digital revenue, or $2.2 billion USD, came from in-game transactions during 2019 (Eassa). This game mode has both a loyal group of customers that use the product every year and a continuously expanding market, leading to an increase in customers and exposure with each new installation of the game. The innate difficulty for players to progress in Ultimate Team requires successful customers to either invest significant amounts of time, money, or both into the game, also known as the “pay-to-win” model. In theory, similarly to a bettor who is down money and given the investment that players make, they are unlikely to stop playing and will continue to pour money into the game. This business model, predicated on the repeat purchase business model, is able to generate continuous streams of revenue without having to burn capital in order to target new customers.
Alongside this business model, the company masterfully utilizes 21st century advertising methods that are both highly inexpensive and effective. The Madden and FIFA Ultimate Team Youtube communities are extremely expansive, receiving hundreds of millions of views annually. Customers watch highly successful Youtubers and are inspired to become better at the game, which often means spending money on in-game packs. Furthermore, because of their popularity, many individuals who are not exposed to EA’s games come across these videos and are influenced to buy the games. All of this is accomplished with no money spent for EA.
Today, the company is gaining even more free exposure as TV channels are airing simulated and competitive sports video game matches in the absence of live sports. Noteworthy athletes, such as Pittsburgh Steelers wide-receiver and Madden superfan Juju Smith-Schuster, are streaming games against other famous athletes, drawing millions of viewers. Individuals are able to place bets on the results, as would be the case with real, live sports. This spotlight for EA’s games, in the midst of a reduced number of entertainment alternatives, has generated unprecedented amounts of exposure and free advertising for the company.
The company is poised to build off of the exposure that it has garnered during the COVID-19 pandemic. Worldwide, the rise of esports has been truly incredible, as the industry has grown nearly 1200% since 2012, from $130 million USD to roughly $1.5 billion USD. Many collegiate sports conferences, such as the Big East, now have esports teams. The combative and classic nature of EA’s games, which channel the same emotions and competitive spirit that has made the sports industry into a global entertainment powerhouse, stand to be on the front lines of the continued expansion of the industry. As esports continue to grow, and as long as EA has a strong hold on the sports video game market, the company will have unprecedented amounts of free advertising and exposure, surely leading to a continued sharp increase in sales and revenue. The company has proven to be a consumer non-cyclical, illustrating that nothing, not even a worldwide crisis, will stop its momentum.
Works Cited
Eassa, Ashraf. “Here's How Electronic Arts Makes Its Money.” The Motley Fool, The Motley Fool, 22 Feb. 2019, www.fool.com/investing/2019/02/22/heres-how-electronic-arts-makes-its-money.aspx.
“Electronic Arts Revenue 2006-2019: EA.” Macrotrends, Macrotrends, LLC., 2020, www.macrotrends.net/stocks/charts/EA/electronic-arts/revenue.
“ESports Revenue World Wide.” Mayors Professional Sports Alliance, Mayor City Sports, 27 Sept. 2018, mayorcitysports.org/2018/09/esports-revenue-world-wide/.
“GameStop Revenue 2006-2020: GME.” Macrotrends, Macrotrends, LLC., 2020, www.macrotrends.net/stocks/charts/GME/gamestop/revenue.
Gough, Christina. “U.S. Computer and Video Game Sales - Digital vs. Physical 2017.” Statista, Statista, 9 Aug. 2019, www.statista.com/statistics/190225/digital-and-physical-game-sales-in-the-us-since-2009/.
Team, Trefis. “What Are Electronic Arts' Key Sources of Revenue?” Forbes, Forbes Magazine, 18 Oct. 2019, www.forbes.com/sites/greatspeculations/2019/10/18/what-are-electronic-arts-key-sources-of-revenue/#e74ade91bd9b.
