Electronic Arts 2.0

The games giant has spent $860 million on recent deals, heralding a shift in strategy and potentially building a new innovation engine for itself

by Matt Vella

Mass Effect, a BioWare title, is a hotly anticipated role-playing game, due out in November.

Pandemic's Mercenaries 2 is a no-holds-barred action game which features realistic, destroyable environments.

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Electronic Arts' (ERTS) hard turn toward innovation is gaining traction. Better known for publishing licensed blockbusters like Madden NFL, the games giant announced earlier this month that it would spend $860 million to acquire BioWare and Pandemic, two leading independent developers with reputations for stellar game design.

The acquisition, expected to close early next year, is the largest in EA's history and one of the biggest recent buyouts in gaming. It's also the latest move in Chief Executive Officer John Riccitiello's effort to transform the company from an entertainment monolith, which had been overly dependent on games based on costly licenses, into a maker of exclusive, innovative titles. "There's a tremendous amount we can learn from the [two companies] from a quality and innovation standpoint," says Frank Gibeau, president of EA's Games Label, under which the two will eventually reside.

A Move Towards Diversity

EA's gameplay needs a change. The company's strategy of spending lavishly to license and develop games based on movies such as the Harry Potter series or on sports franchises like football star John Madden—and then producing new versions in following years—is showing signs of weakness. September sales released by research firm NPD Group show that two of EA's strongest sports franchises are underperforming compared with the same month last year. Although extremely well publicized and highly anticipated, sales of Madden 2008 were down 48% on the previous year's version, with 619,000 copies sold, while NCAA 2008 was down 23% vs. the 2007 game, with 113,000 copies sold. "EA is a strong brand, but a predictable one," says Dan Hsu, editor-in-chief of Electronic Gaming Monthly. "Gamers know what they're getting into: something with high production value and solid but not spectacular gameplay."

To guard against the downturn, EA is embracing innovative game design, eschewing well-worn concepts for new types of subject matter and gameplay. It's a strategy already adopted by longtime EA collaborator and game design guru, Will Wright, whose long-anticipated Spore (BusinessWeek, 3/21/07) will provide a distinct departure from the designer's lauded Sims franchise. With the addition of Mass Effect, a role-playing game from BioWare, and Mercenaries 2, an action title from Pandemic, EA suddenly has an impressive stable of original, creative titles. The games also give EA new strength in genres in which it has traditionally been weak, notably action, adventure, and role-playing games. According to Gibeau, those three categories accounted for 36% of the North American games market last year. Yet less than 10% of EA's portfolio caters to those genres.

The acquisition, which is expected to close early next year, gives EA control of a pair of coveted game developers. Founded in 1998, Pandemic has a reputation for creating technologically sophisticated games that are hot retail sellers. Its leaders, CEO Andrew Goldman and President Josh Resnick, are widely respected in the industry. The buzz, meanwhile, has largely been created by EA's acquisition of BioWare. That company was founded in 1995 by the "two doctors," Dr. Gregory Zeschuk and Dr. Ray Muzyka, who have become gurus of story-rich game design thanks to the in-depth narratives of their company's role-playing games.