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Former Exec Says Electronic Arts "Is In the Wrong Business"
Mitch Lasky was the executive vice president of Mobile and Online at Electronic Arts until leaving the publisher to work at an investment firm. He now has some harsh things to say about how EA has been run over the past several years, in particular criticizing the decisions of CEO John Riccitiello. Quoting:
"EA is in the wrong business, with the wrong cost structure and the wrong team, but somehow they seem to think that it is going to be a smooth, two-year transition from packaged goods to digital. Think again. ... by far the greatest failure of Riccitiello's strategy has been the EA Games division. JR bet his tenure on EA's ability to 'grow their way through the transition' to digital/online with hit packaged goods titles. They honestly believed that they had a decade to make this transition (I think it's more like 2-3 years). Since the recurring-revenue sports titles were already 'booked' (i.e., fully accounted for in the Wall Street estimates) it fell to EA Games to make hits that could move the needle. It's been a very ugly scene, indeed. From Spore, to Dead Space, to Mirror's Edge, to Need for Speed: Undercover, it's been one expensive commercial disappointment for EA Games after another. Not to mention the shut-down of Pandemic, half of the justification for EA's $850MM acquisition of Bioware-Pandemic. And don't think that Dante's Inferno, or Knights of the Old Republic, is going to make it all better. It's a bankrupt strategy."
If you're in business to make money, open a brokerage, casino, or bank.
Otherwise, while you would like to make enough profit to keep the doors open, you're in the business of producing a product. Make a good (-enough) one keep satisfy the customers and get some repeat business.
In case no one's figured it out by now, Wall Street doesn't know their ass from a hole in the ground about the latter, and will happily destroy the entire US economy (except them, of course) to do the former.
- work for EA for a while, at least until I can find a real job : CHECK
- leave the company with a nice bundle of cash and the appearance of now having insider knowledge : CHECK
- take various SHORT positions on EA stocks with the leverage of my new firm : CHECK
- write a nasty paper about how bad EA is ran, and have it published on /. : CHECK
- take even SHORTER positions on EA stock : CHECK
- wait for stocks to drop, take LONG positions and retire to the caiman islands.
This is correct. What Mitch Lasky does not seem to understand is that these new IPs don't have to be immediate monetary successes. They are investments in the future. To understand how that works, one only needs to look at EAs past. They got into the current situation by not starting enough new franchises. Eventually, yearly updates to established franchises were not enough for EA to sustain their business. Hence, EA is failing because they did not invest in new IPs in the past, not because they invest in them now.
Activision is now going down that same path. They made a ton of money with risky, interesting new IPs such as Tony Hawk's and Guitar Hero. Now that they are on top, they're milking these franchises for all they're worth, but not investing in new, interesting franchises they can milk in the future - they're doing exactly what EA has been doing five years ago, and they will end up in the position EA is right now.
People like Mitch Lasky got EA into the position they're now. These people are the cause of EA's problem, not its solution. They need to shut their pie holes.
Without taking a risk on new franchises, you won't have established franchises you can milk in the future. Which is exactly how EA got into its current hole. They're doing the right thing now, even if it's not producing immediate profits for them.