Broad Reach Pushes Electronic Arts to the Top

By Alex Pham

Jan. 3, 2003 12 AM PT

Times Staff Writer

It’s been a disappointing holiday season for nearly every major video game publisher -- except Electronic Arts Inc.

As its rivals in recent weeks warned Wall Street of softer-than-expected sales, EA has stuck to its forecast for a record $1.1-billion fourth quarter. On Thursday, the company’s shares rose $2.46 to $52.23 on Nasdaq.

If Redwood City, Calif.-based EA delivers on its promise, it will be the first game company to hit the billion-dollar mark in a single quarter solely on software sales. “Nobody else has even come close,” said Simon Price, an analyst with San Francisco market research firm International Development Group.

Sony Corp. and Nintendo Co. have pulled in more than $1 billion in quarterly revenue in the past, but much of their business is derived from sales of consoles.

Despite a record year for video game sales, many companies lowered their financial projections late in the year because of a weak holiday season. Activision Inc. in Santa Monica, THQ Inc. in Calabasas and Midway Games Inc. in Chicago all told investors last month that their sales probably would come in below their earlier predictions.

So, why did EA fare well when others did not?

Part of the answer lies in EA’s size. As the world’s largest independent game publisher, it has clout with retailers.

“The Christmas market was tough for all but the highest-profile, highest-quality titles,” Price said. “EA titles have the high profile to get retailers to stock them and the high quality to ensure they sell well once they’re on the shelf.”

Having an adequate supply on hand with retailers was crucial this year. Major stores, expecting weak consumer spending, kept less inventory than usual this holiday season, according to Michael Pachter, an analyst with Wedbush Morgan Securities in Los Angeles who has a “buy” rating on EA stock and expects the company to hit its $1.1-billion revenue estimate.

As a result, some stores ran out of some key titles in the days leading up to Christmas. Errol Dunnigan, for example, couldn’t find 25% of the games on his shopping list this holiday season, including “Grand Theft Auto: Vice City,” published by Take-Two Interactive Inc. So the 25-year-old from West Los Angeles went down his list and purchased EA’s “Medal of Honor: Frontline,” which was in stock.

EA executives declined to comment for this story, citing a “quiet period” in advance of the company’s earnings announcement later this month. But in an interview in November, EA President John Riccitiello noted that the company has “2,200 people working in our studios creating games. That’s more creative employees working for EA than any studio in Hollywood.”

Size has other benefits. While smaller companies such as Acclaim Entertainment Inc. and Midway must concentrate their efforts on a few games, EA can afford to launch dozens of titles at the same time.

“The key thing for EA is the breadth and depth of products they offer,” said Tom Andrews, an analyst with Gerard Klauer Mattison. “If you look at many of the other companies, they don’t have more than one or two hits. EA’s got several.”

In fact, on November’s list of top 10 selling games in North America, EA controls six, including “Madden NFL 2003,” “Lord of the Rings: The Two Towers,” “Harry Potter: Chamber of Secrets,” “NBA Live 2003” and “Bond 007: Nightfire” -- all for Sony’s PlayStation 2 console. Its “Harry Potter: Chamber of Secrets” for Nintendo’s Game Boy Advance also made the list.

The company publishes games in nearly every genre, giving it the ability to compete in most categories, from sports to action. “You can argue that EA has something for everyone,” Andrews said.

EA’s geographic reach also insulates it against economic swings in one region, analysts say. The company generates between 35% and 40% of its revenue in Europe and Japan. And for its “Harry Potter” games, EA was able to distribute the game in nine languages around the world simultaneously.

Luck also has played a role in EA’s fortunes. The company happened to own three of the hottest entertainment licenses last year: “Lord of the Rings,” “Harry Potter” and “Bond 007.”

Still, it is not likely that EA escaped all of the consequences of a slow holiday period that counted six fewer shopping days between Thanksgiving and Christmas. “They suffered too,” said Pachter. “But they’re probably doing a lot better than everyone else.”

(BEGIN TEXT OF INFOBOX)

Top-selling video games

Electronic Arts had six of the 10 bestselling video games in November.

Title (publisher)

Grand Theft Auto: Vice City (Take-Two)

November sales (millions): $72.1

Copies sold: 1.45 million

WWE: Shut Your Mouth (THQ)

November sales (millions): 17.3

Copies sold: 348,500

Tony Hawk Pro Skater 4 (Activision)

November sales (millions): 15.3