2. Agenda
• About EA
• Macro Environment
• Industry Environment
• Value Chain
• Corporate Strategy
• Business Strategy
• Recommendations
3. What does EA do?
• Primary NAICS code – 511210 – Software
Publishing.
• Production of video, PC, and mobile games.
• Software Publishing – Packaging, Marketing,
Distribution.
• Sales of video games to retailers and end-customers
over the internet.
4. History
• 1982 - Founded in California.
• 1984 – Builds global network to distribute software
produced externally.
• 1990 – Begins producing games internally.
• 2008 – Founded/Acquired more than 30 development
studios since 1991.
5. EA’s Major Titles
• Madden NFL (sport)
• Need For Speed (racing)
• Battlefield (action)
• The Sims (simulation)
• Command & Conquer (strategy)
6. Political and Legal Environment
• Piracy
• Intellectual Property Rights
• Patent Protection
• Copyright Protection
• Country-Specific Laws
8. Technological Environment
• Currently accounts for the largest growth in the gaming
industry
• $3.8 billion in revenue in 2006, expected to reach
$11.8 billion in 2011
• Online games can support multiple players from
anywhere in the world
9. Technological Environment
• Portable games launched in 1989, mobile games in
1997
• Cell phone gaming revenue increased from $153
million in 2004 to over $4 billion in 2007
10. Technological Environment
• Computer Processors evolve continuously
• Increase in processing capacity stimulates demand for
more complex software
18. Threat of Entry - 2/10
• Negligible variable costs
• Substantial fixed costs
• Strong established brands to contend with
19. Substitutes - 7/10
Media Usage Changes 2003-2007
1%
15%
52%
19%
-5% -3% -8%
TV Games Music DVD Internet Radio Movies
20. Power of Suppliers – 4/10
• Most of intellectual property is produced in-house by
the studios
• The suppliers are responsible for hardware, software
tools
• Licenses are obtained from 3rd
parties (sport, movie
brands)
21. Power of Buyers – 4/10
• Many competing forms of entertainment.
• Video games are unique because they are interactive.
• The Internet allowed buyers to exchange information
about the titles and companies.
22. Five-Forces Summary – 5.4/10
Summary for Video Game Industry
10
2
7
4 4
5.4
0
2
4
6
8
10
12
Competition Threat of
new
entrants
Substitutes Pow er of
Suppliers
Pow er of
Buyers
Overall
23. • Technology (demand for more advanced games)
• Internet and Human Interaction Online (demand for
multiplayer games)
• Using both yield maximum results (World of Warcraft)
Driving Forces
24. Entertainment Software Industry 2005-2007
ROA6.17
ROA1.88
ROE7.86
ROE0.37
ROI9.26
ROI2.81
ROA(2.42)
ROE(4.48)
ROI(4.45)
2005 2006 2007
Industry Summary
Entertainment Software Industry 2005-2007
ROA6.17
ROA1.88
ROE7.86
ROE0.37
ROI9.26
ROI2.81
ROA(2.42)
ROE(4.48)
ROI(4.45)
2005 2006 2007
28. • Four main brands
• Sports licenses
• Movie licenses
• North American market declining EU increasing
Marketing and Sales
29. Marketing and Sales
2001 World Sales in USD
USA and
Canada 50%
European
Union 28%
Asia and
Pacific 20% Eastern
Europe 0%
Latin America
2%
30. Marketing and Sales
2006 World Sales in USD
USA and
Canada 40%
European
Union 36%
Asia and
Pacific 19% Eastern
Europe 1%
Latin America
4%
31. Marketing Expense as %of Revenue 2005-2007
12%
13%
16%
15%15%
13%
19%
15%15%
13% 13%
14%
Electronic Arts Take Tw o Activision THQ
2005
2006
2007
Marketing and Sales
Marketing Expense as %of Revenue 2005-2007
12%
13%
16%
15%15%
13%
19%
15%15%
13% 13%
14%
Electronic Arts Take Tw o Activision THQ
2005
2006
2007
32. • Website
• eGain Assistant
• Gartner CRM Excellence Award
Customer Service
33. • Number of Employees
• Revenue per Employee
• Average Level of Education
• Salaries and Compensation
Human Resource Management
34. Human Resource Management
Average Industry Compensation in North America (USD)
75,692
71,586
100,735
85,000
73,021
64,833
70,500
- 20,000 40,000 60,000 80,000 100,000 120,000
Softw are Engineer
3D Artist
Sr Softw are Engineer
Associate Producer
Art Director
Video Game Designer
Project Manager
35. Human Resources Management
Revenue per Employee (millions/person) 2005-2007
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Electronic Arts Activision Take-Tw o THQ
2005
2006
2007
36. Research and Development
R&D as Percent of Revenue
0
5
10
15
20
25
30
35
40
Activision Electronic Arts Take-Tw o THQ Industry
Average
Year: 2005
Year: 2006
Year: 2007
37. • Only three CEOs since 1982
• Current CEO: John Riccitiello before EA worked for
PepsiCo
• Riccitiello improved the situation of the employees
Corporate Leadership
38. Corporate Leadership
Return On Assets
-25
-20
-15
-10
-5
0
5
10
15
Activision Electronic Arts Take-Tw o THQ
Year: 2005
Year: 2006
Year: 2007
39. VC Activity Valuable Rare
Costly to
Imitate
Non-
Substitutable
Competitive
Supply Chain
Management
Yes No No No Parity
Marketing & Sales Yes No Yes Yes Temporary CA
Customer Service Yes No No Yes Parity
HRM Yes Yes Yes No Temporary CA
R&D Yes No No No Parity
Corporate
Leadership
Yes Yes No Yes Temporary CA
Value Chain Analysis
40. • Expansion by Acquisition
• Application of Marketing and Distribution to all
subsidiaries (Economies of Scope)
• Distribution of software globally (Economies of Scale)
Current Strategy
41. Current Strategy
Market Capitalization 2003-2007
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Electronic Arts Activision THQ Take-Tw o
billionsofUSD
2003
2004
2005
2006
2007
42. • Divest itself of less successful subsidiaries
• Pursue trans-national strategy to stimulate demand in
EU
Recommendations
44. Poor Labour Force Practices
• 1.2 acquisitions per year since 1991 – 1/3 resulted in
termination of acquired firm
• No autonomy and must adapt to EA’s culture
• Working hours can reach 12-hour days 7 days a week
• Fatigued employees = more chances of error
• 50% employee turnover rate in engineering department
45. • Build a management team to support acquired firm
• Let employees have more autonomy and allow a more
creative and innovative working environment
• Don’t rely on acquisitions so much and try to focus on
internal solutions
Improve HRM Activity
46. • Decline in Operating margins
• Increasing Marketing and R&D expenses % of
Revenue
• Focus on long-term growth (high investment in the
short-term)
Operations
47. • Concentrate on products that are most successful
• Adapt games to demographic and cultural customer
segments
Operations
