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Riccitiello's Dream: How EA Plans To Maintain Customers Without Marketing Spend

Electronic Arts CEO John Riccitiello believes that his company is poised to do what no other publisher can: attract and maintain customers without a significant marketing spend.
"We've got an incredibly leaky bathtub," EA CEO John Riccitiello told investors in a conference call Thursday. Riccitiello was speaking of a problem all video game publishers face: maintaining customers. In a traditional packaged games model, companies are paying substantial marketing costs each year to maintain a customer base. "Just in the packaged goods business, by way of example, if they're running 10 percent variable marketing costs against revenues, they're running $5 dollars a customer to acquire. And if they're running 15 percent, they're running $7.50. So that's an incredibly expensive thing to do to reacquire your customer every year." The other marketing challenge Riccitiello is attempting to tackle is the ability for a game maker to cross-promote its other products and services. "For content makers historically, the ability there has been virtually non-existent," he said, whether those other services be "within a franchise, or cross-franchise, or even cross-platform." Eliminating these costs is a significant motivator for the company's current strategy to transform itself from a traditional packaged goods maker to a year-round service provider, offering a continuous stream of content for its stable of IPs through both DLC and cross-platform play, as well as additional online services such as its digital Origin platform. "Our vision with the investments in platform is to solve both problems," he said. "I can't tell you exactly how it works when we solve both problems, because no one's been there before. But I can tell you there are precious few companies that are making great content and added strong platform components that have created a lot of value. HBO is a company that has done that. I believe, frankly, we're similarly situated to create an enormous amount of value here. That is exactly what we're focused on." It is a vision met with some resistance, though Riccitiello's faith in the strategy is hard to deny. "Two, three years ago I was telling you that [higher] quality and fewer titles would deliver us into a better revenue and margin structure. That may well have seemed slightly unbelievable a few years ago. "This may seem slightly unbelievable today, but I'm more convinced of this than almost anything we're working on."

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