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Interview: Riccitiello Talks Game Industry's Changing Landscape, EA's Transformation

The game industry will be "sharply up" in 2009, EA CEO John Riccitiello tells Gamasutra, pointing to growing digital arenas and his faith in EA's "transformation" to address them -- even though "it can look messy" at first.
Although it may take a different shape than in prior years, the game industry is definitely set to see growth in 2009, says Electronic Arts CEO John Riccitiello. "We've looked at the industry as being a combination of, really, two broad sectors: what sells at retail; and what sells through social networks, downloadable content, advertising, subscriptions and microtransactions, and all these other businesses," he tells Gamasutra. "There's no doubt in my mind that 2009 will be an up year for the industry, sharply up," Riccitiello asserts. "That consumers to some degree are choosing to buy their games differently does not mean the industry's down." It's been a year of tough comparisons for the industry's NPD numbers; after a summer of declines, the business returned briefly to year-over-year growth in September, only to decline again in October. Analysts now say the odds that year-end results will show annual growth are steep. But NPD sales numbers don't track revenues from emerging and non-traditional business models like the ones Riccitiello cites -- a broader-lens view of the game industry is all that's needed to see healthy signs, he says. "My kids are still listening to music even though Tower Records is gone," the exec points out, noting that the closure of an iconic physical music storefront signified a transformation for that industry, not a decline. Riccitiello sees the same thing happening in games, and much of EA's current strategy depends on getting out ahead of that business trend. The company's recent acquisition of major social game developer Playfish -- and the simultaneous reduction of 1,500 jobs -- are part of the company's transformation to address the digital era, he says. "We felt that the company we want to be had 1,500 fewer jobs dedicated to packaged goods," Riccitiello explains, "and it didn’t need two offices in two places in LA where one would do." Looking strictly at GAAP numbers -- which include deferred earnings adjustments -- shows a $391 million loss during EA's recently-announced second fiscal quarter. But excluding those adjustments, the company saw a record high of $1.147 billion during the quarter, up 2 percent from $1.126 billion the year before. "We've had a record first half... [and] we're pretty positive about the balance of the year," says Riccitiello. That hasn't stopped analysts from being critical of EA shares recently, pointing to low visibility on the company's slate for next year alongside uncertainty about the immediacy of the publisher's desired gains from digital revenue -- and whether or not those gains can offset the decline in packaged goods. But EA's CEO says that although it's natural for a period of change to appear confusing initially, there is a clear direction in which the company aims to evolve. "It's an on-purpose transformation," Riccitiello says. "We're trying to become a company that looks more like a direct-to-consumer business." He compared the process to that of other companies he says he admires: Intel, Apple and Amazon, who underwent "similar" transformations. "While they're doing it, it can look messy," he concedes. "But I think not doing it can look even messier at the end of the trail." However, the CEO says EA also has no intention of leaving traditional console gaming behind. "We intend to be the number one packaged goods publisher in the world," he says -- and notes that his optimism on new business models doesn't necessitate pessimism on more traditional ones. The company announced yesterday that its FIFA 10 is the number one game in Europe, having sold 4.5 million units worldwide to date. Yesterday, Valve also noted that its Left 4 Dead 2, which EA distributes, has sold 2 million units in its first two weeks -- two examples, Riccitiello says, that packaged gaming software is still strong. "The retail biz is pretty healthy right now," he says. "The price reductions from first parties helped -- PS3 in particular has been a strong beneficiary. There are strong titles: Left 4 Dead 2, FIFA 10, Madden, Need For Speed, Assassin's [Creed 2], Modern Warfare 2... those all are holding up well," he says. "I think it's probably a little early to try to call December, because it hasn't started yet," Riccitiello adds. "And overall growth in any given month, or any given year, is up and down... in 2010 pricing for first-parties, together with innovation on the controllers will likely bring growth -- but it's not a forecast yet."

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