John Riccitiello has been driving a lot of change at Electronic Arts. He was president and chief operating officer of the big independent video game publisher from 1997 to 2004. Then he left to co-found Elevation Partners. He engineered a deal to invest $400 million in acquiring a majority stake in the game development firms, BioWare and Pandemic. While he was gone, EA suffered lackluster financial performance and its games were often mocked as dull and uninspired. Riccitiello rejoined EA as CEO in May 2007, and reorganized EA so that it could operate its game studios as a bunch of city-states. EA acquired BioWare/Pandemic for $800 million. The aim is to get the game maker out of its funk and to produce original content that hardcore gamers won’t sneer at and nongamers will try out. EA’s games are indeed looking better; I put three of them on my list of the top 10 games of E3. But it may be some time before anyone can declare that Riccitiello has engineered a turnaround.
VB: It seems like your drive to higher quality is a tough thing to measure.
JR: I don’t think so. You’re a gamer. What do you think?
VB: The question is what these games will really look like when they come out.
JR: A lot of this stuff is close to coming out. You might not like cheesecake. There are different tastes. If you can’t see it, wait for it to sell. Then we can look at the results. I don’t think you can look at Mirror’s Edge and not think it’s innovative. The same with Dead Space (pictured left). Or look at Warhammer Online (our Q&A) and not think it’s a high quality game. Or look at Madden and not see massive innovation from a year ago. Or look at Hasbro and see how it’s great on the different platforms. We’ve got Tetris and Scrabble on the iPhone. Those are good executions. EA has had a couple of years where it’s been tough.
VB: If you come in as a new CEO, and you want to improve game development, how do people benchmark it? Do they just wait a couple of years to see if what comes out is good stuff? It’s a little squishy.
JR: For core games, there is the Metacritic rating. Go to the Miss Universe contest. There are pretty girls there. Somebody has to make the judgment. You do the best you can. You try to stay objective. The lion’s share of the people writing about our product and consumers playing our games are noticing there are better games here. Battlefield Bad Company is better than the title that preceded it. BoomBlox is a surprisingly good title. Nascar got a sizably better rating than a year ago. NCAA is getting better reviews. People look at NBA Live and say it’s really cool. People think Spore (below) is a candidate for game of the show. Or Warhammer. We could be wrong. But we did things on purpose to get those reactions. I’m fine if you remain a skeptic.
VB: No, I’m thinking more of investors and shareholders. Maybe they can’t tell as easily. The stock hasn’t moved in any great directions.
JR: I don’t think the investors give a shit about our quality. They care about our earnings per share. They wait for it to happen. We had three years where we didn’t make our expectations. If I were an investor, I would wait and see. That’s fine with me.
VB: I can see their thinking could go one direction. When Microsoft bought Rare, it was a high price. People expected Rare to work magic in games for Microsoft. They look at how much Rare costs and what it delivered. Did they get their money’s worth? When you bought BioWare/Pandemic for $800 million, people may have the same reaction. They may want much better results from those two developers now because EA paid so much. Is that a good way for investors to think?
JR: I don’t know. We are meeting our internal plan. We have great software from them. We’ve got a massively multiplayer online game coming, which we haven’t announced. It could be very lucrative for us. We got a really positive reaction to “Dragon Age.” We’ve got games like “Saboteur” in the works. We’ve got Mass Effect 2 coming. Some of it is 2009 software. If you’re stuck on the fact that the stock is at $45, I can’t really help you.
VB: I never heard what you have said to those people who say there was too much conflict of interest for you on the BioWare/Pandemic deal, since EA was buying a company from your former firm and you made a lot of money on it. What is your answer?
JR: No comment. It’s not a conflict of interest.
VB: Because you recused yourself from the decision to buy them?
JR: We had a good process. It’s not very complicated. It’s a pretty closed industry. I was in another company and now I’m in this company. We hire people from one company and they work at EA. You’d have to dig to find a story.
VB: The EA press conference was refreshing in that it was focused on games. I expected you to make a joke about the ($2 billion hostile offer to buy) Take-Two Interactive. It’s almost like you had a platform to make a political speech of some kind and decided not to do it. You had so many journalists in front of you and you could have made your case.
JR: We wanted to highlight the work of our developers. I don’t care if people write about Take-Two. It doesn’t matter to me. What matters to me is that the best developers want to work for EA. That the best games are published by EA. And we’re making progress toward that goal. I hope we’ll be more successful in years to come. We’ll be on top of a gigantic wave. Having clever verbal sword play about Take-Two doesn’t really matter. I’m not really playing for a headline in the New York Times.
VB: What are you impressions of the three E3 press conferences of the console makers?
JR: Frankly, I’d rather ask you that. With EA, my job is to make sure we’re neutral. Years ago, I told you that they make the war, we make the bullets. Up until this year, we were tilted more toward the Xbox 360 and the PlayStation 3. We’re trying to get to a position where we’re not tilted. We have a lot of content that is strong on the Wii and the DS. We’re getting there this year on the Wii. We’ve got a little more work to do on the DS. I don’t think it’s a good percentage bet for EA to be in the handicapping business. We’re in the business software that takes advantage of the environment. What I’ve been driving for is to get EA to be neutral. We’ve got great content on the Wii and we want it to be the equal of the Xbox 360 and the PS 3. We’re maybe 50 percent to 75 percent of the way there this year with franchises like MySims, BoomBlox, All Play Sports, the Hasbro titles. On the DS, we’ve got Spore and The Sims – MySims Kingdom, MySims Party. There are three strong players in the sector. They have all got their respective demographics and geographies. Blu-ray on the PS trumps DVD on the Xbox 360. Xbox Live trumps the PlayStation Network. The wand controller trumps the traditional controller. They’ve all got their rock, paper, scissors competition going. The $249 Wii price trumps $349 Xbox 360 price. We are playing all three. We’re not trying to avoid your question. Nintendo is pretty happy with its market position.
VB: Is there something you would like to see happen on each platform? With Nintendo, people would like to see more third-party game successes.
JR: I want to see more EA successes on all three platforms. Frankly, if you look at Nintendo, it’s obvious there is a chance for third-party success. They didn’t show a lot of content from Nintendo’s first-party group. They got a lot of that out last year. So third-party games will likely do better.
VB: I don’t know if it this is a problem or an opportunity: There are so many accessories coming out for the Wii. Isn’t it hard to tell which one will be successful?
JR: The Wii MotionPlus is going to be good. If I had to pick one thing we suffered from, it was imprecise control on the Wii. That meant certain genres were never going to perform as well on the Wii. There are a couple of franchises in our booth. Go look at Dead Space and imagine playing that game with a wand and a Nunchuk. If they improve the precision, then you could have a good experience. There is no doubt that Wii Speak will appeal to a certain group of people. I thought what was nice is that they created an opportunity for third parties to be more successful.
VB: Moving on to Sony, I suppose the pricing action that isn’t quite a price cut may help.
JR: I wouldn’t want to comment. I didn’t go to their event because I was busy with investors. And this is an industry where “non-pricing pricing events” are what happen before “pricing events.” It’s up to them. In terms of the long arc of the next three to four years, they’re going to march the price down when they can and when they have to. The Wii will be at $249 but it will get to a lower price.
VB: Is there a reaction to Microsoft’s press event?
JR: I understand you really want me to differentiate between them. I’m a business partner to all three. I specifically stopped giving guidance about each of the three platforms on expected sales. I never thought it was my place to tell about their plans. You’ve got access to them.
VB: I’m probing for anything on your mind.
JR: What’s on my mind is I have to drive more share on the Nintendo platforms to be neutral. It’s not a percentage bet. Nintendo is doing very well. It is much stronger than some of us anticipated. And there is a ground war going on between Sony and Microsoft for the hearts of the core gamers.
VB: How do you feel with the poker hand you have played with Take-Two?
JR: I don’t think we’ve played a poker hand. We have expressed our interest. We have made a public bid. We are in the Hart-Scott-Rodino antitrust review. All of the information has been disclosed. We’re playing it to the way we’ve said we would play it. There have basically been three moves and there have 6,000 articles on it. It’s sort of amusing. I feel a little bit like those strobe light things where it looks like a guy is moving a lot. The flash goes off but the body doesn’t move. Every time a flash goes off, somebody writes a story on it. To be honest with you, the last time there was news was a couple of months ago.
VB: With Microsoft and Yahoo failing to come to deal, and with you and Take-Two failing to come to a deal, it makes me think about whether you guys have ever heard of some automated way of coming to a price, like eBay? It doesn’t seem like it should be so hard.
JR: I would encourage you to go to HSR and how it works and then decide about the relevance of coming to a price before that process is complete. All I can do now is bid against myself. The last time I played poker, that’s not usually a good idea.
VB: Why are you doing some things like Nucleus (a community that connects gamers who play multiple EA games)? What is that heading toward?
JR: There is a longer-term transition from a disk-based model for retail sales to an “average revenue per user” model. Five to seven years from now, investors will look at EA as how we have 100 million customers where we have an ARPU relationship that amounts to so many dollars a month. It’s different from selling so many disks a month at wholesale prices. It’s a gradual evolution. But we need the tools to be able to do that. The ARPU model is a better margin business for us. It’s less cyclical. It’s a better business. Some of our businesses have characteristics like that: EA Mobile, Pogo.com, and The Sims. We want to move in that direction. People predicted the demise of the DVD rental model for Blockbuster a long time ago. I don’t want to be the guy with a retail store renting DVDs in a world that has moved to Netflix and pay-per-view. We want to innovate and drive along that front, whether it’s with FIFA Online or Pogo or The Sims. Nucleus is a positive step in that direction. Spore has a download model. We could wait for someone else to eat our lunch or we could do it ourselves.
VB: Do you think you have any innovator’s dilemma (i.e., you’re so successful at one business that you don’t see the one that undermines it until it’s too late) when it comes to Facebook gaming? Will you sit on the fence too long?
JR: No. It’s fair to say that I have 10 franchises that today generate more revenue than Facebook and all of its business partners. The challenge is not to over-play that. We’ve got a bunch of stuff going up on Facebook that is going very well. I played 11 different people on Facebook Scrabble this morning. We’re doing interoperability of our Facebook and iPhone and mobile stuff. Most of them are doing enormous innovation but they have a revenue model of zero. Revenue of zero doesn’t exactly ring my bell.
VB: The frontiers of gaming are interesting. Neil Young left recently to do iPhone games at his start-up Ngmoco. And Bing Gordon left to go to Kleiner Perkins to fund entertainment-related start-ups that he couldn’t have done at EA. Does that give you pause about how you keep these people?
JR: That’s a reasonable interpretation but if it’s yours, I’ll let you live with it. We have 10,000 people. Bing Gordon stayed 25 years. We have enormous respect for him. He’s in his late 50s. He’s looking for a different gig in his life. Great.
VB: It’s hard to stop that?
JR: I like Bing a lot. He wasn’t in a line job. He didn’t create content at EA. He was a pundit and advisor. Maybe he will do that in a way that will make a lot of money for him. At Kleiner, you can do that. If I were in my late 50s, I would probably do the same thing. With Neil, he was a great innovator. He had some trouble in L.A. with “Medal of Honor” and it didn’t work out so well. Sometimes you want a fresh start. The iPhone is a great place to get a fresh start. But EA is already a leading publisher on the iPhone. We have a lot more coming. We will be one of the top performers on that platform. It’s not an easy one for an independent developer to target. I expect Neil to develop a couple of good games that will do well. He’s a smart guy. We have 6,600 people in our studios and Neil was one of them. He has a good accent and talks well with the press and is maybe more visible to you. But there are a lot of people at EA who are happy with what they are doing. You saw at our event that a lot of people are drumming the beat that EA is the place to build games.
VB: You announced John Carmack and id Software will build a game (Rage, pictured left) for EA. That’s a victory. But are those partner deals limited in that they’re just one deal at a time?
JR: Suppose I gave you $100,000 right now. That’s a limited victory. Maybe you take it. Our business is one title at a time and it always has been. I would argue that Harmonix, and Valve and id are all one-offs. But go back five years and look for them. Those deals weren’t there. What does that say to you? When your nightclub is full of the coolest people in town, whether they work for you or partner with you, it suggests something is going on. We have to earn it every day. Everybody we partner with can go on a hunger strike and stop making good games. Our job is to create a hot house for the best place to build games. Most people would conclude that is what is happening. I suppose I could say that I am pissed off that Carmack has only given me his next-generation game and hasn’t promised me his grandchildren. It doesn’t occur to me to look at it that way. EA had a one-product deal for Battlefield with DICE. I signed it a long time ago. Then we bought a piece of them and bought them altogether and they are a part of EA. Not all things go that way. But we’ve also done 10 million units with Valve on the Orange Box.
VB: What’s the most fun thing going on for you?
JR: We have the best line-up in our history and a lot of games I want to buy.
If you liked this Q&A, please check out our others:
Byron Acohido, author, “Zero Day Threat”, on who to blame for identity theft
John Antal, chief of staff and military/historical director at Gearbox Software, making “Brothers in Arms: Hell’s Highway”
Wagner James Au, author “The Making of Second Life”, on life in a virtual world
Vinod Dham, father of the Pentium, on a life of technology and venture investing
Jon Goldman, chairman Foundation 9, on game development as a model
Seth Goldstein, CEO Social Media, on social networking’s future
Henk Rogers, Tetris pioneer, on saving the earth
Curt Schilling, founder of 38 Studios and Boston Red Sox pitcher, on starting a fantasy online game
Dwayne Spradlin, CEO of InnoCentive, on expanding R&D crowdsourcing
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