EA's Commitment to Mobile

Earlier this week, EA announced they would be acquiring Playdemic from WarnerMedia for $1.4B in an all-cash deal (VentureBeat). The addition of Playdemic, the developer behind the successful mobile/Facebook game Golf Clash, to its roster of recently acquired companies (Glu, Metalhead, Codemasters) further shows EA’s commitment to the expansion of mobile and sports titles. With Mobile being EA’s slowest growing category in FY21, EA will need to ensure it can successfully integrate these studios.

What does “successful integration” mean? To us, there are 2 main components:

1. Accelerating mobile development of EA IP
2. Extending reach and enabling growth of acquired studio titles with the EA audience
   

EA has an incredibly strong portfolio of IP (Battlefield, Apex Legends, FIFA, Madden, Sims); however, by platform, EA has made investments in areas where the market is expected to be declining. Console is expected to decline 8.9% and PC by 1.7% YoY (Newzoo). EA is a slow adopter where the market is growing the fastest (Mobile). In FY21 Console revenue shrank -5% but PC revenue grew 8% YoY. Console and PC still made up 87% of revenue at EA. Their player base of > 500M is still showing strong signs of growth (+42M in FY21), indicating a massive revenue opportunity if they can successfully launch their IP titles on mobile (similar to what Activision did with Call of Duty Mobile).

Releasing their IP on mobile will be a massive undertaking - Apex Legends (Polygon) and Battlefield mobile (PocketGamer) are slated to be released in FY22 and FIFA, Madden, and UFC games are already on mobile. Ideally, EA should be able to leverage the expertise of acquired studios to establish stronger mobile infrastructure (UA, publishing) than what exists today. With the recent restructure of EA leadership and the takeover of the mobile game division by Jeff Karp (Big Fish Games), we are hopeful that EA will be able to successfully take advantage of the new knowledge added to the division.

Each of the acquired studios have their own successful portfolios and it will be interesting to see how EA both leverages the best of each studio for its first party IP and invests in growing the new additions to their portfolio. While Metalhead, Codemasters and Playdemic each have sports-centric games that are related and incremental to EA sports portfolio, Glu games cover a much broader set of genres. Will EA funnel resources and users into these games or will they move talent into their first party titles (similar to the shutdown and reallocation of resources of Playfish in 2013)?

The next couple of years will be a balancing act for EA and we are looking forward to seeing their journey into mobile evolve.

Disney’s Role in Gaming

Earlier this week, gamesindustry.biz flagged that Disney’s IP announcements at E3 were only just the beginning of Disney’s return to gaming. However, Disney has historically had a very complicated relationship with the gaming industry, marked by flip-flops between licensing and development. The recent announcement of new licensing agreements should not be overvalued.

To fully understand the context of Disney’s recent decisions to license parts of their portfolio, we need to zoom out and start from the beginning.

• The 80s: Before there was a dedicated video games division, Disney produced educational PC programs and licensed out its IP to other game companies. They published their first game in-house, Who Framed Roger Rabbit (WFRR), and established their gaming unit, Walt Disney Computer Software (WDCS), in the late 80s. WFRR was a commercial success at 250K copies sold which kicked off their first stint of publishing games in house. However, as WDCS grew more successful, they began to undergo more scrutiny in their creative vision and the company as a whole had to make the hard strategic decision whether or not to commit to gaming as a part of their vision.
  

• The 90s Pre-Disney Interactive: At the beginning of the decade, that hard decision had yet to be made and the WDCS work pipeline was frozen. In 1992, Disney brought on Marc Teren to pull Disney out of vertically integrated software (link) and the entire gaming business was almost licensed to Microsoft (link). However, WDCS simultaneously had two major licensing successes that pushed against the momentum that Teren was building - the first being with IBM computers for the PS/1 ($10M USD) (link) and the second being Aladdin (~4M copies sold) (link).
  

• The 90s Post-Disney Interactive: After the commercial success of Aladdin, Disney formed Disney Interactive in 1994 which brought game development in house. Within 3 years, the division grew to around 80-120 employees. However, as the division grew, so did scrutiny from leadership. 25% of the staff was laid off, there was once more a restructuring within Consumer Products, and Disney Interactive moved back to focusing on licensing.
  

• The 2000s: In the early 2000s, Graham Hopper was tasked with converting Disney Interactive to a 100% licensing focused business. While Hopper closed the last of Disney’s PC studios, he believed that Disney Interactive should move toward growing opportunities beyond licensing where revenue was too stable and hard to grow. Disney ultimately made the shift back into development with The Chronicles of Narnia and Chicken Little, the latter of which led to the acquisition of Avalanche Software, then later Black Rock Studio, Junction Point and Propaganda Games. Disney Interactive and the Walt Disney Internet Group merged to create the Disney Interactive Media Group. By the end of the decade, with the economic downturn and the industry’s shift toward mobile, more of Disney Interactive’s internal resources were shifted from console into mobile.
  

• The 2010s: This shift to mobile directly affected the closing of Disney’s internal console studios. Black Rock shut down in 2011, Junction Point in 2013 (following the flop of Epic Mickey 2), and Wideload Games in 2014. Avalanche held on following the successful release of Disney Infinity 1.0 in 2013 and subsequent sequels in 2014 and 2015 before succumbing to a shut down due to the decline of the toys-to-life business in 2016.
  

The cancellation of Disney Infinity signalled a shift back to licensing for Disney and the recent announcements at E3 do not change that. Disney is simply choosing to expand upon the success of their licensing agreements with AAA studios like EA and Square Enix to other high quality AAA studios. With such a strong IP portfolio, we see this as Disney doubling down on something that works for them – monetizing on their broad library of IP without taking on the additional risk and legwork of in-house game development or publishing.