DICE: EA Warns of Consolidation Pitfalls

DICE: EA Warns of Consolidation Pitfalls

Even megapublisher Electronic Arts is wary of how consolidation is threatening creativity in the videogames industry.

EA has garnered its share of infamy for how it has handled past acquisitions. Just look at the demise of Origin, Bullfrog and Westwood to see what can happen after EA acquires a studio.

But speaking at the DICE Summit in Las Vegas Friday morning, CEO John Riccitiello said EA has changed its ways since those failures. Now the publisher views its internal studios as autonomous “city-states.”

“In way too many cases, [consolidation] is leading to creative failure … That’s not a good thing," he observed.

Today, large chunks of market share are consolidated to the largest five to eight publishers. And further consolidation is inevitable.

“Developers are getting acquired every day by publishers,” said Riccitiello. “…I think there’s going to be fewer major publishers in 2010 than there are today.

“It’s not something you can ignore. It has to be something you understand.”

EA’s most recent high-profile purchase came last year when the company announced it would be acquiring BioWare Pandemic. The question that many gamers and industry watchers immediately had on their minds was whether or not the studios would be able to maintain their innovative and creative spirit under the umbrella of a monstrous company like EA.

“We’ve had our share of failures with the acquisition of developers,” Riccitiello admitted.

But with a strengthened focus on giving internal studios like BioWare Pandemic more independence, as well as more creative and financial responsibilities, Riccitiello hopes to avoid further failures.

“Let them do the heavy lifting,” he advised.

After a studio is acquired, the new parent often tries to stifle the leadership and independence of its new subsidiary with politics and bureaucracy. This then leads to the departure of talent, and with that talent goes your investment.

“The biggest fear [after an acquisition] is that the talent would leave… That fear is well-founded,” he said.

EA’s consolidation track record isn’t all bad. For instance, there’s Maxis, Distinctive Software (now EA Canada), Criterion, Black Box, Mythic, Tiburon and others. Those studios have been able to crank out hits, and if Riccitiello really is pushing for the city-state model, EA will let them all do what they do best, which is making games.

“[EA Maxis and Distinctive] took over Electronic Arts. … Instead of enslaving them, we empowered them.”

Why all the consolidation?

THQ, EA and Activision are three companies that have been quite active with mergers and acquisitions recently. Riccitiello pointed to rising development costs as a primary driver of the trend.

“The rising cost of development is putting pressure on literally everyone. … It’s leading to industry consolidation,” he said.

“…If you’re a small studio … I think you’ll probably find yourself in a pretty dangerous situation. … The cost of failure can be very, very high.

“… [You have to] create a hit, or else.”
    
Game makers today also have to create games across a wide range of platforms (EA publishes on over 12 platforms, not including the 200-plus mobile platforms), as well as localize and distribute games that are released in other geographic regions. The cost of having a large team also must be taken into account.

In the end, everything adds up, and teaming up with a parent company with piles of cash becomes more and more appealing.

Riccitiello offered advice to developers who are potential buyout candidates: “Look for someone you absolutely trust. … Someone that you can trust for years to come. Someone that adds value.”