Financial Management and Corporate Finance

Financial Management and Corporate Finance

1- Introduction

In this financial folder we will analyse the different financial characteristics of the famous video game company Electronic Arts (EA). But first of all we will make a presentation of the firm, explain its history and its business model.

Electronic Arts is one of the most famous video game company in the world, it is the second largest gaming company in America and Europe concerning the revenue and the market capitalization behind Activision Blizzard. EA sells video games mainly used for the game console like PlayStation and Xbox. The main activity of Electronic Arts is the development and the launching of games though several labels. Indeed the big strength of the company is the acquisition of all these labels. The most famous is EA Sports, which develop every sports videogames like FIFA for the football, NBA for the basketball or also NHL for the ice hockey.

The company was founded in 1982 by Trip Hawkins, a former employee of the company Apple. He launched the company with the help of his colleagues from Apple who became his employees. At the beginning of the company, it was very important for Trip Hawkins to sell videogames directly to the buyers. In 2000, Trip Hawkins has taken his retirement and Larry Probst became the PDG. It was during this period that the brand EA Sports was created so we could attend to the apparition of the first sports videogames. Electronic Arts is able to create very precise and well-made sport games because they bought different authorizations and contracts from the most famous sports licensing in the world. It allowed EA to create sports games with the real teams and the real athletes.

In 2007, Larry Probst stepped from his CEO job and John Riccitiello took his place. The first decision of Riccitiello was to organize the company into four different labels and each label will be responsible of its own product development and publishing. Furthermore John Riccitiello decided to launch videogames for others platform than the classic game consoles for example they created games for the computers Mac but also games for others computers. But in 2008 the company is strongly touched by the financial crisis and they are required to cut more than 1000 jobs, this is the first big misstep of the company. Following this bad year Electronic Arts need to make changes, for example they merged two of its development studios that are BioWare and Mythic. But the same year Electronic Arts acquired a social casual games developer called Playfish.

Another big moment of the company’s history is the acquisition of Chillingo in 2010. Chillingo is an important games publisher for iPhone and iPad, for example they published the games Angry Birds and Cut the Rope, two very famous games for smartphones and tablets.

In 2013, John Riccitiello announced that he would stop his role of CEO and Larry Probst will take over the post again. Probst decided to make reorganization in order to consolidate the marketing function. This reorganization includes the association with Disney to create Star Wars video games from 2013 to 2023.

In 2015 Andrew Wilson was named CEO alongside Larry Probst who will take on the role of chairman. The same year Electronic Arts announced they will put a stop to free games, the most part of these free games are expansions of others games. 2015 is also the years of the diversification, indeed the company wanted to invest in others games that are much smaller in order to sell competitive games. So they created a new division called Competitive Gaming Division that will organize video games events.

In 2016 the company decided to specialize in virtual reality. So they had formed an international division named Frostbite Labs. Indeed it is well know that the virtual reality represents the future of the video games and Electronic Arts wants to develop itself in that way.

During the history of the company, EA knew many controversies. Firstly the company was criticized because they bought some little studios of development only to have access to intellectual property of these studios. This why John Riccitiello decided to separate the labels to allow them to have more autonomy.

Electronic Arts also had a bad image concerning the treatment of its employees. Indeed they were accused to make their employees work very long time, but again with the arrival of Riccitiello the treatment of the employees improved and the time of work decreased.

Between the years 2000 and 2010, Electronic Arts received critics about the quality of the video games. Indeed years after years the quality and the originality of the games began to stagnate and on the contrary the prices continued to increase. They were also a lot of bugs in many EA games.

Furthermore different lawsuit was filed against the company during the years 2010 concerning the contracts with the sports licences. The acquisitions of the rights of the team logo and athletes diffusions were possible only for Electronic Arts. So all the other video games company couldn’t do the same procedure. There were also some athletes who claim money for their image right.

In 2012 and 2013, the website “The Consumerist” awarded the company EA for the worst company in America”. It gave a very bad image to the company and the CEO announced that they will pay attention to this and do the necessary to change their way of work.

Finally the company were accused to resort to false advertising for the launching of certain video games.

To resume we can say that the history of Electronic Arts is very eventful but finally they manage to create a unique business model that consist to work with different separate labels and studios. Furthermore one of the main reason of the success of the company is the fact to buy licenses nearby the sport associations.

Business Model Canvas of Electronic Arts:

Key Partners

• Sport licences

• Disney

• PlayStation

• Xbox

• Mac

• Windows

• Game distributors

• Studios Key Activities

• Selling

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