Latest SEC filing shows growth in some areas and an impact on income. Electronic Arts’ online and mobile sectors are proving challenging to integrate into a physical game world, with impacts on business strategy and financial planning.
For regular readers, our rants on the impact of mobile devices must be getting boring. Sure, we go on and on about it. However, we still believe that we are witnessing a great tectonic shift in how people consume digital media.
With that, let’s take a look at Electronic Arts’ latest SEC filing.
First, the opportunity. For the latest fiscal quarter, “Wireless, Internet-derived, and advertising (digital)” (which we call “WIA”) income increased by 11% from the same period last year. Meanwhile, “Publishing and other”(which we call “PAO”) income decreased by 10%.
Sure, PAO is about twice as large as WIA. That is true now. Next year? 2015? Guess where the trend line is headed.
“Yeah,” you say. “But as games are released and begin to burn off, this is to be expected.” You are right, however, for the previous fiscal quarter, PAO sank by 30% while WIA gained 17%.
There is another effect with broader implications, and that is the life cycle of the games and when EA expects to get their money. As they explain, they used to use a six-month period to defer and recognize revenues for physical games. However, they have changed this estimated offering period to nine months due to the increased amount of time people use the online functions. Good news, right? People play games longer, which allows EA to make more money. However, this has the effect of delaying recognition of revenue.
In other words, they report the revenue later and over a longer period of time. This is why they use the Net Revenue Before Revenue Deferral metric for reporting revenues, which is expected to be about $450 million more than net revenues reported on their financial statements.
Complicated and technical, yes. But it also shows how the online component is impacting store-bought games on a business and financial level, in addition to technical and development levels.