PEST and Industry Analysis
Kenny Erskine

Three Main Divisions
◦ EA Sports, EA Games, EA Play


Published 158 titles in the fiscal year of 2010
across all platforms (including mobile)
Total assets remained unchanged from 20092010 ($217M)



No title accounted for 10% or more of total
revenue
55% of total net revenue generated in North
America
Key International Markets Include:
◦ Europe (39%)
◦ Asia (6%)


Laws being passed that limit young people’s
access to mature video games
European Union continues to pass
protectionism laws


The video game industry grew 10% from
2005-2009, faster than the overall economy.
The overall economy is rebounding in the US
and around the world.
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
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Older gamers continue to play games
Younger people get involved in gaming every
day
Consoles like the Wii, Kinect, and Playstation
Move introduce older people and families
With these advances, mothers and others are
now playing games
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Technologies are always expanding and
making more opportunities.
Upcoming advances like 3D and
improvements on the Wii will bring more
people.
Online gaming becoming a much more
popular trend.
Mobile gaming is surging, accounting for 48
published titles in 2010.
Factor
Trend
Evaluation
Importance
(1-High 5Low)
Ranking of
Importance
Political
Maturity laws
being passed
European
protectionism
Threat
3
3
Threat
5
Industry is
growing
Overall economy
growing
Opportunity
1
Opportunity
2
More people
playing
Younger people
playing
Opportunity
1
Opportunity
2
Upcoming 3D
advances
Easy Download
Opportunity
4
Opportunity
4
Economic
Social
Technological
1
2
4

Industry
◦ Video Game Software Industry

Participants
◦ Buyers are Playstation, Xbox, Wii, and PC Owners
◦ Suppliers are the software companies that create
programs EA uses in development

Participants (cont.)
◦ Competitors are any other video game making
companies. Major ones include:
 2K Sports, Blizzard Entertainment, Ubisoft
◦ Substitutes are anything else people do for leisure,
serious threat.
◦ With the advent of Facebook games and mobile
phone apps, the threat of new entrants is very high.
Factor
Effect on EA
There are many buyers
Positive for EA
Buyers purchase in small volume
Positive for EA
Buyers view products as
differentiated
Positive for EA
Buyers have low switching costs
Negative for EA
Buyers cannot threaten backward
integration
Positive for EA
.

Threat of new entrants is high.
◦ There are many established big players in the
industry.
◦ However, due to social media (Facebook) and
mobile games being incredibly inexpensive, it is
cheap to enter this industry.
Factor
Effect on EA
Video game software industry is
more concentrated than general
software industry
Positive for EA
Suppliers are heavily dependent
Positive for EA
Low switching costs for EA
Positive for EA
Low differentiation of general
software products
Positive for EA
No realistic substitute products
Positive for EA
Possibility of forward integration
Negative for EA
Type
Description
Threat?
Do Without
Consumers may
choose to find other
forms of
entertainment due
to high prices
Yes
Buy Used
Do It Yourself
Many consumers
trade in games and
buy used games.
Not a concern as
not many people
create their own
games.
Yes
No
Situation
Analysis
Effect on EA
Numerous
competitors of equal
size
Companies like
Blizzard, Ubisoft, and
2k Games are similar
size and power.
Threat
Industry growth is
booming
Video game industry
grew 10% from
2005-2009.
Opportunity
Exit Barriers are High
It is very tough for
anyone to exit this
industry.
Threat
Rivals are committed
and seek market
leadership
Blizzard
Entertainment is the
biggest company
here and will keep
pushing forward.
Threat

Buyer Power
◦ Positive force for EA because buyer power is very
low

Threat of new entrants
◦ Facebook and mobile gaming make an inexpensive
entry possible.

Supplier Power
◦ Low switching costs and differentiation give EA a
very positive outlook towards their suppliers.

Threat of Substitute Products
◦ An area of concern due to consumers buying used
products or finding other hobbies that are not
electronic.

Intensity of Rivalry
◦ A concern for EA due to the amount and size of
competitors in the industry as well as a high exit
barrier.

Currently this industry is very set in its ways.
◦ Players are set and industry is defined.
◦ Carving a new path would be difficult, but not
impossible.

Expanding virtual reality and 3D gaming
could open up market segments currently not
used.

Industry Analysis
◦ Industry is favorable to EA, but there are definite
threats.
◦ Many competitors surging to the industry with the
ease of creating mobile and social media
applications.
◦ Very high market share of sports video games

PEST Analysis
◦ The industry and economy overall is growing.
◦ More families and non-traditional gamers are
picking up games.

Porter’s Five Forces
◦ Very favorable overall to EA
◦ Threats do exist, however
 Rivalry with 2K Sports could be an issue
 Threat of substitutes is very high

The industry and forces favor EA very much
to continue their path in the video game
industry.
Competitor and Market Analysis
Company
Key Games
Electronic
Arts
FIFA, NHL,
Tiger Woods,
The Sims,
Dead Space
Activision
Blizzard
Konami
World of
Warcraft,
Starcraft, Call
of Duty
Pro Evolution
Soccer, Metal
Gear Solid,
Castlevania
Net
Revenue
$3.6
Billion
$4.8
Billion
$3.6
Billion
Segments
Net Revenue
by Segment
EA Games
$2.1 Billion
EA Sports
$1.2 Billion
EA Play
$300 Million
Activision
$3.2 Billion
Blizzard
$1.2 Billion
Distribution
$423 Million
Digital
Entertainment
$2.2 Billion
Gaming & System
$216 Million
Health & Fitness
$1.1 Billion
Other &
Eliminations
$163 million
Company
Key Games
Ubisoft
Assassins
Creed, Tom
Clancy Series
$97.8
Million
FarmVille
FrontierVille
Mafia wars
Est. $500
Million - $1
Billion
Facebook
Gaming
Assassins
Creed Mobile,
Prince of
Persia
$19.4
Million
Mobile
Gaming
Zynga
Gameloft
Net Revenue
Segments
Net Revenue
by Segment
Development $79.2 Million
Publishing
$10.8 Million
Distribution
$7.8 Million
N/A
N/A
Component
Analysis
Specialization
PC and Console
Strategy
Blizzard is very good at creating “launch hype” for
their games. Consumer anticipation for their games
is a big factor in their success.
Assumptions
Activision/Blizzard will likely assume that popular
titles like Call of Duty, World of Warcraft, and
Starcraft will continue to be top sellers.
Resources
$4.8 billion total net revenue
26% operating margin
$1.2 million operating income
Objectives
Worldwide leader in distribution of interactive
gaming software.
Component
Analysis
Specialization
PC and Console
Strategy
Digital entertainment segment
created 60.2% of total net revenue.
Konami will continue to develop
titles and market them
accordingly.
Assumptions
Konami will assume they cannot
compete with major video game
software companies outside of
Japan.
Resources
$2.9 billion total net revenue
$1.4 billion total assets
Operating margin projected to
increase.
Objectives
To attain a larger share in the
North American market.
Component
Analysis
Specialization
PC and Console
Strategy
To use innovative R&D to stay at
the forefront of the newest hightech games.
Assumptions
Assassin’s Creed line will continue
to be a top 5 title and further
development of Gameloft will help
mobile sales.
Resources
$1.4 billion net sales
$6.7 million net revenue
$61.6 million loss in consolidated
earnings
Objectives
Due to the industry decreasing
10%, Ubisoft will likely try to hold
firm at current productivity.
Component
Analysis
Specialization
Social Media Gaming (Facebook)
Strategy
To continue to stay at the forefront
of Facebook gaming. Expanding
internationally with offices in India.
Assumptions
Zynga will assume that Facebook
games will continue to grow in
popularity.
Resources
Company reported to be worth
more than $3.3 billion
$100 million revenue reported last
year
Objectives
To connect people through social
media gaming. Using Facebook
Zynga can reach the entire global
market.
Component
Analysis
Specialization
Mobile Gaming for Android,
iPhone, Blackberry
Strategy
To produce the most popular
mobile games and apps for iPhone,
Android, and Blackberry
handhelds.
Assumptions
Gameloft will assume further
development of Ubisoft games
made mobile will help.
Resources
€122 million consolidated revenue
€6 million net profit
11% growth in sales in 2009
Objectives
To continue to hold its market
share in mobile gaming and block
potential entrants into this
segment.
North America
Factor
Data
Analysis
Growth
10% industry growth rate from
2005-2009
Big opportunity to
charge ahead in a
growing industry
Demographics
40% of all players are women.
Women over 18 is fastest
growing demographic.
67% of homes own a console
or PC.
Massive opportunity to
target this fast
growing market
segment.
Wii, Kinect, PS
Move
Families play these, bringing
more people to the market.
Pushing games for
these systems could
give EA a huge
advantage in rising
demographics.

EMEAA Region
◦ Europe, Middle East, Africa, Asia
◦ Projected to grow 10.2% in 2011
◦ 4.7 million consoles purchased in 2010

Analysis
◦ Big opportunity to keep a hold in this major market
region.
◦ EA is very strong in this region already.

Mobile Gaming
◦ One of the biggest growing markets.
◦ EA produced 12 of the top 20 downloaded iPhone
games.
 $55 million mobile revenue in the first quarter of 2010
◦ Projected to grow $18 billion by 2014.
◦ Apple and Android’s AppStores have made
purchasing and installing games easy.

Facebook is essentially the biggest game
platform in the world.
◦ 350 million Facebook users per month
◦ 100 million play Facebook games

Acknowledging this, EA Purchased Playfish for
$400 million
◦ Facebook has traditional “non-gamers” playing
feverishly with titles like FarmVille.
Region
Software Sales
Percent
Worldwide
113 million
-------------------
Americas
65 million
57.7%
Japan
11 million
9.8%
EMEAA
36.7 million
32.5%
•Main focus should continue to be on the Americas.
•Be wary of these figures, they do not include Mobile games and free
Facebook applications
Factor
Group
Percent
Analysis
Age
Under 18
25%
18-49
49%
50+
26%
Target market is
obviously the
18-49 range.
Everyone
42%
Everyone 10+
12%
Teen
28%
Mature
15%
ESRB Rating
New Gamers Vs.
Established
67% of new
gamers are
between 25-54
Age has little
difference in the
percentage of
established
gamers.
N/A
With the rise in
families playing
together,
emphasis should
be on the
“Everyone”
category.
Pay attention to
new gamers of
all age groups
and not just the
young
newcomers.

Mobile Gaming
◦ EA needs to continue to increase its share of the
mobile gaming market.

Facebook
◦ EA needs to break into this market. It is the fastest
growing market.
◦ Facebook gaming is huge because of the attraction
of non-gamers.

Must be wary of competitors.
◦ Blizzard/Activision continue to grow daily in the
major North American markets.
◦ Konami will attempt to increase its share of the
North American market.
◦ Zynga will be very tough to knock off its Facebook
throne, but the market is wide open to new
entrants.
◦ Gameloft will be a mobile threat, but EA has a
strong hold in the industry currently.
Internal/SWOT Analysis and Competitive
Positioning

EA became incredibly successful with a
brilliant business model.
◦
◦
◦
◦
Base a product on a popular sport or movie
Market the item effectively
Publish a new version of the game every year.
Ex: FIFA, NHL, NBA, Tiger Woods, James Bond series

EA has suffered setbacks along this strategy
and is now adopting a new style.
◦ EA Los Angeles Implemented a “cell system” for
their developers to become more innovative.
 Development staff broken up into 6-8 person “cells” to
rotate on projects
 Helps reward innovation and new ideas

President Peter Moore acknowledged discbased games as a “burning platform”
◦ Can stay on the platform and face certain death
◦ Jump into the water and face possible/probable
death

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Working to innovate towards more disc-less
features.
Acknowledges the likelihood of a console
without a disc drive in the near future
Operating Figures
Year
2006
2007
2008
2009
2010
Net Revenue
$3.6
billion
$4.2
billion
$3.6
billion
$3.0
billion
$2.9
billion
Gross Profit
$1.7
billion
$2.1
billion
$1.8
billion
$1.8
billion
$1.7
billion
Net Income
(Loss)
$(677
million)
$(1.1
billion)
$(454
million)
$76
million
$236
million


Published 48 mobile game titles in 2010. This
is a 60% increase from the 30 published in
2009.
Acquired Playfish Limited to gain a larger
share in the free-to-play social gaming
market.
Strengths
• Ability to change
• Excellent focus on R&D
• Popularity and customer loyalty
Weaknesses
• Dependence on consoles
• Weak global sales (particularly Asia)
Opportunities
• Mobile Gaming
• Online/Social Media Gaming
• Expanding into Asia
Threats
• Potential of Consoles dissipating
• Software Piracy
• Social Media gaming giants
Division
EA Sports
EA Games
EA Play
Quadrant
Analysis
Star
Highest costing and
grossing division.
Majority of titles here.
Cash Cow
Games like The Sims
own the market in
their industry but have
low development
costs.
Question Mark
Relatively unknown
due to uncertainty
because this is a
young division.
Section
Analysis
Inbound Logistics
A very small portion of EA’s overall operation.
The majority of EA’s raw materials are digital and
is handled virtually.
Operations
EA works to develop, market, publish, and
distribute video game software throughout the
entire world.
Outbound Logistics
EA has distribution centers and properties on
every continent but focuses primarily in North
America and has a growing distributing presence
in Europe.
Marketing and Sales
EA has a very strong marketing department. They
are able to create extreme hype for their games
and then push new versions of these games out
every year as a main focus to their business
model.
Service
EA offers downloadable content and updates for
their games through consoles and PC. Many bug
fixes or patches are able to be downloaded free
of charge.
Section
Analysis
Technology Development
Most important division to EA besides
possibly marketing. EA is always striving to
create the newest and most cutting edge
technologies.
General Administration
EA is focused on creating and publishing the
most cutting edge new technologies
possible. They focus on making their
products better than their competitors while
promoting a cooperative comfortable
corporate atmosphere.
HR Administration
EA works to promote a very employee
friendly atmosphere. They offer many
incentive plans and rewards programs for
excellent achievements by their employees.

Focused Differentiation
◦ Competes by making products superior to that of
their competitors.
◦ This justifies the premium price EA charges for their
products.

Why Focused Differentiation?
◦ As an established brand with brand-loyal
customers, EA can charge a higher price.
◦ High prices allow EA to continue to create highquality products
Element
Analysis
Organic Growth
EA will continue to create, market, publish, and
distribute their games worldwide. EA will continue to
push more into the “New Age” of gaming that
includes mobile and social media gaming in the near
future.
Mergers and
Acquisitions
EA is always acquiring new companies to increase its
market share in the video game industry. In 2010 EA
acquired Playfish Unlimited to increase market share
in social media and free-to-play gaming.

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

Continue dominance in the sports video game
market.
Continue to push further into the mobile and
social media gaming.
EA could make a great profit from pushing
into Asia.
EA needs to find a way to become less
dependent on consoles.




EA is a market leader in the video game publishing and
distribution industry.
EA can afford to push higher-cost items due to its
differentiated and superior products.
EA is gaining market share in sectors it had no real presence
through acquisitions.
Staying on the cutting edge of R&D and new games along
with becoming less console dependent will lead EA well into
the future.