Electronic Arts Takes on Kings Apple and Amazon

Though regarded as one of the leading video game publishers, Electronic Arts (NASDAQ:EA) is looking to move beyond the production and sale of physical games with its new online gaming platform, Origin.

“Our platform will directly go after the consumer, said Peter Moore, the company’s Chief Operating Officer.  “We don’t see ourselves as different than Amazon…or Apple.”

Unlike Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL), EA’s Origin will be limited to games, but with the other companies’ shared notion of creating a direct platform to the consumer, cutting out the middlemen — stores like Best Buy (NYSE:BBY) and GameStop (NYSE:GME) — to take a bigger share of the profits.

Digital downloads provide publishers with a better profit margin on their games, not only saving money on production, but limiting profit sharing with physical retailers.

So it isn’t at all surprising that EA has been implementing the transition away from physical games. Inexpensive iOS games, which might only sell for a few dollars or less, have the potential to be more profitable than many higher-end games, as they cost much less to produce, and can be distributed in much greater volumes, with more of the profit coming back to the producer.

During the third quarter, EA earned $1 billion in revenue from digital gaming, with a tenth of that generated from Origin. The company reported a third quarter loss, but one that was less than last year’s due to the strength of its digital offerings, and with a profit that beat the street.

EA’s Origin is also an open …

platform, meaning that it also sells competitors’ games, placing it in direct competition with similar providers, like Steam.

One downside to its Web offering is that EA has had to deal with a lot of bad publicity, much of it centered on rumors related to how it treated user data and whether it added spyware to its products. Moore also admitted to the company displaying “naivete” when the platform first launched, and a failure to educate consumers as to what Origin actually did.

The service will be expanding into mobile games eventually, with EA especially favoring the “freemium” mode of game distribution, where consumers can download a game for free but will later have the option of buying additional elements, such as weapons, upgrades, in-game currency, and so forth.  Freemium games could boost the company’s viability in the Android Marketplace.

Origin has so far done a fair job of locking down deals with other producers to sell their games, and though the company doesn’t want to provide concrete numbers to aim for, Moore says EA is optimistic about where it can go.

To contact the reporter on this story: Jonathan Morris at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com