Electronic Arts (NASDAQ: EA) has seen its stock price soar 150% over the last three years as in-game spending has grown, but the company might have gone too far with this strategy with the newly released Star Wars: Battlefront 2.
EA received a lot of flak from the gaming community due to the game's heavy reliance on in-game purchases to unlock all the licensed Star Wars content, such as getting the chance to play as Yoda or Darth Vader in the game's popular competitive multiplayer game mode. Gamers were disappointed that they had to either spend potentially hundreds of dollars in microtransactions or unlock the content for free only after slogging through hundreds of hours of play time.
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EA management heard these concerns and has since temporarily suspended all in-game purchases until the company comes up with a remedy. While it's possible the game may not sell quite as many copies as expected, the issue with Battlefront 2 highlights where the industry is headed and how game companies have to balance generating a profit without upsetting gamers.
What happened and what to expect
The first Battlefront debuted in 2015 and sold 13 million copies in the holiday quarter of that year. In January 2016, EA reported a strong holiday quarter with adjusted (non-GAAP) revenue growing 26% to $1.8 billion, largely driven by strong sales of Battlefront. Battlefront 2 was expected to drive similar strong performance, but that might be up in the air at this point.
Battlefront 2's main appeal is its multi-player competitive game mode. The problem for gamers is that EA designed the game so that players who spend the most money will gain all the best characters and weapons, and, therefore, gain an advantage over their opponents.
As early reviews trickled out and gamers who had pre-ordered got early access to play the game, the game's heavy reliance on microtransactions quickly caused a stir on social media. The general manager of DICE (the studio that created the game), Oskar Gabrielson, released an apology to gamers, stating, "We hear you loud and clear, so we're turning off all in-game purchases. We will now spend more time listening, adjusting, balancing and tuning."
Concurrently with that statement, EA stated in an SEC filing that the suspension of Battlefront 2's in-game purchases "is not expected to have a material impact on EA's fiscal year 2018 financial guidance." Exactly what "material" means is anybody's guess. The game may sell 1 or 2 million copies less over the next month than it would have, but I expect Star Wars: Battlefront 2 to still perform well for EA over the next year once management comes up with a remedy.
The outrage over the game's microtransaction strategy reveals how enthusiastic gamers were to play a game with licensed Star Wars content from Walt Disney's Lucasfilm. Keep in mind, Battlefront 2 is not the only game that has received flak for microtransactions. Take-Two Interactive's NBA 2K18, released in September, also received negative marks from gamers for its aggressive push into microtransactions compared to last year's version, but Take-Two didn't receive nearly as much criticism as EA.
The industry will continue to dive deeper into in-game spending
Despite gamers' negative feelings about in-game spending, this is the future of how games will be monetized. Games are getting more expensive to make, with some costing as much as blockbuster movies. The only way big-budget games can be economically feasible for game companies, in the long run, is to sell gamers a steady stream of extra content long after the initial sale.
Mobile games have already been using a microtransaction strategy for a while to generate more profits, and the console game makers are starting to follow suit. Games are transforming more into a service, not just a one-time revenue opportunity at the time of sale.
The bigger issue for EA
I expect EA to eventually get this right, but we won't know exactly how this will affect sales until the company reports earnings after the holidays. The bigger problem for EA is that from this point going forward, gamers will be closely scrutinizing every decision EA makes with regards to in-game content.
Activision Blizzard and Take-Two Interactive, in addition to EA, are generating larger amounts of revenue from in-game purchases. Gamers are clearly willing to spend money for this extra content. But as the industry transitions to a new money-making strategy, there's a learning curve for companies. The challenge for game makers is to find a fair amount to ask gamers to spend on extra content for a game that already costs $60 upfront.
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