Creating an infrastructure for Gaming 3.0

Peter Moore of EA Sports outlines the future of the video game industry at the recent MI6 Game Marketing Conference. Consumers have the power to give any game company a Schumpeter moment, just as they did to the music industry.

By Ted Pollak

EA Sports President Peter Moore’s keynote speech at the recent Mi6 Game Marketing Conference provided interesting insight and perspective into the future of the video game industry. He also illustrated how EA is attempting to create infrastructure to preemptively embrace change in gaming, rather than react to consumer behavior.

Peter Moore, President of EA Sports

Moore identifies a quantum shift in the game industry, which he calls Gaming 3.0. Moore says the process has already begun, and will massively change the gaming market in the next 12-18 months. He used the music industry as an example of an industry that completely failed to recognize the power of the consumer in the digital age. Moore identifies the consumer as a force that will always win in the end, if a company’s does not consider their ability to use technology to circumvent obsolete business models. Specifically, Moore cited Joseph Schumpeter’s notion of creative destruction to identify the consumers’ power to destroy any business model that entrenches and does not adapt.

There are role models, Moore said, identifying companies that have successfully transitioned through business models, specifically highlighting Netflix (as did several other speakers at the conference). A common thread throughout Moore’s talk was the move to digital. This had been a recurring theme at almost all industry keynotes for about three years, but it is actually hitting tipping points in 2011. Moore noted that Wall Street loves Netflix because it is digital and subscription based, with a great value proposition for consumers, and a sustainable, predictable, and evolving business model.

Moore then circled back to the games industry and how EA is embracing change. He highlighted some interesting data points from EA’s market analytics division. EA estimates that globally there are 1.2 billion people who actually consider themselves gamers in some shape or form. EA believes that they have established a business relationship with 230 million of these people. And, a significant percentage of this group is supplying EA with demographic data and, more important, financial billing data.

Moore specifically identified two key efforts at EA Sports that are embracing change and providing higher revenues and profits. The first is to offer micro-transactions on top of ‘packaged goods’ games for consumers who want a deeper dive into the content. He noted that micro-transactions can significantly increase average revenue per unit (ARPU) without increasing cost of goods sold (COGS).

The second, and perhaps more important and drastic, move that Moore identified for EA Sports is to move the entire business model to an all-you-can-eat subscription product. No longer will you buy games branded Madden, or Tiger Woods, or FIFA. In the future you will be buying EA Sports, all of it, and have access to it across all devices. Different flavors of this notion are common among many top game industry execs including PCGA head Matt Ployar who calls the phenomenon “compute continuum.”

Ted Pollak is Senior Gaming Analyst at Jon Peddie Research.