Financial reports are, typically, dry and a little confusing if you’re not an analyst or an accountant. Despite this, there’s a few things of interest from last night’s first quarter from Take-Two and EA. In particular, EA have put out these handy slides that show exactly where they’re making their money and just what the trends are.
Whilst Take-Two talk about sales of their back catalog contributing heavily to their income, they also mention the fact that digital sales now make up about 14% of their revenue, representing a 33% year-on-year growth for the first quarter.
For EA digital was an even bigger story, with it making up over two-thirds of their non-GAAP revenue, and showing a remarkable 55% year-on-year growth for the quarter.[drop2]The interesting part with EA is when you get to the breakdown of those digital sales (pages 8 and 9 if you’re following along in the slides). You see, whilst EA may still have a lot of focus on selling you a physical product, their digital sales of full games account for just 10% of their digital sales. Selling you the game isn’t where they’re having much success, it’s what comes after that.
The sales of what the financials term “extra content” account for about 40% of their digital revenue, and have shown a startling increase of 87%. People may say they don’t like DLC and the like but their wallets tell a different story.
As long as that number continues to trend upwards, and it has in the three years shown, then EA are going to push more and more resources into the after-sales market, it’s where the big money in digital seems to be for them.
The other place it looks like they’ll be focussing is with services like Battlefield Premium. The service made them an additional $37 million that isn’t even included in this set of financial results, they’ve deferred the revenue until Q4.
This is where the paradox seems to lie in gaming at the moment, or at least in what’s said on the internet. Every time a company unveils a DLC plan for a game, or a service like Battlefield Premium, there’s an almost immediate backlash. Certainly it doesn’t come from every quarter, but it is there. In spite of this, these business models are helping them rake in the cash. Hell FIFA Ultimate is just a digital trading card but that managed to net them another $30 million; there’s simply no good reason not to increase the focus on these types of projects.
That’s not to say physical content is going anywhere soon, it’s probably not, but it’s worth noting that, for the first quarter at least, physical products are way down. They’ve shown a 25% drop, compared to that impressive 55% increase for digital revenue.
Of course, the problem that EA face is that 40% of their digital revenue is extra content for those physical products, physical products that people don’t seem all that interested in this year. If EA shift their focus too much they could start destroying a significant chunk of their own revenue; it’s a precarious situation.[drop]The other area worth a mention is their biggest growth platform in terms of digital revenue, the smart phone and tablet market.
Whilst this area only makes up about 16% of digital sales right now, they’ve shown a remarkable 86% year-on-year increase.
Will we see EA making big in-roads here?
Personally I’m not so sure, there’s only so much you can make from games that sell at the price of smart phone apps, but they’re almost certainly going to try.
No for me, it’s going to be all about the after-sales money for EA, and likely for other publishers as well; that tantalising “extra content” that seems to be doing pretty well for them at the moment.
We may well scoff at things like Project $10, but those tactics seem to be working and it doesn’t look like they’ll be going anywhere anytime soon.
As for services like Battlefield Premium? Well that initial $37 million influx will certainly have them looking at it in depth, although there is the question of whether frontloading all that cash is the best strategy. Yes, it’s guaranteed revenue but there’s always the chance they could make more by making everyone buy the DLC separately. Irregardless of that, $37 million is a pretty good pay off on their pricing experiment.
Bottom line on all of this? Take-Two did pretty well with their digital sales, but EA made an absolute shedload. Will they both try and build out their digital businesses? You bet they will, although EA’s figures suggest that full game downloads aren’t the way to go. Oh, and EA’s growth with mobile gaming probably outperformed their wildest dreams, I’d expect them to push more resources there very, very soon.