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EA Falls 5%; Are Investors Missing the Forest for the Trees?

EA is generating a greater portion of its revenue from digital sources.

Electronic Arts shares are down 5.2% Wednesday after the company’s forecast a weaker than expected holiday quarter. Even as the numbers were less than impressive, the company spent most of its earnings conference call discussing its big plans for the future. Here’s why it might matter.

Digital “net bookings” -- sales of things like downloaded titles and in-game purchases -- made up 63% of EA’s business in the latest quarter, up from 57% a year ago. Management noted that Madden and FIFA players are gravitating toward digital downloads even faster than the company had been projecting.

The shift to digital is important because downloaded games are more profitable than sales of digital discs, and in-game purchases like new weapons or characters are almost pure profit for the company.

Another way that EA is moving beyond discs is through its subscription business, which is a Netflix of sorts for EA games. Users can pay $30 a year for access to a library of mostly older EA titles. The upfront fee isn’t very much because the company hopes subscribers will spend up on in-game purchases and discover new franchises they haven’t yet tried.

Taking a longer view, EA is also interested in letting users stream games from the cloud, which could make its subscription offering more appealing.

“One of the greatest disruptions of the consumption of entertainment media in the last five years has been the combination of streaming plus subscription, and that we are thinking very seriously about that,” CEO Andrew Wilson said.


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