Video Games

Video Game Faceoff: EA vs Activision

Chris Morris|Special to

It hasn’t been a good week to be an Electronic Arts shareholder. The company’s stock fell nearly 10 percent Tuesday after it gave a dire forecast for the coming quarter. Activision, meanwhile, thrilled its shareholders with better-than-expected quarterly numbers.

Electronic Arts Headquarters, Redwood City, California

EA and Activision are the video game industry’s top third-party publishers. And with its market leadership position and regularly strong earnings, Activision is widely viewed as the better company these days.

That’s a simplistic view, though, and one that ignores some of the nuances of the video game industry. Each company has varied strengths and weaknesses in a number of categories — and when compared side by side, the question of which is stronger is a bit less black and white.

Executive execution: Activision’s the clear winner here. The company is running smoothly and has had an incredible string of hits in recent years. EA’s turnaround has been going on a long time — and even CEO John Riccitiello noted in the most recent analyst call that, “What we've described as a two-year comeback is clearly taking longer.”

Analysts are firmly behind Activision’s executives. “This is a management team that has consistently delivered and is clearly executing against its plan,” said Broadpoint AmTech’s Ben Schacter in a note to investors.

New platforms: While Activision executes almost flawlessly in the packaged goods category, it has been slow to embrace new types of gaming. Electronic Arts, though, has invested substantially in development for the Apple iPhone as well as social networks, such as Facebook.

Last year, the company spent $300 million to buy social games developer Playfish — and it has already dropped word that it plans to bring its “Madden” franchise to Facebook this year. While neither of these platforms will move the needle in the short term, both are expected to continually steal market share from existing systems like Microsoft’s Xbox 360 and Sony’s PlayStation 3 in the coming years.

Franchise strength: EA’s sports games are annual franchises, but the company doesn’t have a lot of other titles that provide reliable, steady annual income. Activision, though, has made it a point to annualize many of its biggest games — including “Guitar Hero” and “Call of Duty”.

Activision CEO on Earnings & Outlook

While there’s some risk of burning out consumers on the franchise, the company has been able to keep the quality of titles fairly level. And 2009’s “Call of Duty: Modern Warfare 2” — the series’ sixth installment — set industry sales records.

Activision also has powerhouse Blizzard games like “World of Warcraft” and this year’s “Starcraft II” — either of which dwarfs pretty much anything EA has to offer.

Digital distribution: When it comes to future proofing, EA is the leader. Its digital distribution business soared 30 percent last quarter. And the company is positioning itself for the industry’s coming shift to online sales, thought that is still several years away. Activision has not revealed any infrastructure investments in setting up a digital distribution business. It’s a cost savings now, but could be a negative in the years to come.

Recurring revenue: Any company can have a year of hits or misses, but Activision is best positioned to ride that out. “World of Warcraft” continues to be a monster – with 11.5 million players paying monthly fees and a new expansion pack due later this year, which will likely cause a subscription spike. The company has also hinted that it may be building a subscription model around the “Call of Duty” franchise, which could be quite lucrative as well.

EA lags in this category right now, with comparatively small income from its legacy game “Ultima Online” — but will begin to play catch up in 2011 with the expected release of “Star Wars: The Old Republic” — a new massively multiplayer online game that is highly anticipated.

New franchises: This one’s really a push. EA has historically put out more new titles, but could be pulling back from that, given job cuts and mixed success. Activision rolled out new franchises last year and has a few new games up its sleeve for 2010. But, if we’re talking about the publisher that has the potential for the most games that will be recurring big sellers, you have to include Take Two Interactive Software — and the console makers themselves. If there’s one thing the video game industry doesn’t lack, it’s original titles.