Electronic Arts (NASDAQ:EA) is scheduled to report earnings for the second fiscal quarter of 2012 on October 30. Revenues will be boosted by strong sales of FIFA, its most popular franchise. The latest edition of the series, FIFA Soccer 13, sold more than 4.5 million units in the first five days after launch in late September and has been well-received by critics world-wide.
Despite the popularity of its sports-based games, Electronic Arts faces an uphill task selling video games in a challenging environment where customers are preferring online games from publishers like Zynga (NASDAQ:ZNGA) instead of traditional console games. Video game sales in retail stores across the U.S. during September were 24% below the figure for last year, according to data compiled by NPD Group.  Video game console sales fell by 40% year-on-year, which also presents some bad news for EA.
Soccer is the most popular sport in the world and the fact the EA has an exclusive licensing agreement with the sport’s governing body, FIFA, and other regional bodies like the English Football Association Premier League has helped the company ward off competition from other popular titles like Pro Evolution Soccer. The company releases a new title in the franchise each year with software, gameplay and roster updates, coinciding with the beginning of the European soccer season.
FIFA’s immense popularity might help Electronic Arts fight against the market trend. Digital revenues earned from the franchise have increased exponentially from $16 million from FIFA 09 to $144 million (by the end of last quarter) from FIFA 12. Asia provides the largest potential for expansion for EA. Although the region currently accounts for a minuscule portion of the company’s net revenues, emerging economic powerhouses such as Korea and Japan have been enthralled by the FIFA franchise. Over 80% of all teenagers (from ages 16 to 19) in South Korea are playing FIFA Online 2. EA has announced an agreement with Nexon to publish the next edition in the franchise, FIFA Online 3.
Around 47% of EA’s net revenues are generated from North America, making it the most important geography for the company. FIFA is also quite popular in the U.S. FIFA 13 was the third ranked game in terms of sales in the country in September. Electronic Arts also had the top spot with Madden NFL. Licensing agreements with popular sports franchises such as the NFL (football), the NBA (basketball), the PGA TOUR(golf) and the NHL (ice hockey) hold Electronic Arts in a better position than competitors such as Activision Blizzard (NASDAQ:ATVI) to fight the decline in video game sales.
Electronic Arts is also expanding its online digital distribution service through its Origin platform to counter the effects of declining retail sales. Origin generated about 60% of the company’s full game digital download revenues last quarter.
The highly anticipated game Star Wars – The Old Republic has been a big disappointment. The game was initially well-received after its launch, winning several awards including MSNBC’s “Game of the Year” award last year.  But the monthly subscription payment required for online play has deterred subscribers leading to a declining trend. The number of subscriptions for the massively multiplayer online role-playing game (MMORPG) has dropped below 1 million, a disappointing figure compared with Riot Game’s League of Shadows which has more than 30 million subscribers. 
Electronic Arts has now adopted a two-tier plan, with a free-to-play option and a $15 a month premium membership allowing players to access features blocked for free users.  The new model might help stabilize subscription revenues following a model similar to that adopted successfully by Activision for its Call of Duty franchise.
We are in the process of updating our estimates.Notes:
- U.S. Videogame Industry Sales Fell by Nearly a Quarter in September –NPD, 11th October, 2012 [↩]
- MSNBC [↩]
- With StarCraft II Declining, The World’s Top PC Game League Of Legends Sees Continued Growth, Forbes, 14th September, 2012 [↩]
- BioWare changes free-to-play model for Star Wars: The Old Republic, tech2, 29th October, 2012 [↩]