Electronic Arts (EA) is launching a music label called Artwerk (MW last week) in what is a games industry first. Artwerk – a joint venture with Canadian music company Nettwerk One Music – will record, publish and distribute content, and artists will see their work featured in games across the publisher’s portfolio.
Announcing the deal, EA worldwide executive of music and marketing Steve Schur said the move gave the games giant a new opportunity for growth.
Founded in 1982, US developer EA publishes games including Madden NFL, FIFA Soccer, Tiger Woods PGA Tour and NBA Live. It also produces Need For Speed, The Sims and holds Hollywood licences for games based on The Lord of The Rings, James Bond, Harry Potter, and The Godfather properties.
The games market is largely dominated by the three main console brands (PlayStation, Xbox and Nintendo), but EA is one publisher that has broken through and looked to leverage brand awareness. In 2005, it handed Wieden & Kennedy its $150m (£80m) global advertising account (MW February 17, 2005), moving it from incumbent See, which had been EA’s lead agency in Europe since 1999 and in the US since 1994. EA also signed its first UK TV sponsorship in 2005 when its FIFA 06 game sponsored Sky Sports News in a multi-million-pound, year-long deal (MW August 11, 2005).
Analysts say that strong associations with sport and innovative games, along with strong ad campaigns and sponsorship and licensing deals, are behind EA’s growth as a brand. James O’Connor, consultant at games analyst The Value Engineers, says: “Few games publishers manage to penetrate the consciousness of the core gaming market. But Rockstar Games, with Grand Theft Auto, and EA, with its strong licensing in the sports arena, have managed to break through into the mass market.”
EA is the world’s biggest video-game publisher, but last month it reported a 38% fall in net profits for the last quarter of 2006, dropping to $160m (£81m) from $259m (£130m) the previous year. Nevertheless, the results were better than analysts had expected, and in 2005, 31 of EA’s titles sold more than 1 million copies each. But EA realises that it is in no position to be complacent.
The advent of next-generation gaming may have boosted the video-game sector, but publishers have been beset by delayed console launches, while rising production costs resulted in budgets that would be the envy of many film directors. In this fraught climate they have looked to new platforms for growth, rolling out games for the internet and mobiles. But now they are looking to other channels to generate revenue.
Entertainment is converging as digital platforms blur boundaries, with consumers accessing a plethora of content. An area that has seen huge growth is music, and games publishers have adopted an aggressive strategy in order to compete.
Dancing game Dance Dance Factory went on sale in 1998 and in 2004 PlayStation launched SingStar, as it sought to attract female gamers and tap into the Pop Idol phenomenon. O’Connor says: “Karaoke formats have been incredibly successful and seen huge growth. It’s a widespread trend that has developed as console owners and publishers alike have pounced on a format that interests female consumers.”
In 2004, EA launched a joint venture with Cherry Lane Music, called Next Level Music, and a year later teamed up with Nettwerk to set up digital music distribution label, EA Recordings. Now, it appears to be ramping up its investment in music once again.
As well as giving consumers direct access to music through its games – via its own store – last month, EA’s music was rolled out on iTunes. However, the company has a broader vision and is branching out further. In February, it announced the acquisition of online karaoke portal, SingShot (MW February 15), which is to be merged with the games company’s Sims division – popular among female gamers – and will become the foundation of a virtual world based around music.
The Artwerk label will launch with an established artist, Junkie XL. A Dutch electronic musician, he has produced songs for EA games Madden NFL 07 and Need for Speed Carbon. Some industry observers have voiced concerns that such moves represent a further threat to the already beleaguered music industry.
One source, who declined to be named, says: “Not only will they be able to entice artists from established labels, they will have no royalties to pay for artists signed to their own labels. It reduces budgets and offers new revenue opportunities.”
O’Connor agrees. He says: “There has been a massive growth in online music consumption. There is relatively low risk, low investment in online music downloads. Even Starbucks is rolling out its own music download service. The main issue is getting people to pay for content, but as the Russian download phenomenon proved, if it’s cheap enough consumers don’t care where they buy it from. People are willing to try things online.”
In a move that underlines its aggressive strategy, EA last month announced a games franchise with Harmonix – the developer behind Guitar Hero and Karaoke Revolution – and parent company, MTV Networks.
Video-game publishers’ efforts to broaden their entertainment capabilities may not be welcome by all, but they appear to offer natural synergies. As video games strengthen their grip on the entertainment sector, it appears to be a formula that will consolidate EA’s market-leading position.
Facts and figures
- Founded in 1982 and based in Redwood, California
- Revenue in 2005 of $3.1bn (£1.5bn)
- Reported a 38% year-on-year drop in net profits for the last quarter of 2006 – falling to $160m (£81m) from $259m (£130m)
- It is the world’s biggest video games publisher, with just over 20% of market
- Employs a workforce of more than 6,000 people worldwide
- Sports titles include FIFA Soccer, Madden NFL, NBA Live and Tiger Woods PGA Tour
- Lifestyle titles include The Sims
- Hollywood licences include The Lord of The Rings, James Bond, Harry Potter, and The Godfather
- 31 titles each sold more than 1 million copies in 2005.