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Video Game Dream Team

By Cynthia L. Webb
washingtonpost.com Staff Writer
Tuesday, January 18, 2005; 9:33 AM

Electronic Arts may have scored a knockout punch in the competitive video game arena with news that it is entering a 15-year deal with ESPN to incorporate the sports network's brand, content and personalities into its line of sports video games.

The ESPN deal comes a month after EA struck an exclusive five-year partnership with the National Football League and weeks after it acquired a nearly 20 percent stake in French game maker UbiSoft Entertainment.

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According to the San Jose Mercury News, the alliance "cements" EA's "dominance of sports video games and raises fears among rivals that EA is becoming a virtual monopoly in virtual sports." CNET's News.com offered up a telling analogy: "A huge software maker uses its dominant market position and mammoth cash reserves to lock out some competitors and buy up others. Sound familiar? Except this time it's not Microsoft or Oracle that's sparking the charges. It's a company whose specialties include James Bond games and 'The Sims.' Electronic Arts, the world's leading publisher of video games, has riled the industry in recent months with a series of unusually aggressive business moves that could hamper rivals and close off competition in some areas of the computer game industry."
The San Jose Mercury News: Sports Powerhouse EA Wins ESPN Logo Rights (Registration required)
CNET's News.com: Electronic Arts Plays Hardball

The agreement, which won't go into effect until 2006 when ESPN ends its existing video game licensing arrangement, gives the Redwood City, Calif.-based company exclusive access to ESPN programming and personalities for its gaming consoles and handheld, PC and wireless games. The deal covers a number of sports, including Nascar and football, the Wall Street Journal noted.
The Wall Street Journal: Electronic Arts Reaches ESPN Deal (Subscription required)

Former Champion Reclaims the Title

The ESPN partnership comes as EA hopes "to shore up its eroding dominance in the sports video game market," the New York Times said, estimating that the company will shell out some $850 million for the exclusive rights to use the ESPN brand and content in its games and for commercials on the network. EA was mum on the cost of the deal; the Times pegged the deal's value at between $750 million to $850 million, while today's Wall Street Journal said EA would pay "a minimum of $850 million in cash and advertising commitments over the 15-year course of the pact."

"Beyond the deal's length, which is substantial by industry standards, it comes at a significant juncture in the video game business. In the last year, Electronic Arts' long-dominant position selling sports games has come under assault amid heavy price competition. The challenge came from Take-Two Interactive Software, which teamed up with Sega to sell sports titles at cut-rate prices, forcing Electronic Arts to lower its prices as much as 50 percent. The games from Take-Two and Sega were built around the ESPN brand name. But when the three-year relationship between ESPN and Sega ends in 2006, the rights to the use the sports network's brands will go to Electronic Arts," The New York Times said. More on this them from the Journal: "Analysts said the new deal with ESPN is a blow to Take-Two, which is trying to diversify beyond its hit Grand Theft Auto line of games. 'Certainly this is in no way-shape-or-form good news for Take-Two,' said P.J. McNealy, an analyst at American Technology Research. 'This is EA showing its brute strength.'"
The New York Times: Electronic Arts and ESPN Sign 15-Year Deal TO Sell Games (Registration required)

The Journal gave more details of the deal with Walt Disney-owned ESPN: "Larry Probst, Electronic Arts' chief executive officer, said the agreement calls for the game publisher to use ESPN sportscasters and other assets within sports games, though he said he expected that Electronic Arts will continue to publish titles that use popular sports personalities, such as commentator John Madden and golfer Tiger Woods. Sports is a key category in the game business, accounting for more than $1 billion, or 18%, of $5.8 billion in total U.S. console game sales for 2003. Sports games represent more than a quarter of Electronic Arts' revenue." More from Reuters: "EA games will not necessarily be branded with the ESPN name, [Probst] said, although they will potentially include ESPN data, graphics and sportscasters . Executives at Bristol, Conn.-based ESPN said they had a good relationship with Sega and Take-Two but felt the time was right to move on to a larger partner."
Reuters via the Los Angeles Times: Electronic Arts, ESPN In Deal (Registration required)

The Mercury News pointed out what ESPN gains from the deal: "Just as EA dominates sports games with more than half the market for titles such as 'Madden NFL 2005,' ESPN dominates sports TV with seven networks covering a wide range of sports. An EA spokesman said the company hopes the ESPN deal will attract more non-gamer sports fans to EA video games." EA's NFL deal from last month might have helped sweeten the pot: "John Skipper, executive vice president at ESPN, said EA's NFL deal wasn't behind ESPN's decision to end its partnership with Sega in favor of EA. However, he did say, 'we're happy to be in partnership with the company that has the NFL rights,'" the New York Post reported.
The New York Post: Electronic Arts Reaches 15-Year Deal With ESPN

EA's competitors are already showing a sour-grapes attitude: "Representatives for EA rivals Midway Games and Take-Two Interactive said their games will focus on quality game play, rather than licensed content," the Mercury News said. "Midway, for instance, will include events and stories in its 'Blitz: Playmakers' games that the NFL wouldn't allow, such as the consequences of players being busted for substance abuse. Steve Allison, chief marketing officer at Midway in Chicago, said in a statement that EA runs the risk of running up its costs 'just to secure a deal and shut out a competitor.'"

Expect hard feelings to intensify as EA continues to eye more deals. "Wedbush Morgan Securities analyst [Michael] Pachter expects EA to continue to make aggressive moves to expand, possibly into the burgeoning Asian market for online games, where EA has minimal presence now. The company is also in the midst of a bid to take over Swedish development studio Digital Illusions, which has worked on EA-published games such as the 'Battlefield 1942' series. Pachter expects EA to continue working on acquisitions and other business maneuvers to ensure the company remains No. 1 with the next generation of game machines," CNET reported.


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