If you'd like a peek inside the future of the video game business, take a look at Electronic Arts' sports games released a full year ago.
EA, whose games cover a range of sports series including FIFA soccer, Madden NFL and NHL hockey, reported almost $700 million in sales in its fiscal first quarter, despite not releasing a single game in the period ended June 30.
Sales for the most part were connected to online play. The company Thursday said 77 percent of revenue came from in-game purchases, subscriptions, game downloads and Internet services. More than half of those online sales were generated by EA's sports titles alone, a 21 percent jump year over year, thanks to services like Ultimate Team, which lets gamers create their own squads, play online against others and spend real money on in-game items.
"At the end of the day, we're taking a position of letting the consumer decide how they want to consume the product," Blake Jorgensen, EA's chief financial officer, said in an interview. It just so happens, he added, that "more and more consumers want to consume the product digitally -- it's more convenient, no different than books and music."
The game industry in general has gravitated toward the Internet for engaging players with new products and services that, in turn, have prompted a new approach to sales and software design. Thanks to stronger Internet connections and more powerful hardware, video games are being treated less as single-serve software sold on a disc and more like an online service that continually churns out revenue thanks to incremental online purchases or subscriptions.
EA's success with both its sports titles and Battlefield military shooter signal that the Internet-service model is on track to become the de facto approach for all genres, not just online fantasy titles like Activision Blizzard's World of Warcraft.
"Those are games that people are playing for many, many months or, in the case of Battlefield 4, years," Jorgensen said. "We're extending the life of those games and that's an extremely powerful position to be in."
EA reported profit, adjusted for stock-based compensation and deferred revenue, of 15 cents a share on sales of $693 million. That beat analysts' estimates of 3 cents a share on sales of $652 million.
The company will refresh its entire sports lineup over the next two months. The new games -- including a version of FIFA soccer with female players -- will replace last year's versions as the mechanism generating most of the company's online revenue.
Bolstered by its online sales, EA is beginning to experiment. Its EA Access subscription service lets players access older games, like last year's FIFA or Madden, get discounts and opportunities to test newer games as they come out. EA Access, which costs $5 a month or $30 a year, is becoming an important experimental ground, Jorgensen said, but still represents a small portion of its online business.
This fall, EA will also release the much-anticipated installment in the Star Wars Battlefront franchise. Battlefront, which mixes shooting games with vehicle combat in the Star Wars universe, comes out November 17 in North America -- just one month before the release of J. J. Abrams' movie, "Star Wars: Episode VII The Force Awakens." The marketing blitz coupled with the holiday season promises to make Battlefront a hit -- but more so physically than on the digital sales, Jorgensen said.
"Our assumption is there will be people that buy Star Wars as a gift," he said. "Mom doesn't know about digital downloads. If she buys Star Wars, she wants a disc and a box to put under the Christmas Tree."
That scenario illustrates the industry's balancing act. Like other large game makers, EA is preparing for a world that treats games like music and television -- perhaps even one day given away as part of a streaming service like Netflix or Spotify. But until then, the industry is still straddling the middle, selling games on discs and wrapped in plastic while devising more ways to turn those titles into ongoing services.
EA is not without its challenges. Due to its lack of major launches in this past quarter, the company saw a more than 10 percent dip in sales year over year compounded by a $71 million in operating cash flow, an indication that sales aren't producing enough money to support day to day operations. Profits were down 20 percent year over year as well, as EA gears up to launch the vast majority of its games this year in the next two quarters. Jorgensen clarified on an earnings call that only 16 percent of the company's business is booked in the fiscal first quarter.
Still, Investors responded unfavorably, sending the stock down around 4.5 percent in after-hours trading Thursday. Overall, EA's stock has more than doubled in the past 12 months and hit an all-time high of nearly $75 a share earlier in July.
Update on 2:20 p.m. PT: Added stock changes and additional information.