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Electronic Arts Chases the Wii

Priya Ganapati

Electronic Arts(ERTS Quote) has a little Wii problem.

The runaway success of Nintendo's latest console seems to have caught the leading video-game publisher by surprise and left it scrambling to create new games in a bid to ride the device's coattails.

With sales so far of 6 million Wiis worldwide, and another 14 million scheduled to ship in the next 12 months, EA needs to rule this console, like it has with Sony's(SNE Quote) PS2 or Microsoft's(MSFT Quote) Xbox 360, if it wants to continue being the market leader in this next generation of devices.

On its fourth-quarter earnings call Tuesday, EA's new CEO John Riccitiello concurred that the company "under-forecast" demand "by a bit." Revenue for the quarter ended March 31 was down 4% and the company blamed the market's transition to next-generation consoles. EA also guided lower for the coming quarter and fiscal year.

EA had just two games ready for the Wii's launch last November -- and rushed four more to stores by the end of the recent quarter. All were from the company's existing franchises like Madden NFL, Need for Speed, and The Godfather.

But living off existing franchises may not be enough, says Van Baker, an analyst with Gartner. To truly boost user appeal, EA will need to create games that can be innovative, unique and use some of the unique features of the Wii console -- like its remote playability.

EA says it has begun such a plan. It will have at least four exclusive games for the console in fall and at least one of them should put EA on top of the charts, says John Schappert, senior vice president at Electronic Arts.

For instance, the company is working on a game based on the popular TV show The Simpsons, and plans to offer it on the Wii, among other consoles. With voices of the original cast and lines written exclusively for the game , EA expects The Simpsons to take off.

Overall in fiscal 2008, EA plans to offer 10 to 13 game units for the Wii and Nintendo DS, which would include originals like MySims, Playground, Boogie and a new game being developed with Steven Spielberg. EA rival THQ(THQI Quote) plans to have 11 titles for the Wii.

But cracking the charts with a game for the Wii won't be easy for EA -- or the independent publishers, also known as third-parties. Historically, Nintendo's own software has dominated its consoles.

Though Nintendo says it's working closer than ever with independent publishers on games for its latest console, research firm NPD's monthly top-10 game charts show Nintendo's games like Legend of Zelda continue to rule the Wii. Nintendo has sold nearly 29 million Wii games since the product's launch.

"Nintendo is a formidable force to compete with software-wise because they know their market, their console and their consumer better than anyone else," he says.

But EA's Schappert says the company understands the nuances of creating games for Wii gamers, who tend to be younger and more casual gamers.

That's why EA is diversifying through games like the music-based game Boogie and a new wholly owned game, Playground, for the Wii, he says. 'We are certainly tailoring these games to a different demographic of the next-generation console gamer," says Schappert.

The strategy is to offer a mix of its existing popular titles and new ones created exclusively for the Wii, he says.

Turning the EA ship may not be easy. So far, results from the Wii have been weaker than anticipated, estimates Mike Hickey, an analyst with Janco Partners.

In the second half of fiscal 2007, EA posted $93 million in sales of games for Sony's PS3 console, compared with $65 million from the Wii. Janco Partners does not have an investment banking relationship or own shares of Electronic Arts.

EA's plans for the Wii will work, but only to an extent, says Gartner's Baker. With the company's main competency in sports franchises and complex games, the company just isn't built to cater to the casual fan.

"With the Wii, they might not get the attach ratio [purchased games per console] they get with PS3 or the Xbox," says Baker. "The ratio for the Wii is likely to be lower because it is a different demographic that is using this console in a different way."

Though EA hopes to have one of its Wii games break into the top-10 charts by fall, there will also be some tough competition out there -- Nintendo plans to come out with two big games, Super Mario Galaxy and Super Smash Bros. Brawl, later this year.