When he was chief financial officer at Amazon.com ( AMZN), many analysts thought Warren Jenson's real job was to be the company's official grown-up. He helped the company successfully navigate the dot-com crash and its transition from money-losing start-up to profitable enterprise. Now, in his third year as CFO of Electronic Arts ( ERTS), Jenson faces a similar task. While EA's management may be more sober on the whole than Amazon's was during the dot-com boom, and its position no way as dire, Jenson's job is to help the company navigate the coming transition to the next-generation of video-game consoles. The early going hasn't been so good. Earlier this year, the company stumbled badly, posting revenue and sales for its past fiscal year that fell far short of Wall Street's expectations. But EA is already trying to turn things around. Last year, it signed an exclusive deal with the National Football League in an effort to fend off a challenge from rival Take-Two Interactive ( TTWO). And the company plans on making a big bet on the next-generation consoles, including Microsoft's ( MSFT) Xbox 360 that will start rolling out later this year. Q: EA seemed to start
feeling the effects of the coming console transition this past year. In contrast, Activision (ATVI), Take-Two and THQ (THQI) all posted pretty good numbers. How would you explain the diverging results? It's pretty hard for me to speak for them. In our business, we are very much title-driven. And last year was an incredibly competitive year; a great year for Take-Two with San Andreas, certainly; a fabulous year for a Halo, for a Half-Life, and intensely competitive. For EA, it creates a trend line, but it's part of a long-term journey. Q: How much did the sports battle with Take-Two affect your overall picture last year? We clearly had -- and have -- a very strong sports position that came under attack last summer. I think what we did was exactly what we needed to do, and that was we defended our turf. At the end of the day, we came out tougher and stronger. And, Madden, in particular, and our overall sports business, our segment shares, were actually up for the year. And that's taking the competitive threat head-on.
It negatively impacted the bottom line to some extent. That's business, and it's what you have to deal with. Q: What are EA's investment priorities right now? I think your best, close-in returns are always going to be where the market's already established. Our first priority: deliver great entertainment. Secondly, it's to be ready for the next generation. The critical thing for us is that we are ready with entertainment that utilizes that technology horsepower when those consoles emerge. Q: Why is that so important? A: I think that's what customers want. Transitions are where you really set the standard for the next several years of your business. We just think it's the way you build a lead. If you look at our shares the last go-round in transition, our segment shares improved very dramatically by really being the leader. Making the necessary investments today, we'll be ready for this next generation of technology. Q: But at least initially, aren't the games you put out for the new platforms essentially loss leaders, because there's not a big enough installed base of users? I don't think you can look at it like that. You can say that, but look, this is about sustaining what will continue to be a very strong business, and we have to take a much longer-term perspective than how many Xbox 360 units are sold in the fourth quarter of this calendar year. This is about the next five years, not about the next two quarters. Q: When do you expect revenue from next-generation console games to start moving the needle for EA? When will they start to replace sales of PS2 games? I'm just not ready to forecast that. But what I would say without being quite that specific is the PlayStation 2 is going to be around for a while. And people are going to continue to buy that entertainment. I can show you a chart on just how strong pricing has held up for the top 20 titles in the marketplace. And the reason why it's holding up that strongly is because of the quality of the entertainment. People still love the stuff.
And we're also sitting with both Xbox and PlayStation 2 at $149. I think the last go-round, at price points of $129 and below, 60% of the volume was sold. I don't know that we're going to see that exactly happen this time, but what I'd tell you is, there is a lot of life left in this current generation of equipment, and the numbers are a lot bigger. And when those two lines really cross over is all going to be dependent on how quickly the console manufacturers roll it out. Q: The two biggest games last year were Grand Theft Auto and Halo, both of which were essentially original intellectual property for both companies that came out with them. How important is it for you to develop more original intellectual property in house, as opposed to licensing the property? I think ownership of IP is a huge deal. Continuing to build our portfolio of owned intellectual properties is an absolute strategic priority. In the context of EA, our business is one-third sports, one-third licenses and a third owned-IP. If we did a little over $3 billion in revenue last year, that's a pretty big owned-IP portfolio. Now, in the broader context, if that were to stand alone as a company, it would be pretty substantial. When you look at our owned IP, we have the Sims, the best-selling PC game ever, Need for Speed, Medal of Honor and Command & Conquer. Q: There was a lot of chatter earlier this month about EA's investment in Ubisoft. Can you talk about what's going on with that investment? There seems to be a lot of hostility coming out of Ubisoft's chief executive suite toward EA these days. I can't speak for them and what and why they're saying it. I think our team has nothing but the best to say about Ubi and their employees. We admire their studios, we admire their creativity. We admire them. And why he's saying that, I can't speak for him, but from our standpoint, we can't say anything but the best.