John Riccitiello

Ex-EA CEO Riccitiello still believes in games

August 2, 2013: 11:51 AM ET

The former entertainment executive doesn't think his industry's business model is entirely broken.

By John Gaudiosi

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FORTUNE -- Former Electronics Arts CEO John Riccitiello recently made his first public speech since stepping down on March 30. Speaking at the Casual Connect video game conference in San Francisco, the long-time video game executive says he spent a lot of the past four months, well, playing video games. Known as one of the few game execs that actually logged hours playing the likes of Battlefield, Riccitiello often offered design recommendations for titles in development. His love affair seems undiminished.

Riccitiello stepped down earlier this year after a six-year stint at the helm of the once-towering EA (EA). Larry Probst, the Redwood City, Calif.-based firm's CEO from 1991 to 2007, took over as executive chairman while the games publisher searches for a new leader. Wedbush securities analyst Michael Pachter claimed that former Xbox chief Don Mattrick was the most likely candidate to replace Riccitiello before decamping to Zynga (ZNGA) as CEO last month. Though he had some success, Riccitiello had struggled to transition the company into a more digitally oriented business. He also had trouble goading the stock price up; the publisher traded at $18.71 at the time of his departure, down from $61.40 in 2007 when he took over. (It is now around $26.)

Is Riccitiello bitter? It doesn't sound that way. With the $70 billion global games business about to enter a new console cycle with Microsoft's (MSFT) Xbox 360 and Sony's (SNE) PlayStation 4, Riccitiello is bullish on gaming's future. He said he believes these fully functioning, fully integrated online super computers connected to large televisions will be more successful than the current generation of hardware. Perhaps, but the question haunting game makers is what the impact of mobile devices like Apple (AAPL) iPads and Google-powered (GOOG) phones will mean for traditional development.

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"I'm still a believer in the next generation of consoles, but another billion and a half people came into the industry as a consequence of mobile and I think that's a pretty cool place to focus," said Riccitiello. "Mobile is growing at an infinitely better rate right now than console, but I visited with many mobile developers during the time I was at EA. I've heard many developers say they're going to bring console level graphics to mobile screens and that's going to make them different and better. I think that's a mistake. If I go back to the time I was launching console and PC games, investing in better graphics without figuring out what incremental or better gameplay experience was going to reward the player is a road to ruin."

Riccitiello compared the current mobile landscape with a new generation of CPUs and GPUs entering the marketplace from companies Intel (INTC), Qualcomm (QCOM), and NVIDIA (NVDA) to the early days of 3-D console gaming in 1997. Back then, development costs tripled, but revenue remained about the same, and outfits making graphically intensive flight simulation and real-time strategy games, for instance, struggled. Companies that use 3-D to explore new types of gameplay such as sports titles did better.

"If I were to come up with one piece of good advice as the mobile industry is looking at more powerful phones and tablets, it's to think more about how that creates the opportunity to develop an experience we've not seen before," said Riccitiello. "What gameplay mechanics weren't possible before that can now be opened up? If you can answer that question, the investment is worth it. If you can't answer that question, you'll end up spending more money to generate the same revenue, and that doesn't work very well."

Another area of intense focus: dual-screen viewing. The video game industry is already experimenting with multiple screen gameplay with devices like the Nintendo (NTDOY) Wii U, which comes with a tablet-like controller, Xbox SmartGlass, which connects smartphones and tablets to Xbox 360 games, and the Playstation Vita, which allows gamers to interact with their PlayStation 3 games.

"I'm using multiple screens all the time, and most of us are doing that in many different ways," said Riccitiello. "I sit on my couch at home running Outlook on my PC, playing a console game up on the TV, and I might be playing Candy Crush on my tablet. I see some absolutely stupendous experiences with dual screen with console games where you're using tablet or a phone as a secondary game input device. Nintendo was the first innovator in that arena, but I don't even know that we're scratching the surface as much as we're waving our hand above the surface."

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Electronic Arts is celebrating the 25th Anniversary of Madden NFL football this year. And Riccitiello believes the mobile industry can learn from the success console games have had in building global, sustainable brands. "Will Candy Crush Saga be around next summer? Will King, which is heading towards the fabled IPO, figure out how to do a 2.0? I see precious little going on right now in mobile to suggest people are building multi-year brands," said Riccitiello. "Console gaming brought us EA, Nintendo, Activision (ATVI), and brands like Call of Duty and Battlefield. Why don't they make great brands like that in mobile? The big question for whether they stay at the top is whether they can either get lucky again."

Despite massive industry shifts, Riccitiello says there is plenty of untapped revenue potential for game developers. His point? Over the past five years, Apple and Google have seen half or two-thirds of their increase in shareholder value come directly from mobile products, resulting in approximately $300 billion of capital created by the distribution platform. With games making up roughly two-thirds of all mobile app monetization, he believes that as much as $25 billion of shareholder value has been created by content, i.e. games.

"Arguably ten times more value can be created by the platform creator than by the content that goes over it, that wasn't the case with consoles or PC," said Riccitiello. "But it's absolutely the case in mobile today. There should be $100 billion to $300 billion of value on the other side of the equation. It all won't go to games, but a big chunk of it needs to go to games."

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