Tuesday, February 27, 2007

EA Bombshell: Probst Out as CEO

Electronic Arts CEO Larry Probst has been replaced by former EA President John Riccitiello.

That's quite a bombshell. Here's the Gamasutra article, and a Gamespot article is here.

In case you're not familiar with Larry Probst, he's been CEO since 1991. Over fifteen years.

In a word: stability.

In a stable environment, CEO succession is handled in an orderly manner. This was anything but orderly--hurriedly announced and taking effect in a month.

I think it's safe to assume that Probst was forced out, no matter what EA might say publicly. Men with great power rarely cede that power voluntarily. The question, though, is what happened?

Well, there are several possible theories here, so let's look at them in turn. First, there could be some kind of scandal, possibly involving the degree to which options were backdated. However, it seems like practically every technology or gaming company in the country was backdating options, and I haven't seen anyone get replaced anywhere else. So I mention this because it is, at least, a possibility, but it's highly unlikely.

Second, it's certainly true that EA has stagnated. Tons of sequels, very little original I.P., and what I.P. they have introduced has been generally mediocre. In a quality sense, E.A. just really doesn't seem to "get it" anymore. They're the best in the industry about getting games shipped, but I don't know anyone who would mention them when quality is discussed.

Here's the thing, though. It's been like that for years, and no one seemed to give a flying fig in the past, so why would they now?

The third possibility, and one that I think is most likely, is financial. CEO's get replaced because of bottom lines.For a stock with a P/E of almost 40, investors expect growth. It's just not that easy to grow a three billion dollar company, though, especially one like Electronic Arts. How exactly are they supposed to generate 20-30% more revenue annually from the same games they've been putting out for the last decade? Even worse, they're having to transition from the PS2, which everyone has, to the PS3, which no one seems to want.

The transition isn't Probst's fault--actually, EA is supporting the PS2 through September with more titles than any other publisher--but it's still going to bite the company in the ass.

The way these things normally proceed is like this: when EA announces earnings for the end of their fiscal year (which ends March 31, so earnings get announced in late April, probably), there will be some bad news, enough bad news that they also add some one-time charges and bury a few bodies. That way, Riccitiello gets to start "with a clean slate." They'll also lower projections for the first two quarters of the next fiscal year.

What will they blame? The console transition. Guaranteed. Which I'm going to discuss in the next post.

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