It's not often that I finish watching a discussion with an industry chief executive and think, "Wow, this person was remarkably frank and honest."
In fact, it probably rarely happens. But one exception is the above "fireside chat" with Electronic Arts chief creative officer, Rich Hilleman, which was recorded at the University of Virginia Darden School of Business last September. In the video, Hilleman said things I don't think I often hear from a chief executive at a billion-dollar corporation
Hilleman has been at Electronic Arts since 1983 and served in a number of different capacities at the company before rising to the title of Chief Creative Officer. He explained his current responsibilities as threefold: working on products, working on platforms and managing EA's internal university. For product work, Hilleman said his team has been working on second-screen gaming efforts "for about four years," including a platform they "built for Comcast" (more on that later), and they also assist in consulting with other teams and firefighting work. Hilleman describes his firefighting attempts as "Red Adair work" in which he will "put out oil well fires with dynamite" and assume control of troubled projects within EA. (One such example of "Red Adair work" he later gave was transitioning Star Wars: The Old Republic to a free-to-play product.)
Hilleman's organization—known as the Electronic Arts' Office of the Chief Creative Officer (EA OCCO for short)—also consults with console manufacturers and explores new technologies "Playstation 4 and Xbox One are machines [his organization has] been working on for a number of years," he said. He added that his group had been talking with Sony "about what [the PlayStation 4] would be" for "at least four years" before the console's release. His group is also experimenting with emerging tech, such as smart television and VR.
Aside from console and product work, Hilleman also heads up EA's internal education endeavors. "We run an accelerator program that's about an 18-month program for someone who's just about to be a vice president [at EA]," he said. "[The program] gets underneath [these future executives] the tools necessary to run a business, not just a product development process." Additionally, he claimed half of EA OCCO's staff is recent graduates, and he tries to "make sure they actually know what they're doing in the [gaming business]" by providing those recent graduates with skills to prosper in another EA position outside Hilleman's organization.
Hilleman said Electronic Arts' newly appointed CEO Andrew Wilson was a graduate of his internal university program. Prior to taking part in Hilleman's education program, Hilleman said, "The COO of Zynga today was a guy who literally could not put four sentences together in front of an audience literally ten years ago." (It's unclear who Hilleman is talking about here: at the time the comment was made, Zynga's previous COO had left and current COO had yet to be appointed.)
When the interviewer, a senior associate dean at Darden, asked about the increasing complexity in scale and cost in video games, Hilleman said the first product he made at EA "was built by one guy in seven months and cost $8,000." He contrasted this with the then-unreleased Battlefield 4, a game that he said "will probably be on the high side of $100 million," but cautioned that he "[did not] know [the game's cost] for sure." While speaking to the value of personableness, Hilleman revealed that "the average console game development team today has 300 people."
A few moments later, Hilleman pulled out a sourceless but nonetheless interesting statistic: "85 percent of the people who play games never play a console." This audience, Hilleman claimed, is splintered between web games, client-based free-to-play PC games, mobile games and other disruptive innovations in the gaming field. Outside of console gaming, Hilleman believes free-to-play is now "the dominant business model." Developments like Minecraft have allowed consumers to become co-developers on the product, and Hilleman said this paradigm shift will likely influence "the way the [gaming] business works, the economics of it, the organization of it and probably the products that get produced."
Newer gamers are apparently far less concerned about platforms than the run-of-the-mill console gamer. "In the process of registering our mobile players, we ask them what device they're on, [and] about a third of our Android customers tell us they have iPhones," Hilleman said. This platform agnosticism, he argued, means players now want a "continuous fabric of play" where the game on their phone is similar to the game on their tablet, and the game they play on their television can count toward the game they play on other devices and vice versa.
In response to an audience question about selecting songs for soundtracks, Hilleman revealed that EA will "be innovating over time [in] moving the process of the soundtrack being created off of the local machine and up to the web, where [developers] can really invest a lot of energy into what the quality of the sound is and then deliver it as an MP3." He said streaming audio rather than downloading it allows developers to "take [the data needed for audio] out of the memory of [a player's] computer and give [them] back graphics [in exchange]," as well as "reduce the size of distribution [and] the download." This innovation is one example of the ways consumers will "see innovation from [EA] as [the company tries to] drive some of the computing power from mobile devices that are limited by the battery life" to cloud-powered systems.
While addressing the balancing act of retaining the core versus attracting a mass audience, Hilleman dropped a number of interesting nuggets. By design, he said, FIFA is meant to attract a broad audience, so the game is "easier to learn to play than Madden." However, EA assumed 75 percent of Madden players were the same consistent "strident hardcore" audience, but EA's telemetry metrics led the company to realize that half of all Madden players are new‚ something that has led to the developers at Tiburon being more willing to experiment with the game within "the last five years" in order to attract the attention of those new players. While EA was majorly into the social games business, the company was "shocked to discover" the number of Sims Social players who were also into Dead Space and Battlefield.
"The average person who plays a sports game, the next game they play is not a sports game," Hilleman said. "The number one correlation between FIFA and another product is with Battlefield [and] Need for Speed has been the number one correlation with NHL."
At one point, I was surprised to hear the words "let's make sure this doesn't get too public," from which he continued:
We watch our forums a lot, because we care what our players have to say, and [on] some of those forums we're responsible for, one of the things we have learned—especially in the free-to-play space is [that] the people who spend the most time complaining happen to be the people who spent the most money. So my attitude is: "If you spend enough money with me, you get to complain." If that's what makes you happy is to go on the forums and complain, you get to complain.
The reason they're doing that is because they are establishing their place in the social hierarchy on the forum. It is not about our product—it's about their relationship to the other players. And if I get all twisted up based on what they're saying, I'm actually going to build a product they don't like.
...I grew up in Las Vegas, and one of the byproducts of growing up in Las Vegas is that you learn at a very early age is that people lie, like a lot. So, as a result, I really distrust what people say. It isn't that I don't like them. It isn't that I don't think they're trying to tell me the truth, but I don't think it's a very precise form of communication; and it's full of all kinds of other stuff that has nothing to do with my objectives.
What Hilleman puts stock in instead is "game telemetry," which he feels is "extraordinarily truthful" and "the richest dataset on the planet" which means "[EA gets] better data from our players than anybody else." He claimed that Jeff Huber, Google's chief technology officer, agrees with his assessment. Telemetry is how EA is able to extrapolate "things like the fact that our whiniest forum guys are actually our biggest payers [on free-to-play titles]."
Hilleman then compared EA's dataset to Amazon, whose user data comes from e-commerce activities. He argued not only is there a low ceiling to the number of pieces of user data collected on Amazon because users can only browse so many things, but if a consumer were to buy a pair of shoes, the shoes are an aspirational curation of self-image, speaking to who a person wants to be rather than who they are. In contrast, a game like FIFA records more accurate decision-making and a greater "volume of data" because "[a player is constantly] making decisions at 60 hertz."
During an answer about whether the rising price of AAA console development has disincentivized creation of new IP, Hilleman offered a brief "primer on console business" in which he suggested the $60 price point of your average game is due to retailers:
Video game console business to this point in time has been based on the following economic model: A company builds a piece of hardware that they sell at a loss, and then what they do is sell software and make a licensing fee on software to make that up over time.
Most of those console businesses are not profitable until year two at the very best, often a couple of years later. That has created an interesting problem though in that those guys are very dependent on brick-and-mortar retail to deliver the box. And if you're gonna get somebody to sell something that you're trying to sell as a loss leader, which means you are not gonna give them a ton of margin, it means you gotta cut them in the future of the business. So the reason that a console product today is $60 is because that's the price point necessary to justify the real estate that it occupies at Best Buy. It's that simple. What's interesting is the minute that I don't have to put that box on a shelf at Best Buy, that pricing limitation goes away, and that's why free-to-play and these other innovations have happened.
Let me just stick with that idea for a second. A few years ago at the DICE conference, Steve Perlman, founder of OnLive, estimated $27 of a $60 game, slightly less than half, went to the publisher; the rest was split between a $15 margin for retailers (or 25 percent), $7 for unsold inventory, another $7 for licensing fees and $4 for distribution and the cost of materials. Assuming the 70/30 split from the Apple App Store might apply to console full-game downloads, EA could hypothetically get the same margin selling their digital game at $38.57 as they do from a $60 game. (Purely hypothetical, they wouldn't sell it that low; maintaining the $60 price point for digital gives EA $42, assuming the 70/30 might apply.)