EA keeping next-gen R&D under $100m

Next generation consoles might take a while to catch on, so EA is trying to keep a reign in on spending while maintaining a focused catalogue.

Last week company CEO John Riccitiello shared some of his thoughts on upcoming consoles with investors, saying the company’s current performance shouldn’t dampen enthusiasm for next-gen.

Now EA CFO Blake Jorgensen has weighed in, telling an audience at the Goldman Sachs Technology and Internet Conference in San Francisco recorded by Gamasutra that his company was doing its best to avoid past mistakes.

"Historical transitions have been bumpy for a few reasons," he began.

"One reason has been that a lot of the companies had too many titles. We had way too many titles in the last transition, and the more titles you have, the more expensive it is to convert them from one generation to the next."

EA has been steadily dumping titles and adopting more flexible business models that take advantage of the mobile market, and Jorgensen thinks this will give the company an edge in the coming transition.

"We’re much more focused now. We’ve got a core group of ten-to-fifteen titles," said Jorgensen.

"We’ll stage those in terms of the transition and manage those costs through that. Our goal is to keep the cost increase for R&D under $100 million. And some of that will be in this year, some of that in ’14, and some in our fiscal year ’15."

While $100 million isn’t exactly spare change, it’s a far cry from the price tag that might have been expected for the level of detail some early demos of next-gen software have shown.

Even so, there are other issues, and one often overlooked in the talk about the next console generation is that of pricing.

If customers feel that games are too expensive, they’re unlikely to take the dive on a new console.

"I think the other issue in the past has been what happens to pricing with the existing consoles, and what we’re trying to do is be receptive to where pricing ends up," Jorgensen explained.

"We don’t think it will be as dramatic. I think the benefit we have now is that we’ve got some very large franchises that are more tied to sports calendars, and won’t be impacted by some of the pricing issues."

No matter what happens, Jorgensen thinks 2014 will still be a big year for current-generation consoles.

"The reality is, is that fiscal year 2014 will still be a fairly large gen-three if there’s a console business that comes in at the tail end of the year, mainly because a lot of our titles are built around sports calendars," he said.

"And so a FIFA, a Madden, an NCAA, an NHL title, all come out aligned with the sports calendar. And if a next-gen console doesn’t come out until next Christmas, most people won’t wait. They’ll want to be involved in getting those titles early, because their friends are all playing those titles, and because they’re being played on a current generation’s consoles."

One factor that will ease the risk of a low adoption rate among customers is that EA can rely on some sales for Xbox360 and PS3 titles because backwards compatibility is unlikely to be a feature of the next console generation.

"An important thing to remember is that next-gen consoles will most likely not be backwards compatible… And if you [play] multiplayer on a game, you’ll most likely not be able to play with someone on a different generation," said Jorgensen.

"And so if you’re a FIFA player and the soccer season’s starting in August and all your friends are playing FIFA, you’re going to want to be on the same box that they’re on. So if they all go out and buy a gen-four box if it comes out at Christmas, then you’ll most likely do it. If they all hold on and continue to play on third-generation, you’ll probably not see that box purchase until after the soccer season’s over."

This is where the company’s smaller catalogue of games comes in to play – by lowering production costs and shipping to current and next gen EA will maintain its income and be ready to support customers as they make the switch to newer consoles.

"And I think that works for us positively in both ways," said Jorgensen.

"It helps us continue to sell gen-three products, and it will help us sell gen-four product as that cycle finally gets into place."