Riccitiello: "Other retailers will absorb the business" if GAME goes

He carefully avoided naming it, but EA’s CEO last week said it’s "all but a certainty" GAME has two terrible weeks ahead. But he thinks other retailers will pick up the slack.

Speaking at a Wedbush Morgan technology investors event last week, John Riccitiello said the firm is "still praying for the lenders to get rational and keep them in business".

However deeper trouble "now looks like all but a certainty. It was a risk a month ago. Now it looks like a fact."

Last month the firm warned that its own results might be dented by the problems faced by "a major European retail partner", which all assume is GAME.

After a tough Christmas and even tougher financing environment the retailer is now up for sale with the threat of closure or administration hanging over its head. A last-minute in-store promotional sale has seen it try to inject new cash into the business this weekend.

Credit insurers have lost faith in GAME – and now EA and a group of other publishers cannot get their games into the chain’s stores.

Riccitiello said that problems faced by a ‘major retailer’ are "unfortunately more true than it was even a month ago, or more likely than it was even a month ago".

(Disclaimer: Riccitiello was careful not to talk about GAME specifically, remarking to one analyst in the Q&A "I didn’t mention Game Group, by the way," which the questioner rephrased to "A UK retailer in distress". That comment Riccitiello did not correct.)

Nevertheless, he said that consumers are smart. They won’t stop buying games without stores such as GAME or Gamestation on High Streets across the PAL territory. And he added that the left over market share will be lapped up by other retailers.

"I’m really confident that the consumer that wants to buy Mass Effect or Madden or FIFA or whatever, if a particular retailer is gone, other retailers will absorb the business," said Riccitiello.

"But I think in the fullness of time, I am extremely confident that, whether it’s UK or France, or United States, et cetera, the retail marketplace will absorb that business.

"I don’t think we’re going to – we might lose 20,000 copies of Mass Effect 3 in the UK for the consumer that can’t figure out another store to go to, but that would even surprise me. I mean I think we’ll sell every unit. So, we love great retailer partners, and we, like I mentioned GameStop earlier and Best Buy and Amazon and others. They’re great for us. If one goes away, the other guys pick up the slack. I really don’t see it as anything other than a very temporary dislocation."

In fact, Riccitiello suggested that many retailers are actually "prospering right now" and that NPD figures dented by the collapse of the Wii market inaccurately suggest "the world’s coming apart."

He explained: "I think that the retailers that are – a lot of the Mass merchants are prospering right now. Not all of them, but a number of them are. The big box guys – different parts of the world have had different, some are doing really well, and some are not doing as well. Specialty retailer, some of our partners are really adapting well to the digital realities and creating substantial new revenue streams, and those that aren’t are having a harder time, certainly all those that aren’t are certainly talking a lot about it now."

In fact, that digital element was – as it regularly has been for EA in recent years – Riccitiello’s secret weapon in the discussion.
"Let’s put it this way, I am really glad we’ve grown a $1.2 billion digital business in light of the circumstances in our industry."

He said that digital content sold on HD consoles was up 10 per cent year on year, and "the top 10 grew by between 10 per cent and 15 per cent".

"So what’s happening in our world is that the actual packaged goods business is under a lot of pressure, but if you’re at the top of the charts in HD, you’re in a great spot.

"[EA’s numbers] were up $600 million, $700 million calendar 2010 to calendar 2011. What did we do? We anticipated that HD was going to do better. We anticipated that the top of the charts would do better, and we doubled down on that part of the business and it’s helped us gain share, drive profit. And that’s what we want to continue to do."

His conclusion on the matter was most telling of EA’s take – he said that "ours is not a very forgiving [industry]" to those who hadn’t properly prepared for the digital challenge.