EA Plans to Boost Star Wars' Fandom

Zacks

Afflicted with a dwindling sales figure of Star Wars: The Old Republic, Electronic Arts Inc. (EA) is reportedly set to offer a free trial version starting July. Being the company’s mainstay in the massively multiplayer (“MMO”) game segment, EA is doing all it can to support it. The free version will let gamers reach to the 15th level.

EA believes that the decline in subscriptions from 1.7 million to 1.3 million in the recently concluded quarter was on account of the exit of people playing on a casual or trial basis. Therefore, this step could give the game the much-needed push to fandom.

To make it more popular, EA is also expected to launch the game in 38 new countries. Star Wars: The Old Republic is one of the costliest games from EA’s stable in terms of game development and promotional expenses. The company remains optimistic and expects it to boost the top-line in 2013.

Activision Blizzard Inc.(ATVI), an arch rival of EA, had already employed this promotional measure of letting players play for free up to a certain level with its own MMO game, World of Warcraft. The game boasts a subscriber base of 10.2 million (as per first quarter 2012 estimates). However, it resulted in dubious gains for Activision, since the subscriber base actually declined in the recently concluded quarter.

One of the primary reasons for the dwindling number of subscribers of these bellwethers can be traced to the emergence of free to play MMOs by social game makers like Zynga Inc. (ZNGA).  Moreover, EA’s expanding portfolio of free to play games has also been cannibalizing its own product.

Overall, we remain cautious on the company due to the gloomy macro-economic environment and increasing competition from its peers.

However, we believe that EA’s high-quality titles and a robust product pipeline along with the increasing online exposure and traction in the social and mobile gaming market are the long-term positive catalysts. 

Thus, we have a Neutral recommendation on EA over the long term. Currently, EA has a Zacks #4 Rank, which implies a ‘Sell’ rating in the near term.

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