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Subscriptions, Streaming Integral to the Bull Case for EA Stock

James Brumley

Electronic Arts (NASDAQ:EA) has yet to make it convincingly clear it can cultivate the opportunity to its fullest. But if EA stock is to move higher again, the company requires subscriptions and streaming to jumpstart this recovery.

For EA stock to initiate and complete a recovery, Electronic Arts must embrace subscription and streaming models

Source: Shutterstock

The game publisher already has a presence on both (and sometimes overlapping) arenas, to be fair. It has been a modest, seemingly experimental effort to date though. However, EA experienced a wake-up call last year. That was when a horrendous selloff cut the EA stock price in half. With this painful lesson still fresh, the company finally appears motivated to embrace all the new norms in video gaming.

Electronic Arts Stock Pays for Missing the First Boat

Long-term investors of Electronic Arts stock know the story all too well. Once a powerhouse within the gaming industry, EA lost its shine. Last year’s delays in releasing its most recent Battlefield title angered gamers. Plus, the company imposed multiple micro transactions for consumers to enjoy 2017’s Star Wars entry created a revolt.

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Finally, the unexpected, disruptive success of rival game Fortnite contributed to heaping pain on top of Electronic Arts stock.

A fatal shooting at a competition last year involving one of its Madden NFL games only exacerbated the doubt that suddenly surrounded the company. This tragedy contributed to driving the EA stock price from July’s high near $150 to December’s low of around $75.

However, the game-related stumbling blocks were microcosms of bigger, more philosophical problems. The industry — and how people consume games in particular — has been changing. But EA hadn’t fully changed with it.

One of those shifts has been the democratization of game distribution. The advent of downloaded games has proven to be a mixed blessing for EA stock as well as rivals like Activision Blizzard (NASDAQ:ATVI) and Take-Two (NASDAQ:TTWO). By selling directly to consumers, publishers can bypass middlemen like GameStop (NYSE:GME) and Walmart (NYSE:WMT), retaining more profits for themselves.

The very same high-speed internet connections and consoles with hard drives, though, facilitated the creation of game repositories like Steam. These technologies also sparked the rise of a countless number of indie game developers.

And as it turns out, some of those independently developed games – including Fortnite — are pretty good.

Electronic Arts answered, launching EA Access in 2014, followed by a more robust subscription service called Origin Access.

And with last year’s release of “Project Atlas,” EA hopes to set a framework for future relevancy in the gaming business.

Uncanny Insight

The game-streaming and subscription business is far from fully gelled. Electronic Arts stock may have potential competition from Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) entering the fray. Microsoft (NASDAQ:MSFT) is already there.

However, EA is in a unique position, having learned from past failures (and successes) within the subscription business. Keep in mind they don’t have a console system to lean on.

EA’s subscription chief, Senior Vice President Mike Blank, has demonstrated some important even if subtle savvy on this front. Last month, Blanked stated, “We need to be where the players are and not every player is going to be on every service or device, just like not every viewer is on Netflix.”

It’s a seemingly obvious statement, but it’s a realization rivals don’t seem to have fully embraced.


Blank further recognized that “We’re evolving from a publisher of games to a connector.”

In other words, just because they build it doesn’t mean players will come.

EA has yet to fully decide if it will cultivate its own streaming/subscription service (more than it already has). A meaningless “maybe” is all Blank is willing to offer at this point. That leaves investors and gamers alike wondering exactly how monetization will occur with Project Atlas going forward.

Electronic Arts knows, however, that it also needs to rethink more than just delivery. Its portfolio of games, while respectable, is aging with little innovation.

A Rethink for Gaming Relevancy

A subscription-based model will dramatically help on that front by supplying a steady revenue stream rather than forcing the development of nothing but blockbuster titles that sell tens of millions of copies.

Blank goes on to say “The value of a subscription is ultimately, from a business standpoint, how much do players engage with the subscription. If you can provide them with new and different experiences they might stay for longer. I think we will build new and different games that will fit within the subscription itself.”

It wasn’t a direct allusion to more indie and indie-like games. But it’s noteworthy that Electronic Arts has stepped up its efforts — in a big way — to work with independent game developers. Last month, the company announced Zoink Games, Glowmade and Hazelight Studios will each soon see one of their games published with an EA label on it.

It’s a largely unprecedented pace, suggesting the organization is rethinking everything from the top down.

It also aligns with recent comments from EA’s VP of strategic growth Matt Bilbey. He told GameIndustry.biz earlier this month “The conversation now can flip from platform holder to game creator because they are so intertwined. The game that creators are going to make is going to evolve based on what people are consuming on.”

Looking Ahead for EA Stock

What Electronic Arts exactly has in mind for the new era of video games remains at least a little unclear. Indeed, it’s possible that even EA doesn’t precisely know where it’s going, even as it moves forward.

It is clear, however, that Electronic Arts has pushed itself through a pretty significant rethinking of its place in the video game industry. Also, it appears it’s had some tough conversations about relevancy where subscriptions are the norm and players are growing more interested in less-touted titles. The so-called “long tail” of video game choices is getting longer and wider.

It’s far from an assurance that EA stock will make a full recovery in the near future. But it certainly doesn’t hurt the bullish argument.

As of this writing, James Brumley held a long position in EA stock. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.

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