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Analyst Blog

Electronic Arts Inc.’s (EA) launch of its latest game from the “SimCity” franchise was reportedly affected by technical faults, which arose from "server instability". EA stated that the problem with the servers was due to the fact that a large number of players were trying to log on to the network simultaneously. The game was launched last Tuesday (Mar 5, 2013).

To salvage the current situation, EA has deployed additional servers to support the game. Moreover, the company also announced that it would provide registered players with a free PC version of the game.

The modern version of the 1989 classic game, SimCity, has received a metacritic rating of 71 and is expected to be as popular as its earlier versions.

Though the problem related to the servers is a temporary issue, we had expected EA to have been more prepared this time as it had faced similar server-related problems during the launch of Battlefield 3 in Oct 2011. At that time also, a higher-than-expected number of player log-ins was cited as the cause of the problem.

However, we think that too many players logging in is a good problem to have EA should see higher customer engagement going forward. However, if the technical problems become a regular phenomenon, it could have an effect on customer preferences and eventually affect sales.

We believe that given EA’s variety of titles and massive fan following, it is better equipped to gain traction in the digital format than most of the other new players. This will also help it to counter stiff competition from Activision (ATVI - Snapshot Report), Zynga (ZNGA - Snapshot Report) and Take-Two Interactive (TTWO - Snapshot Report) going forward.

However, we believe that EA faces a number of headwinds that include overall weakness in video game demand, particularly due to weakness in retail sales and an aging console system lifecycle. Additionally, the huge popularity of free-to-play games is also cannibalizing higher-priced packaged video games sales, which is a major concern in our view.

Currently, EA has a Zacks Rank #3 (Hold).

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