Electronic Arts (EA - Analyst Report) is expanding the content of its digital distribution service Origin by including game titles from Ubisoft. We believe that this will boost Origin’s popularity among PC gamers going forward.
Origin users in North America can purchase and download popular Ubisoft titles for PC gamers such as Assassin’s Creed 3, Far Cry 3 and Tom Clancy’s Splinter Cell Conviction from Feb 19 onwards. The service will be available in Europe and Asia from Feb 22, 2013.
At the same time, EA is also offering its popular PC titles such as Dead Space 3, FIFA Soccer 13, Need for Speed Most Wanted, Mass Effect 3 and The Sims 3 to Ubisoft’s digital distribution service Uplay. The partnership between these two renowned game makers is expected to boost their respective customer base going forward.
The video game industry is undergoing a massive transition as gamers continue to shift from the physical to the digital platform. Developers such as EA and Ubisoft are focusing on improving their digital distribution service in order to attract more gamers, which will boost their top-line growth.
Digital distribution is cost effective as it lowers packaging and storing costs. It also lowers the game developers’ dependency on video game retailers such as GameStop Corp (GME - Analyst Report) . This has helped video game makers to offer frequent updates at a relatively low price (sometimes for free) without hurting their profit margins.
Moreover, the frequent quality updates enhance gaming experience as well as keep a franchisee fresh thereby boosting customer base.
Origin has registered users in excess of 39 million and another 2 million user additions were reported in Jan 2013. EA recently announced the availability of Origin on Apple’s (AAPL - Analyst Report) Mac devices.
The Mac version of Origin has a dual-platform mode wherein gamers can download and play selected EA titles pn both PCs and Mac devices. This feature will definitely be the USP as gamers will be able to play games on both PC and Mac with a single purchase.
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) going forward.
However, we believe that EA faces a number of headwinds that include a soft video game industry performance, particularly due to weakness in retail sales amid an aging console system lifecycle. Additionally, the huge popularity of free-to-play games is also cannibalizing higher priced packaged goods video games sales, which is a major concern in our view.
Currently, EA has a Zacks Rank #4 (Sell).