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Gamesmaster Makes a Play for Place in History—Financial Times

(FT.Com), 04.13.08
Chris Nuttall

John Riccitiello has just come out of a meeting with film executives that has not gone according to the script.

"The buzz in Hollywood, which I heard from some Hollywood folks . . . is people are worried whether Iron Man the movie is going to get killed by Grand Theft Auto the game," says the chief executive of Electronic Arts, the world's biggest video game publisher.

"I don't think I've ever heard of that before."

The 48-year-old believes this reversal of fortunes represents a big change rather than a blip: "There is more interest today from Hollywood to make movies out of our games than there is interest in our industry to make games out of their movies. There's a big reset happening now."

It is this emerging primacy of video games that has tempted him to a take a top job at EA for a second time in 10 years.

He was president and chief operating officer from 1997 to 2004, then took a break with a private equity fund for three years, before rejoining the games company in April last year as chief executive.

One year on, he is convinced he made the right decision. Sitting in a conference room at EA's Silicon Valley headquarters, the Berkeley science graduate who was raised in California is casually dressed and relaxed. But on the subject of the industry he becomes passionate and animated.

"The rate of change in this industry is massive," he enthuses.

"The games industry 10 years ago was a toy business in the minds of most consumers. Toys 'R' Us at the time merchandised products alphabetically so Monsters toys were next to Madden [NFL football games], Barbies were next to boxing games."

Today, probably more than 2bn people worldwide are game players, he says. Electronic games have become as ubiquitous as television and bigger than the movies.

Their popularity is fuelled by a proliferation of devices that can play games - from mobile phones to iPods and handheld consoles - and advances in the performance of graphics and microprocessor chips that enhance realism and interaction.

"We've had to wait for Moore's Law to capitalise on itself for decades . . . so we're finally able to do this stuff," he says, referring to the steady doubling of transistors on chips every 18 months.

"It feels like what movie moguls might have seen in the 1920s and said: 'Hey, we've got talkies now, where is it going?' I feel like we've stepped through a time window where our games are so compelling and seem so real."

It will not be long, he believes, before games are ranked as an art form alongside cinema.

"Our industry is passing through a phase where I believe the greatest games will be viewed by almost everybody as being as important as Best Picture at the Academy Awards."

If so, he would nominate Grand Theft Auto IV as the most successful game of 2008 and possibly the current generation of consoles. The game, released by the publisher Take-Two and its studio Rockstar Games on April 29, is expected by analysts to sell about 10m units in the first few months.

GTA IV and its Rockstar creator are the primary reason for the audacious $2bn takeover bid for Take-Two that Mr Riccitiello launched in February. The EA chief believes his $26-a-share offer, giving a 60 per cent premium on Take-Two's share price, was generous. Take-Two has rejected it as opportunistic and undervaluing the company.

He envisages the fiercely independent Rockstar fitting into the semi-autonomous studio system he has established at EA over the past year. It is a system he describes as "city state-style independence". This studio structure stems from his experience with Elevation Partners, the private equity firm he moved to in Redwood Shores.

While at Elevation, he bought and ran the studios Pandemic and BioWare (he is an avid player of BioWare's successful role-playing game Mass Effect). In fact, he liked the studios so much he bought them twice, paying about $860m last October to bring them into the EA fold.

"I spent three years outside EA managing independent developers, while EA ran a global monolithic studio organisation. I thought central command and control homogenisation had run its course."

Studios such as Criterion in the UK, which had been renamed EA UK, have now reverted back to their original names. "Allowing people to put their name on the front of a product allows them more of a sense of ownership and increases their passion," he explains.

The company had also become too big to manage, hence his division of EA last June into four "labels" for its sports titles, the Sims brand, emerging casual games and EA Games, which covers the rest of its titles.

Mr Riccitiello has given EA a much needed shake-up. Under the 16-year tenure of his predecessor, Larry Probst, the company had grown from sales of $102m in 1991 to $3bn in revenues last year, and achieved undisputed leadership among pure-play publishers.

But the company did not handle the transition to next-generation consoles well, being slow to see the potential of Nintendo's Wii. The quality of its games also slipped and it lost market share in 2007 as hits dried up.

Buying Take-Two would give EA the hit stables of Rockstar and another studio, 2K Games, but Mr Riccitiello says: "I don't think you ever want to buy to fix a problem.

"EA's product line-up in 2008 is the best it's ever been; it's a truly spectacular line-up and we're going to see strong share growth," he says, citing games such as Spore, the new title from Will Wright, creator of The Sims, and Boom Blox, the first game developed with the director Steven Spielberg.

A Take-Two acquisition would also be likely to confirm EA's number-one status, due to be challenged by Activision Blizzard, as the merger of rival US publisher Activision with the games division of Vivendi is completed.

Mr Riccitiello says being number one has never been his priority.

"Above all, I'm trying to bring great quality and innovation back . . . I'm also trying to drive us towards a variety of new business models, whether it be subscription or micro-transactions, or advertising-based," he says

However, he admits to wanting to cement the 26-year-old company's place in history. "I read a book on how every medium creates one great company: animation created Disney, CBS was created by radio, NBC by television.

"Interactive entertainment is going to determine one great company and I think it's this one. One of the reasons I've come back is to try to take it to the next step."

Personal passion smooths transition for consumer goods man

John Riccitiello believes his passion for video games and technology has been vital to his success in an industry where those with consumer goods backgrounds often struggle.

The 48-year-old has focused for the past 11 years on video games, but spent the previous 17 in consumer goods where he learnt marketing, sales and finance and how to manage teams. He joined EA from Sara Lee, where he was head of its worldwide bakery division. Before that, he was chief executive of Wilson Sporting Goods and held executive positions at Haagen-Dazs, PepsiCo and the Clorox Company.

"But throughout I had this personal passion . . . I bought the earliest Apple products, built lasers and holograms in high school. I played the original Doom and Mortal Kombat.

"So the reason I was twice able to be quoted that this was my dream job - once when I came back and once a decade earlier - is that it was one of those rare circumstances where I was able to unite something I had a personal passion for together with where I could make a difference. Passion really matters in the entertainment business."