EA drops the ball
Underperformance from mainstay franchises provides worry ahead
On Monday I took a direct flight from the Old World into the Stone Age.
Returning from Paris to the United States, during my 8-hour journey the American government had transitioned to a new administration, TikTok had banned and then unbanned, and we’re back to only two genders.
In the lead-up to the inauguration, I covered some of my expectations about how the next four years will impact the games industry, especially around import tariffs and the callous indifference among big tech firms in bending the knee.
It should be a source of concern that the co-head of the Department of Government Efficiency, Elon Musk, admitted to fudging the numbers. Live-streaming his tricked-out build for Path of Exile 2, it turned out, that Mr. Musk had paid someone to make it seem he was a relatable gamer. It echoes the headlines from a few years ago when Saudi Crown Prince Mohammed bin Salman was buying up industry assets a few years ago (“he’s a big gamer”). Autocrats think being a gamer makes them more digestible.
Next, the Great Unbanning of TikTok is sus.
Incapable of agreeing on anything else (e.g., healthcare, social security), US Congress was quick to vote on making TikTok inaccessible to US consumers. The social platform’s ability to capture and keep people’s attention has been well-argued, and, as a parent, I broadly agree with age restrictions and other limitations. It is also not really a social platform for sharing as much as it pushing consumption.
After the undue process at the Senate last year, TikTok’s future in the US is now determined by way of some closed-door arrangement that suits President Trump. Despite Congress and the Supreme Court's careful considerations, our Dear Leader has his ideas. Yeah, no, thanks.
Finally, I’ve always felt that one of the most compelling aspects of video games has been their ability to present scenarios and circumstances for people to experiment and explore. The tactical trial-and-error or strategic planning in building a character for a quest are key reasons why digital play is so exciting. Playing video games means playing with the rules, too.
The newly imposed policy of there being only two genders in America is about as backward as it gets. Does that mean video games that offer more than two options for gender (or sexuality or race) are now to be considered as a form of political dissent? Is Baldur’s Gate III going to end up on a US government naughty list for offering non-binary as a playable gender? Unsurprisingly, Musk’s favorite Path of Exile 2 offers only gender-locked classes (e.g., warriors are male, witches are female), which is probably why he was pretending to play it in the first place.
The new Stone Age sucks.
On to this week’s update.
BIG READ: EA drops the ball
Electronic Arts' recent earnings pre-announcement suggests deeper structural challenges in the company's core business model.
The publisher has significantly lowered its financial expectations for 2025, marking a concerning shift in the company's growth trajectory. The core issue centers on Live Services, EA's digital content and micro-transaction business, which was expected to show modest growth but is now projected to decline. It represents a dramatic swing that will cost EA approximately $540 million in lost revenue compared to their previous guidance, which they had optimistically raised just months ago in October 2024.
The shortfall stems from two key areas. First, EA's flagship football franchise (including EA Sports FC, formerly FIFA) is underperforming. Its Ultimate Team feature experienced an estimated 15% year-over-year decline and accounts for roughly $2 billion in annual revenue. This suggests potential saturation in the games-as-a-service model that has been EA's growth engine for over a decade.
Second, the company's major RPG release, Dragon Age, achieved only half of its expected player engagement, reaching 1.5 million players instead of the anticipated 3 million. These disappointments have forced EA to reduce its near-term financial projections. Third-quarter net bookings are now expected at $2.215 billion, down from the previous estimate of $2.475 billion.
The timing of this stumble is particularly problematic given the competitive landscape ahead. With Take-Two's Grand Theft Auto VI looming on the horizon and Nintendo likely launching new hardware in 2025, EA faces an increasingly crowded market for consumer entertainment spending. While management has indicated plans for a comprehensive gameplay refresh and emphasized their long-term strategy remains intact, the needed innovations in their football franchise will have to compete for player attention against what may be the biggest gaming release of the decade in GTA VI.
The market’s reaction today, a 17% decline since the news, reflects both the immediate earnings impact and broader questions about EA's strategic positioning. The company now faces pressure to reinvigorate its core Ultimate Team monetization model while simultaneously developing new revenue streams and IP.
Notably, following EA’s news, Take-Two Interactive’s share price took a dip, too. As the second-largest American game publisher, it casts a shadow over the firm’s upcoming GTA6 release, at least among investors. If EA is struggling with its primary franchise, what’s to say things won’t go the same for Take-Two this year?
Over the past week, there’s been a lively discussion about whether Take-Two would normalize $100 for the base game. Doing so would be a mistake. The firm’s 2013 success with GTA5 came partly from its pricing strategy--launching at a standard price point late in the console cycle, then selling another copy to those same players when they upgraded to new consoles. To achieve my forecast of 38 million copies sold in its first year, Take-Two is likely to stick to this proven approach, though they'll definitely offer premium editions with extras at higher price points.
Finally, looking at EA's challenges through the lens of the Play Pendulum theory, we can see these headwinds as part of a broader industry-wide shift from content innovation to distribution innovation. During transition periods even market leaders like EA are vulnerable. In terms of business strategy, success in the coming era will depend less on content quantity and more on innovative distribution and engagement models that can capture value in an increasingly fragmented entertainment landscape.
The challenge of balancing innovation with market expectations remains fundamental to game development and publishing.
NEWS
Le Switch Royale
Nintendo has officially unveiled its next-generation console, the Switch 2, marking a deliberate evolution rather than a revolution in its hardware strategy. The announcement, while light on specifics, reveals Nintendo's careful balancing act between innovation and continuity in the increasingly competitive gaming hardware landscape.
The new console maintains the hybrid form factor that defined its predecessor, featuring improved Joy-Con controllers with magnetic attachments, a reinforced U-shaped kickstand, and dual USB-C ports. This conservative approach to hardware design reflects Nintendo's strategic emphasis on ecosystem continuity over technological leapfrogging.
The Switch 2's technical iteration balances design distinction for optimal market differentiation. With its beefed-up capabilities, predominantly black design, and larger format, the device maintains sufficient distinction from its predecessor while delivering meaningful improvements. Technical specifications may matter less than Nintendo's proven ability to create compelling software experiences, as the original Switch demonstrated that revolutionary gameplay innovation often emerges from creative software design rather than raw hardware capability. The new design should appeal especially well to early adopters eager to upgrade.
Nintendo's rollout strategy demonstrates sophisticated market positioning through "customer experiences" across 15 global cities during April and May, suggesting a summer 2025 launch window. This methodical approach to building consumer anticipation marks a departure from traditional hardware reveals, emphasizing hands-on engagement over specs-driven marketing.
The confirmation of backward compatibility—both physical and digital—underscores Nintendo's focus on protecting its existing software ecosystem. The choice of Mario Kart as the flagship demonstration title is particularly telling, as the franchise represents Nintendo's proven ability to leverage established IP for platform transitions, though the decade-long gap between entries raises questions about content strategy for maintaining engagement across console generations.
Initial projections show between 15 to 18 million units depending on pricing and potential tariff impacts from the incoming US administration. Success hinges significantly on Nintendo's pricing strategy, with $399 emerging as a crucial psychological threshold. Historical patterns indicate the device should sell between 55 and 60 million games within its first 12 months, with timing strategically aligned with the new Mario film release in April 2026 to drive awareness.
Nintendo's integrated software strategy leverages backward compatibility and first-party IP to create compelling platform value, exemplifying a time-tested approach to platform transitions. The launch strategy integrates seamlessly with backward compatibility implementation, serving both defensive and offensive purposes by protecting the existing ecosystem while incentivizing upgrades. With the Switch platform commanding a significant market share, Nintendo has an unprecedented opportunity to expand third-party relationships while maintaining its characteristically measured approach to first-party intellectual property.
Rather than pursuing annual iterations, Nintendo continues to differentiate through creative gameplay mechanics leveraging beloved franchises. The substantial install base of 146 million Switch units presents a compelling value proposition for third-party developers, potentially driving stronger external support than previous platforms.
The critical questions now center on price point optimization and launch window timing. With consumer electronics facing persistent inflationary pressures and supply chain constraints, Nintendo's ability to navigate these challenges while maintaining traditionally strong margins will prove crucial to the Switch 2's success in its critical launch period.
All this to say, I want one.
Matt Ball’s big deck
Every day I wake up asking: what has Matt Ball done for me lately? And after several weeks of building hype, it’s finally here.
In his 220-slide deck, Ball aggregates a set of diverse data sources to illuminate current market dynamics. You’ve probably already anxiously flipped through it yourself, of course, trying to understand what half of it says so you can impress your industry followers on LinkedIn.
My personal favorite was the cross-company forecast comparisons to showcase how some sources were waaaay off, and others were spot on. (Nice job, Piers!) The fact that Ampere’s numbers were closest, and entirely at the lowest end of the spectrum of different forecasts, serves as a reminder that forward-looking numbers are a wildly imperfect practice. IDC’s continuously lower forecasts for VR, too, shows how hard it is to get this right, even when large platform companies spend billions to establish new product categories.
Anyway, I can’t wait to see these slides show up in every single one of my student papers this semester.
Hindenburg calls it quits
Remember that firm that went after Roblox with the red-hot righteousness of a short seller? It is now shutting down. Citing “job stress”, its founder, Nate Anderson is calling it even. Released from the firm’s undoubtedly grueling schedule of making ugly presentations, Anderson will now also have more time to get back to playing Roblox.
HoYoverse settles with FTC
Last week’s $20 million FTC settlement with Genshin Impact's developer HoYoverse represents a notable moment in gaming business strategy, particularly around monetization practices targeting younger players.
According to the FTC’s Samuel Levine,
“Companies that deploy these dark-pattern tactics will be held accountable if they deceive players, particularly kids and teens, about the true costs of in-game transactions.”
The case centers on the game's sophisticated but controversial "gacha" system, where players spend virtual currency to obtain rare characters through randomized loot boxes. This monetization approach proved highly lucrative for HoYoverse, with Genshin Impact generating billions in revenue since its launch, but ultimately drew regulatory scrutiny for its complex currency conversion rates and marketing tactics that the FTC deemed potentially misleading to young consumers.
The settlement's requirements, including mandatory parental consent for purchases by users under 16 and direct real-money purchase options for loot boxes, signal a significant shift in how games must approach monetization strategies when their player base includes children and teenagers.
This case illustrates a broader industry challenge as gaming companies navigate the balance between profitable business models and regulatory compliance in an evolving marketplace. HoYoverse's comprehensive marketing strategy, which included substantial investments in social media influencers and limited-time promotional events, demonstrated the potential of integrated marketing approaches in driving player engagement and spending.
More broadly, the FTC's intervention suggests that publishers must now reconsider their approach to virtual economies and promotional tactics, particularly when their products appeal to younger audiences. The settlement's impact extends beyond immediate financial penalties, as it establishes precedents that could influence game monetization practices globally, potentially reshaping how developers approach revenue generation in free-to-play games that have traditionally relied heavily on loot box mechanics and complex virtual currency systems.
PLAY/PASS
Play. Balatro, aka the game everyone I know can’t shut up about, has sold 5 million copies. Into the fray, I go.
Pass. For a brief moment, the New York Times headline “Donald Trump is running riot” made me question everything about League of Legends.
UP NEXT
With the start of the new semester exactly one week away, I’m updating my syllabus and getting my conference travel schedule in order. I’ll share my program for the following months shortly. DICE: maybe. SXSW: yes. GDC: also yes.