Electronics Arts Case Study

Comprehensive SWOT Analysis of Electronic Arts

Strengths

Strengths of the business is that they develop product families (franchises) around many products. Every year they release new version of most of their sports games.

Games are capable of operating on multiple platform systems

EA has exclusive deals with Major League Baseball, Madden Franchises

Weaknesses

Electronic Arts acquires the rights to include these kinds of intellectual property in their products through license agreements such as those with sports leagues and player associations, movie studios and performing talent, music labels, music publishers and musicians. These licenses are typically limited to use of the licensed rights in products for specific time periods.

Royalty fees are set by console manufacturers

Sales are dependent on new release of platform systems

Year over Year Revenue growth is down 11%

Opportunities

New consoles set to debut next year

Growth and Sales potential look promising - one year from now

On-line gaming can be a potential new distribution source for the company

Threats

Patent claims

Rising costs due to development of next generation games

Increasing licensing fees

Industry Analysis

EA competes in the entertainment industry. The software games segment is best viewed as a segment of the overall entertainment market. Currently, large software companies and media companies are increasing their focus on the software games segment of the entertainment market, and consequently, are becoming more direct competitors to EA. Sony and Microsoft have been publishing products to compete with EA for several years now. Currently, other diversified media/entertainment companies, such as Time Warner and Disney, have announced their intent to significantly expand their software game publishing efforts in the future. The software games business is a highly competitive industry, characterized by the continuous introduction of new titles and the development of new technologies. The software games business is driven by hit titles, which require ever-increasing budgets for development and marketing. Competition is also based on product quality and features, timing of product releases, brand-name recognition, quality of in-game content, access to distribution channels, effectiveness of marketing and price. EA currently competes with Sony, Microsoft and Nintendo, each of which develop and publish software for their respective platforms. EA also competes with numerous other companies, which are also licensed by the console manufacturers to develop and publish software games that operate on their consoles. These competitors include Activision, Atari, Capcom, Eidos, Koei, Konami, LucasArts, Midway, Namce, Sega, Take-Two Interactive, THQ, Ubisoft, and Vivendi Universal Games.

Also, the market for EA's products is characterized by significant price competition. This has caused EA from time to time to reduce their prices on certain products. Traditionally, software game prices tend to decline once a generation of consoles has been in the market for a significant period of time. The company recently reducing prices on all current generation games evidences this. This is in anticipation of new game consoles being released later this year and into next year.

Short-Term Liquidity Analysis

Short-term Liquidity Analysis

2010

2009

2008

Current Ratio

4.48

4.03

3.35

Acid-Test Ratio (Quick Ratio)

4.10

3.64

2.93

Accounts Receivable Turnover

12.32

20.12

18.21

Inventory Turnover

50.47

53.63

62.56

Day Sales in Receivables

29.62

18.14

20.04

Day Sales in Inventory

7.23

6.81

5.83

Working Capital

2,878,000

2,188,554

1,340,261

Average Trade Cycle

21.99

9.82

8.23

Cash Provided by Operation to Average

CL 0.82

1.04

1.40

Current Ratio

An indication of a company's ability to ...