Adapting to Change: Electronic Arts Furthers Social Network Gaming (ERTS, GME)

Electronic Arts Inc. (NASDAQ: ERTS) has announced a five-year strategic relationship with Facebook.  The timing of this is odd considering its earnings are due today, but the company and other game publishers have all felt the pain from games that are either on social media sites or those which are apps for smartphones and web devices.  EA noted that more than 200 million people play games every month on Facebook.  While this is a sign of the times, it has relative implications for retailer GameStop Corp. (NYSE: GME) and just about every other game publisher.

If you can’t beat them, join them.  That seems to be the motto.  EA has already expanded efforts in Apps and social media, so today’s  news seems a logical extension of its efforts which will likely be followed by more deals to come.

The goal is to create a simple and accessible experience for those who play games and purchase virtual goods on Facebook, and the Facebook Credits will become the exclusive payment method in EA games on Facebook.

EA already noted that Pet Society™ and Restaurant City are two of the top 10 games on Facebook, and EA has extended two of its most popular sports franchises into social network games.  MONOPOLY for Facebook has already been announced, as has Pogo™ titles such as Poppit!™, Word Whomp, and more.  EA will receive the same 70% on a revenue sharing basis for Facebook Credits as the same standard for all Facebook developers.

If you think that social networking and apps have only affected the publishers, other key trends pose risks elsewhere in the video game food chain.  GameStop Corp. (NYSE: GME) has been under pressure in recent years and quarters as one trend is more used video game competition.  Another aspect that could be a huge risk is the expansion of video game downloads directly from publishers as GameStop receives nothing from that while it is still video game money being spent in the overall sector.

EA has had its challenges.  Some of those will continue.  Whether games via social  networking platforms (and the $1 apps model) can hurt sales for $59.95 new titles is another matter.  The economy has ‘The New Normal’ and maybe there is a different ‘New Normal’ for game publishers.

JON C. OGG