Sherwood News

Video game economics aren’t what they used to be

EA is looking to the future, but its profitability still depends on the performance of past hits like The Sims and its sports franchises

William Coulman

9/20/24 5:44AM

Video game giant Electronic Arts (EA) — the company behind household hits like The Sims, Madden, Battlefield, and the FIFA series — held its first analyst meeting in 8 years on Tuesday.

Despite unveiling a number of projects; a social app, AI initiatives, and a Sims movie to be produced by Margot Robbie’s company, the event left analysts underwhelmed. Most disappointing for investors was the lack of financial detail on the company’s bigger goals, like doubling its audience to more than one billion by 2027. EA’s stock has slipped 3% this week, while the rest of the market has powered to record highs.

Now the largest pure-play publisher after Microsoft's acquisition of Activision Blizzard, EA continues to ride the success of its classic franchises. "College Football 25" lived up to its hype by shattering sales records, while "EA Sports FC" sold 11.3 million copies in its first week, proving that its rebrand away from FIFA hasn't killed its appeal. The ongoing prosperity of those cash cow titles is vital, as video game economics have changed dramatically in the last 10-15 years.

In the past, success in the gaming industry was straightforward. Make a game, generate buzz about it, and sell as many copies of it as possible. If it went well, you make a sequel and do it all again.

But, in 2024, the cost to the consumer rarely stops after they buy the game. EA's true financial engine is its "Live Services" segment — a broad term encompassing sales of extra content, subscriptions, in-game rewards, and other digital goodies. This accounted for 73% of the company’s revenue last year, fueling growth not just for EA but the entire gaming industry, which in the US is ~6X the size of the box office.

Developing a quality video game is expensive, EA spent an eye-watering $2.4 billion on R&D last year. But no matter how much you spend, the outcome is always unpredictable: many video games flop, and the competition is only getting fiercer — this year’s biggest hit is from a little known Chinese video-game studio.

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American Airlines joins the flock, hiking bag fees amid higher jet fuel prices

American Airlines on Thursday announced that it, too, will be hiking the fees it charges customers to check luggage.

With the move, all four of the major US airlines, which together control about 80% of the US market, have now hiked their baggage fees in recent days amid surging jet fuel prices.

The change will go into effect on tickets bought on or after Thursday, the same day Southwest’s hike begins.

Since late March, JetBlue, Delta Air Lines, United Airlines, Canada’s WestJet, and Southwest have hiked their fees. Experts expect more major carriers to follow, and to potentially tweak the pricing of other ancillary revenue sources like seat assignments and carry-on luggage.

American Airlines updates bag fees and Basic Economy fares

The change will go into effect on tickets bought on or after Thursday, the same day Southwest’s hike begins.

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Less than a year after implementing them, Southwest is also hiking its bag fees

Southwest Airlines has joined the growing list of airlines opting to hike their bag fees amid sustained higher jet fuel costs.

Starting today, the first checked bag at the carrier — which implemented bag fees less than a year ago — will jump from $35 to $45, and the second from $45 to $55. Southwest quietly disclosed the change Tuesday.

Southwest assigned the decision to “part of an ongoing analysis of the business and against the evolving global backdrop.”

As of Wednesday, jet fuel prices dropped to $4.16 a gallon, per the Argus US Jet Fuel Index, down from $4.81 on Tuesday following President Trump’s ceasefire announcement, which sent travel stocks soaring. Major airlines have shed some of those gains in premarket trading Thursday.

With the move to hike bag fees, Southwest joins JetBlue, United Airlines, Delta Air Lines, and Canada’s WestJet, all of which also boosted fees this month. Experts expect more major carriers to follow, and to potentially tweak the pricing of other ancillary revenue sources like seat assignments and carry-on luggage.