EA expects its digital sales to overtake boxed games

Electronic Arts expects revenue from digital downloads of its games to overtake sales of boxed game software within a few years and is focussed on expanding its array of mobile and free-to-play products, its chief operating officer said. EA and major rivals Activision Blizzard and Take-Two Interactive Software are struggling to sustain revenue growth as gamers migrate to casual and social games on the Internet and on mobile devices.

EA's business model is evolving as it increases revenue from online and mobile gaming, COO Peter Moore said in an interview. The Redwood City, California-based company publishes games including "Battlefield", "Star Wars" and "FIFA Soccer". "There will come a point, whether it is two or three years from now, when we say. 'We are doing more in digital media now than we are in physical media,' and it's clearly ... not far away," Moore said, citing the rise of EA's digital revenue for the trailing 12 months to $1.3 billion.

As hundreds of thousands gamers gather in Cologne, Germany this week for the gamescom 2012 trade fair, investors doubt whether traditional games distributors are up for competition from the likes of Zynga , which distributes the large majority of its games via Facebook . "This fiscal year we have 41 social mobile and free-to-play games on the slate, and later in the year we might make announcements about more games coming," Moore said.

Digital sales to exceed boxed games

The company gets revenue from free-to-play games when gamers buy enhancements to improve game play. Researchers at NPD Group have estimated that U.S. sales of boxed games dropped 20 percent in July to $548 million, accounting for roughly 50 percent of the $1.1 billion in total consumer spending on computer games. Money spent on mobile apps and on social network games was estimated at $439 million, according to NPD.

LIGHT AT THE END OF THE TUNNEL

EA expects $2.6 billion in revenue worldwide from selling packaged goods and $1.7 billion from digital products in its fiscal year to March 2013, Moore said. The company said last month its net digital revenue jumped 55 percent in the first quarter, while its total revenue declined. Shares in EA, Activision Blizzard and Take-Two Interactive have lost about a third of their value so far this year. Activision Blizzard sells the top-selling game title "Call of Duty". Take-Two Interactive Software publishes the hit "Grand Theft Auto".

EA's shares trade at 11.6 times its 12-month forward earnings, while Activision Blizzard trades at a multiple of 10.9 and Take-Two at 5.9 times earnings, according to Starmine data.

Since EA announced a $500 million share buy-back last month, its stock has made a partial recovery, rising by about 16 percent. "Investors are starting to understand our strategy, are starting to see light at the end of tunnel, starting to see growth rates in the areas we have invested in and in the industry as a whole starting to attract attention again," said Moore, who joined EA in 2007 from Microsoft's Interactive Entertainment business.

As for gamers, Moore said the company would not neglect those customers who prefer more traditional boxed games.

"We will never abandon physical media. As long as the consumer wants to buy something on a disc, we will be there to offer it," he said.

Reuters