EA
#So on the Origin Access piece that we just rolled it out, so it's very early days and it's hard to get any data yet.
So more to come on that.
But obviously we are very excited about what we have been seeing in EA Access and that was part of the reason we decided to roll out Origin Access.
It's a different group of titles because not all of our titles are PC titles.
So we will probably see some different dynamics between players, but we hope to see similar dynamics than we have seen in EA Access.
Because it's exciting to see obviously people broaden their interest in more games than simply one franchise.
On your first question, can you go back and just repeat again what you were looking for there.
No, we're very comfortable with where the channel is.
We actually had a very strong sellthrough during the quarter as well as sell-in.
And there are some accounts, obviously, that are replenishing in their ---+ as they get through their January time frame.
And we are very comfortable with where the channel inventory is now.
I'll take the Titanfall question.
Again, it's a little early to start talking about the details of Titanfall in this juncture, and that wasn't the purpose of raising it.
What I would say, having seen the game, is it's looking fantastic.
Our relationship with Respawn is extremely strong; we have great faith in that entire team to build a spectacular game and are really looking forward to sharing more details in the months ahead.
As regards competitive gaming, obviously we see a great opportunity going forward here.
I'll remind you and I know you know this that we've been doing this for a number of years, whether it's been our involvement with FIFA with the FIFA Interactive World Cup.
As was mentioned in the prepared remarks, we're looking forward to the finals of the Madden Challenge series at the Madden Bowl on Thursday night here in the Bay Area.
But we also see this may be a little different late then maybe some of our publishing brethren that are in the marketplace right now, and we see this as a tool and a platform to increase engagement.
More and more session days with games is good for Electronic Arts; it's good for our players.
We are taking a very player-first view on this in which we are building community.
It's clearly an entertainment medium, I think there's a lot of excitement around it, and I can't think of anybody that's better served with the diversity of our portfolio when you think about sports titles in particular, FIFA and Madden, as well as our Battlefield franchise that has been able to build a meaningful business over the next couple of years.
Let me first speak to just discounting in general.
This is a business that in the holiday time frame, between Black Friday and <UNK>tmas, has traditionally done a lot of discounting.
It's a way of driving volume, particularly when people are now buying for the first time a new console, often they want to build up their software inventory pretty quickly.
And we find that discounting helps drive people into the engagement.
We obviously share that view with the retailers and we help support the retailers in that each year with specific programs, and I think we've done that year over year and it really doesn't impact that.
We are also doing discounting on the digital side to try to keep the two aligned.
We don't want to have a disconnect between pricing in one area and pricing in another.
And so you'll tend to see us drive volumes through discounting and it's pretty consistent year in and year out.
I would say this year, our programs were very similar to what you saw last year or similar to what we've seen with all of our other industry partners and titles that they may have had.
There wasn't a lot of difference between years.
On the sales reserve, we take the sales reserves upfront at the start of each quarter in anticipation of what our sell-in is going to be.
And we use those sales reserves during a quarter on a very formalized planned method.
So all of these sales get planned well in advance and we need to make sure that we have the appropriate reserves in place to help pay for those over time.
And so we will be setting up sales reserves each quarter as we go in, and those tend not to impact margins or margins that we forecast, because they are already built into the numbers.
I can take that.
So what we've seen is really there's two groups that have either come for the first time or have come back to gaming.
The first group is people, quite frankly, of my generation or my vintage, who have been gamers in the past have for whatever reason kind of moved away from it and particularly moved away from core FPS shooters because they have become very hard and complicated, and quite frankly brutal to play online.
They've come back in light of the Star Wars IP and the commitment and the passion they have around that from their youth.
At the same time, they now have kids who are of game playing age who may have not got into the first-person shooter universe yet because of the nature of the content inside of some of those games.
So we are seeing fathers and sons play; we are seeing mothers and daughters play because of the broad appeal.
So the big groups that we've added as kind of a youth demographic, it skews typically younger than we have seen before, as well as an older demographic that we may have had interaction with some years ago, but had lapsed out in recent years, particularly from the first-person shooter universe.
And we are looking now at how we continue to provide content and experiences that engage those two new groups so that we maintain relationships with them over time.
Let me start there.
I don't think there's any indication that this mix shift is anything but a Star Wars Battlefront opportunity.
Remember the movie was out, all things Star Wars for the month of December, and it was the perfect gift giving opportunity.
And typically with gifts, someone wants to have a package under a tree or in a gift pile somewhere versus a digital code.
And that was the driver of the shift.
We could see ---+ when we do the next Battlefront, we could see something like that, but we have no idea on exact timing yet for ourselves or the industry, and exactly how the buzz around Star Wars will be when that comes again the next time around.
So right now, I would say nothing would imply to us that the digital journey is slowing in anyway.
And in fact, if we look at all of our non-Star Wars products, every one of them were up digitally in full game downloads and the digital engagement associated with them.
You look at the Ultimate Team statistics we gave you, that's clear sign that people are playing and engaging longer and longer around the titles.
In terms of guidance, guidance on Star Wars, we are not going to break out individual guidance.
Obviously, we'll end up selling more than the 13 million units, as we've already gotten there.
We did sell more in the third quarter, so we may ultimately sell less in the fourth quarter than we originally thought.
But we will clearly sell more overall and that's built into our guidance for the fourth quarter.
I will remind people about fourth quarter, though.
Don't forget that there is a continued FX headwind that we've called out, that's $40 million of headwind.
I'm not sure everyone is modeling that into their models.
And we are not ignoring the fact that there is a economic headwind out there around the world that hasn't really impacted us, but we are being conservative when we give our guidance around watching that closely.
In terms of next year's guidance, the title slate that we talked about on the core titles along with the traditional sports titles, the one thing to note is Q1, the only title we have in Q1 is Mirror's Edge, plus all of our catalog business and live services business.
But our core console title will be Mirror's Edge.
And as you're doing ---+ we'll give you real full-year guidance in May when we sit down to do the next earnings call.
But as you're starting to think about guidance for Q1 and next year, don't forget about the continued FX headwinds, which are impacting us, as well as in Q1, one specific item.
Remember that last year in Q1, we had a $30 million benefit ---+ one-time benefit from FIFA Online 3 as we started that up, and we had deferred revenue all into Q1.
So that was high profit revenue that came into Q1.
A couple of basic things for your model, but things to remember.
But we are excited about the rest of the slate.
You should assume that Battlefield would come typically in the third quarter when we normally have it.
We are not yet announcing when Titanfall or Mass Effect: Andromeda will come, but you should assume that is in the back half of the year as well because the second quarter was so dominated by our sports titles.
We don't.
But we probably will in the next quarter.
I'll take the Madden Mobile one.
As we think about all of our mobile games, we really think about them on four vectors: discovery, how someone will find the title, whether that's through an App Store or through social representation; onboarding, how someone will get into the title; the gameplay mechanic itself, so actually what do you do while you are playing the game; and then how do we run the service that actually surrounds that game to make it new and interesting, fun and dynamic and engaging on a moment-to-moment day-to-day basis.
As we look at what we've done with Madden NFL Mobile over the last couple of years, you will have seen we've fundamentally overhauled all four of those vectors since we first launched Madden on mobile devices.
We now believe we have landed in a place that has a game that is very social in nature, has a game that onboards new players and a broad demographic of players.
We have a game mechanic that feels right for mobile devices, and our teams are delivering live events that tie to the passion that players have for the real world of the NFL and are very engaging for them from an ongoing basis, both during the weekend games and the week leading up to those games.
All of those opportunities presently learning for us as we take these types of things to our other sports games on mobile.
And we expect to be able to do well in those areas.
Your second question was about trends and full game downloads.
We clearly continue to see the trending upwards; we see titles running anywhere between 20% and 30%-plus.
We've always seen FIFA skew lower because of in Europe, many retailers use that as a loss leader to drive traffic into their stores, and that tends to be a physical copy.
But in the rest of our sports portfolio, we tend to see strong digital full game.
Really, Star Wars was the only gen-4 title that indexed lower than the average because of the gift giving issue.
So we are very comfortable with the continuation of where that trend is going industrywide.
The context of VR.
Sure.
I'll echo what we talked about on some previous calls, which is we believe that VR is going to be an important part of our industry.
We do believe it's a number of years out before it's a meaningful part of our industry, but right now, we are investing at a core engine level.
We've talked about Frostbite as we move to a single engine for the Company, and that team is working to ensure that they can output virtual reality experiences regardless of device.
And then we have a few key game teams around the Company who are doing targeted experiments as it relates to very engaging virtual reality experiences in the context of particular genres.
I would expect that we would start to surface some of those over the coming years.
And that we would start to build it into more fully fleshed experiences over time.
I think pure dollar OpEx has gotten ---+ we've gotten a benefit this year of FX on our OpEx line because many of our studios are outside the US.
So we have a large base obviously in Sweden and Canada, in Romania, in Australia.
Many in China; many of those have obviously come in at lower dollar costs.
We've tried to report each quarter what the actual dollar costs are, and you've seen some continued investment.
Our goal is to try to keep R&D expenses around the 22% to 23% of revenue line, which means if our revenue is growing, we are clearly continuing to invest in R&D.
We think that's very important for our future.
You will see marketing expenses bounce around depending on the title in the quarter.
So this quarter, our marketing expenses were up, if you FX adjust them, and that was driven by the fact that we had a fairly large title this year that we didn't have in last year's third quarter.
This year, Star Wars; obviously last year, our large title was Battlefront Hardline in the fourth quarter.
And so you get some of that timing differences.
But you'll continue to see general increases in OpEx with a goal to try to target R&D around the 22% 23%, we're trying to push marketing expenses down into the 13% range and hold G&A in that 8% to 7% range if possible.
So that's what you're going to see as a percentage of revenue and hopefully it will continue to be reflected in our business going forward.
I can't say much more than March.
But I would assume that much of that revenue will probably fall in the first quarter versus the fourth quarter, but it's hard to see right now.
I don't have the year-to-date number with me here.
But it's fairly consistent with what it was in the quarter, just off the top of my head.
And we are continuing to see that.
Remember we had a slowdown in FIFA Ultimate Team in the fourth quarter last year as we put the price banding in to address the inflation in the marketplace issue that we saw.
We are currently forecasting that we will have a stronger fourth quarter than we did last year because obviously we've corrected some of those price and coin farming issues.
So we should continue to see strong growth of Ultimate Team through the year, and probably for the full year clearly exceed because of the lean last quarter last year.
But clearly the business continues to grow, and we've done a good job of bringing new users, so we are not taxing the existing users.
But it gets harder and harder to grow the business at the size that it's at.
So we will see what it looks like for next year.
The other thing to really remember as you're looking at it is realize that a huge portion of the Ultimate Team audience for FIFA is outside the US.
Large markets like France, Germany, UK, and so all of those markets have a headwind from FX that we are clearly seeing in the growth numbers.
So as I mentioned today, 18% on a constant currency basis for Ultimate Team ---+ or for FIFA, and that's a pretty impressive growth rate on a business of that size.
We are down to less than 15 major SKUs.
And that feels like a good size of the business and we are obviously announcing that we are investing in some action-based SKUs by bringing people like Jade Raymond and Amy Henning into our organization to help build those.
And those are obviously a few years out in our SKU plan.
But clearly we want to try to grow genres, and grow our revenue base with more titles, both digital live services titles as well as traditional console titles.
Part of ---+ to do that part of it is we have to be ruthless that we don't spend a lot of money on smaller titles, we size them correctly, but we also want to continue to look for ways to bring new, interesting titles to the market.
Look at Unravel as a perfect case of that.
We're trying to address the marketplace for broader titles that address a wider audience in terms of types of games they are, the types of games people want to play.
We are also trying to build enough product to be able to effectively run subscription-based businesses, and that requires a great portfolio, which we have and will continue to add to.
We will always cull, but there's not a ton of things to cut back on today because we've brought the total number of titles down to a very perfect level for us now.
I guess I would remind people that we did raise full-year guidance.
That's the third time this year we've raised full-year guidance.
We've got a track record I think of ten quarters in a row of beating our guidance.
I think we've exhibited some conservatism in how we operate the business, which we think is a prudent thing to do.
And we are sitting with an FX headwind and a lot of uncertainty in the economy.
You put all that together, I don't think that signals anything negative about the fourth quarter.
It signals the way we've been approaching the business and operating the business.
And that's what we are going to continue to do.
In terms of FIFA Online 3 in China, the key there is we are continuing to see very positive reactions.
But we also have a very long-term view there.
So that continued level that we've talked about, $10 million to $15 million a quarter, is still consistent with where we are.
And when we give you guys guidance in the May time frame, we will update that number if it looks like it should be updated.
But all is very positive in that.
And our partner TenCent continues to be extremely happy.
With that, maybe I'll let <UNK> hit the VR question, if there's anything more to say than we already said.
Not a lot more to say at this point.
No announcements as to launch times or servicing the experiment at this stage.
But as we go into calendar 2016, as we start to come closer to our EA player events in LA and in London, we will be talking more about our full title slate and some other new in-development products that we have running across our studios right now.
On the macro environment, we've mentioned a couple of times our caution because of the macro environment.
We have not seen anything in our business or heard anything from other players in the business that would imply any economic slowdown in entertainment software.
As I said, we have a level of conservatism about just the global economy, which at some point in time, there's trouble in the global economy that would impact everybody probably.
I think our business seems to be operating pretty consistently, as it has been over the last couple of years.
The console purchases up through the end of calendar year 2015, our estimate is 55 million units out there, which has exceeded virtually everyone's forecast for the year, and is now almost 50% higher than the previous console cycle.
So all of that is very, very positive; all the gameplay we are seeing and the engagement in things like Ultimate Team we're seeing as positive.
We're just conscious of the fact that there's a lot of storm clouds out there and we want to be careful that we don't get ahead of ourselves or the economy in our forecast for the business.
And that's what you are hearing.
The second part of the question was the Amazon issue.
We do not fund the Amazon discount; that comes out of Amazon's own pocket.
I think that's fairly consistent with how Amazon operates.
And we don't have much say or view on pricing of anyone in the marketplace.
That's their job, not our job.
For us, if it brings new game players into the business, then we are excited, but we don't really have much more to say or control over their pricing strategy.
What we have seen is more and more, we need to be close to our player.
And what you've seen from us over the last couple of years in almost all of our actions, whether it relates to development or marketing or sales, is attempts by us and endeavors by us to get as close as possible to our players and get direct feedback from them.
We believe that's the single best way to ensure that we are making games that they want to play.
And that we are making some of the best games in the industry.
And we see this as an opportunity to do just that: get close to our player, invite them in in an environment where they feel comfortable to play games, give us feedback, and interact socially as they do, whether it's through social networks or with their friends or what have you.
We continue to be members of the ESA and we will have meeting rooms at E3 this year.
So what we see we are doing is augmenting the overall E3 experience.
And we are excited by what we are going to be able to do as it relates to EA Play and we are excited for what the industry is going to be able to do as it relates to E3 more broadly.
To add to that, we are also doing a simultaneous event in London.
And so in some ways, we're trying to do a more geographically spread way to introduce people to our new products.
I'll start with Star Wars.
I don't know; <UNK> might want to chime in on the mobile piece.
On Star Wars, the one thing that we are adhering to, and I think this is part of our arrangement with Lucas and Disney, is you can't make a game in Star Wars that violates the canon of Star Wars.
Meaning, you can take something from the future and bring it back into the past unless it's a reference.
Not knowing yet exactly what the storyline in Rogue One is going to be, I can't comment on how that could come in.
But to the extent that it's in the future around our current Battlefront game is all paced based on the historical Star Wars canon, which is 30 years before the most recent movie.
That will limit our ability to bring some new content into that.
But more to come there.
Obviously we're trying to stay tightly connected to the Star Wars beat for future movies, and we will obviously in future Star Wars games be able to tap the new characters and vehicles and so forth.
But in our current game, and for that matter the DLC associated with that current game, obviously we will have to be careful that we don't violate the canon.
On mobile, obviously mobile ---+ one thing to remember is like our console business, mobile will always be a little choppy based on when new titles come out.
But like most live services, they should be smoother than the historical beats around the console business.
So over time, we hope to smooth that out.
But there still may be some jumps up and down due to quarters.
On the Star Wars play, just to add a little, what we have seen is that the movie or the content of the movie itself hasn't impeded the engagement in various Star Wars games.
We've seen that across console, PC, and mobile.
And we would expect that as more great Star Wars films come out, we would see more great engagement in Star Wars content more broadly ---+ again, not just in Battlefront, but in Star Wars: The Old Republic and our mobile game, Galaxy of Heroes.
As we think about mobile, just to add to <UNK>'s point, I think he is absolutely right.
The one other thing that we would point to is as we look at our mobile portfolio, our titles typically have very long lifespans.
The Sims FreePlay, The Simpsons Tapped Out, Real Racing 3 have continued to grow over a number of years.
And as we think about launching new titles, we are taking a little more time and being a little bit more calculated about how we launch, but we are doing so with a view that we are putting experiences into the marketplace that will live for many years and drive engagement and profitability for a number of years to come.
And so as we look at the year to come, as we look at what we've done with Star Wars and Madden and some other titles that are coming down the chute, our expectation is that we are able to grow the overall business with them.
All right.
Thank you, everyone.
We will see you next quarter.
