Megaton News

From Fortune’s Tech Daily blog:

During a recent gathering at Berkeley Haas School of Business, Riccitiello talked about four lessons he’s learned since he joined EA as President in 1997.

Embrace change even if it costs a lot. A half century ago the three major networks — ABC, CBS, and NBC — were so dominant that they resisted change. Thirty years ago the three networks had more than 90 percent of the television market. Today, the big three account for less than half. “They were extremely arrogant,” Riccitiello says. “They viewed the rise of cable as being insignificant.

Riccitiello says the $31 billion gaming industry will suffer if it doesn’t start to reevaluate its business model. Game executives at Sony (SNE), Microsoft (MSFT) and Activision (ATVI) must answer some tough questions in the coming years, like how long they can expect consumers to pay $59 for a video game. Riccitiello predicts the model will be obsolete in the next decade.

“In the next five years, we’re all going to have to deal with this. In China, they’re giving games away for free,” he says. “People who benefit from the current model will need to embrace a new revenue model, or wait for others to disrupt.” As more publishers transition to making games for online distribution, Riccitiello says he expects EA will experiment with different pricing models.

Primotech is reporting that BioWare’s new MMO will be based in the Star Wars KOTOR universe, saying:

“A source close to BioWare confirmed to us today that the studio’s upcoming untitled massively-multiplayer online RPG will be centered around the Star Wars universe, specifically that of Knights of the Old Republic, which the developer released in 2003.”

No one seems to be denying this, and Primotech is standing by their story insisting that this is not just a rumor. A chance at owning the next World of Warcraft would explain EA’s willingness to drop a few hundred million for BioWare. It better not turn out to be Star Wars Galaxies 2.

SAN FRANCISCO (Reuters) - Electronic Arts Inc (ERTS.O), the world’s biggest video game publisher, said on Monday it will delay “Army of Two” to early next year, saying it needed more time to polish the military combat game.
 
“Army of Two,” in which players play as one of a pair of mercenaries carrying out missions, was originally slated to be released on November 13 for Microsoft Corp’s (MSFT.O) Xbox 360 and Sony Corp’s (6758.T) PlayStation 3 consoles.

“‘Army of Two’ has potential to become a lasting EA franchise — so getting the first title right is essential,” Frank Gibeau, head of EA Games, said in a statement.

Wedbush Morgan analyst Michael Pachter said he had expected the game to do about $54 million in revenue in EA’s fiscal third quarter, which runs through December and was expected to bring the company revenue of $1.6 billion, according to Reuters Estimates.

“It’s an important game for them if they hope to establish it as a franchise,” Pachter said. “It shouldn’t have much of an impact, but the market always seems to assume the worst about the company.”

REDWOOD CITY, Calif.–(BUSINESS WIRE)–Electronic Arts Inc. (NASDAQ:ERTS - News) today announced an agreement with Elevation Partners to acquire VG Holding Corp. — the owner of both BioWare Corp. and Pandemic Studios. This acquisition gives EA a strong competitive position in key genres in interactive entertainment: action, adventure and role-playing games. The two studios have been recognized for creating some of the highest-quality games in the industry.
 
BioWare Corp. and Pandemic Studios have ten franchises under development, including six wholly owned games. BioWare Corp. is currently developing the highly anticipated Mass Effect, which will be published by Microsoft in November, and is in the early development stages of a massively multiplayer online game. Pandemic Studios is redefining open-world games with its upcoming Mercenaries 2: World in Flames(TM) and Saboteur(TM), in addition to several unannounced projects.

Pandemic Studios and BioWare Corp. employ roughly 800 people across four studios located in Edmonton, Canada; Los Angeles; Austin; and Brisbane, Australia.

“These are two of the most respected studios in the industry and I’m glad to be working with them again. They’ll make a strong contribution to our strategic growth initiatives on quality, online gaming and developing new intellectual properties,” said John Riccitiello, EA’s Chief Executive Officer. “We also expect this will drive long-term value for our shareholders.”

Pandemic Studios is led by Andrew Goldman, Josh Resnick and Greg Borrud. BioWare Corp. is jointly led by Greg Zeschuk and Ray Muzyka. These teams will join the EA(TM) Games Label run by Frank Gibeau, President of EA Games.

“Pandemic Studios remains focused on attracting the best talent and creating blockbuster action games,” said Josh Resnick, President and Co-founder of Pandemic Studios. “As a worldwide publishing leader, EA represents the ideal partner to bring our titles to market as global entertainment events.”

“We are truly excited by John Riccitiello’s new vision for EA,” said Ray Muzyka, Co-founder and CEO of BioWare Corp. “This vision is consistent with BioWare’s focus on crafting the highest quality story-driven games in the world. It will enable us to further the careers of the passionate, creative and hard working teams at BioWare Edmonton and BioWare Austin.”

EA will pay up to $620 million in cash to the stockholders of VG Holding Corp. and will issue up to an additional $155 million in equity to certain employees of VG Holding Corp., which will be subject to time-based or performance-based vesting criteria. EA will also assume outstanding VG Holding Corp. stock options. In addition, EA has agreed to lend VG Holding Corp. up to $35 million through the closing of the acquisition.

Transaction and Financial Information

The acquisition is subject to customary closing conditions, including regulatory approvals.
The transaction is expected to close in January 2008.
On a GAAP basis, the acquisition is expected to be dilutive to EA’s fiscal 2008 results by approximately $0.30 to $0.40 due to non-recurring acquisition-related charges, stock-based compensation and amortization of intangible assets. This amount is a preliminary estimate based on currently-available information and is subject to change.
On a non-GAAP basis, the acquisition is expected to be dilutive to EA’s fiscal 2008 fourth quarter results by approximately $0.05. This amount is a preliminary estimate based on currently-available information and is subject to change.