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Electronic Arts Q2 FY2013 Earnings Call and Star Wars: The Old Republic

Electronic Arts Q2 FY2013 Earnings Call and Star Wars: The Old Republic
EventHorizon1984
30 October 2012

When the MMORPG Star Wars: The Old Republic game went retail in December 2011, it pulled in "over one million subscribers" in the first week.  By February 2012, "over 1.7 million players" had subscribed. 

However by 31 July 2012 the subscription numbers changed.  At the Quarter 1 Fiscal Year 2013 earnings call, Frank Gibeau, Electronic Arts President of Labels presented this:

• "Although it launched well, subscriptions have been on a declining trajectory and have now slipped below on million.  Last year we announced that the breakeven point was roughly 500,000 subscribers.  And while we are well above that today, that's not good enough"

Electronic Arts held their Q2 FY2013 today, and the Star Wars: The Old Republic subscriber numbers are missing.  Here is what Electronic Arts said about SW:TOR:

• "Subscriptions, advertising, and other digital revenue grew 48%, driven by Star Wars: The Old Republic. As we mentioned on the last call, a free-to-play option for this game will be available this quarter, and we will provide more insight regarding the results of this change in future calls."
• "Non-GAAP revenue for the quarter is expected to be between $1.25 and $1.35 billion, a decline in comparison from last year's $1.65 billion, which included the launches of Battlefield 3 and Star Wars: The Old Republic. Both titles drove packaged goods and full-game digital download revenue."

What does this all mean?

From our point of view it means, see what is said about SW:TOR at its one year anniversary in December 2012.  And what Electronic Arts reports in its Q3 FY2013 earnings call.

Addendum 31 October 2012

Here are additional comments on Star Wars: The Old Republic from the Seeking Alpha transcript of the earnings call:

Sean P. McGowan - Needham & Company, LLC, Research Division

• "I was hoping you could give us a little update on where things stand with Star Wars: The Old Republic, the changes that you've made to the business model and how that's working, or anything you can give us on that. And then remind us on the Battlefield Premium. You've given us some great color on the revenue that's coming. What costs might have been deferred on that or might show up in Q4 against that revenue?"

Frank D. Gibeau - President of The EA Labels

• "Yes, this is Frank, I'll start with the Star Wars question. As we announced in our last call, we are pivoting that business to open up a new free-to-play part of that business model. That starts this November. And so I think it's a little premature to be able to give you too much color on how that's going to go until we deploy it. In Blake's remarks, he mentioned that we'll have an update on a future call and give you guys some more information on how the free-to-play conversion went on Star Wars. So…"

Sean P. McGowan

• "How's the existing business going?"

Frank D. Gibeau

• "It's vibrant and positive in Star Wars. The game is continuing to release content. People continue to be subscribing to the product. So for that part of the business, the premium subscription side of the business is very stable, and we're excited about the potential and the free-to-play option."

Sean P. McGowan

• "Okay. And the people hanging out, those that already signed up or are kind of staying?"

Frank D. Gibeau

• "Like I said, we feel good about stability in the community and people are excited about the new content, actually, we've been releasing. So yes."

Atul Bagga - Lazard Capital Markets LLC, Research Division

• ... "You talked about what's going down, but what's going up there?"

John S. Riccitiello - Chief Executive Officer and Executive Director

• ... "We feel good about our numbers. But you're right, we've had -- I mean, the principal downside this year were Medal of Honor, NBA and frankly earlier, Star Wars has underperformed. But that's really the balanced equation."

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"Excellent idea.  Just let me update my will."
Smuggler, Star Wars: The Old Republic

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See also:  Star Wars: The Old Republic Beta Test Observations

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Do You Know What Your Amazon Cloud Is Up To?

Do You Know What Your Amazon Cloud Is Up To?
EventHorizon1984
26 October 2012

The Amazon Web Service (AWS) had an East Coast service outage on October 22nd.  The interruption of service lasted several hours. 

According to TechCrunch:

• "What started as a small issue affecting some instances of Amazon’s Elastic Cloud Compute (EC2) in North Virginia became a full-blown outage of AWS in North Virginia. Major services, such as Reddit, Foursquare, Minecraft and Heroku, are down. GitHub, imgur, Pocket, HipChat, Coursera and others are affected"

In brief, the usual short-term whoops that happens with all large computer systems.  But what c|net added was interesting:

• "Amazon isn't saying what happened, but a spokesperson said the problem isn't due to an attack, as some have speculated. A member of hacker group Anonymous claimed responsibility for the outage via a tweet, but the Amazon spokesperson said that's not accurate and that no attack occurred."

While the claim is likely an Anonymous wannabe or puffery, the hackability of some Amazon services is not fictional.

It was almost a year ago when this article appeared:

Amazon's EC2, Eucalyptus hacked
SC Magazine
Darren Pauli, 28 October 2011

• “Effectively, a successful attack on a cloud control interface grants the attacker a complete power over the victim's account, with all the stored data included,” researchers at Germany’s Ruhr University wrote in a paper.
• "We had full access to all customer data, including data authentication, tokens, and even passwords in clear text," researcher Mario Heiderich said.

The article had this warning at the end:

• "Critical infrastructure and services are making ever more use of cloud computing," he said. "It is therefore an urgent need to identify the security gaps in cloud computing".
  Juraj Somorovsky

Don't comfort yourself believing this is theoretical.  As we noted in May 2011, there was this incident:

Sony Network Breach Shows Amazon Cloud's Appeal for Hackers
Bloomberg
Joseph Galante, Olga Kharif, Pavel Alpeyev, 16 May 2011

• For three pennies an hour, hackers can rent Amazon.com Inc. (AMZN)’s servers to wage cyber attacks such as the one that crippled Sony Corp. (6758)’s PlayStation Network and led to the second-largest online data breach in U.S. history.
• A hacker used Amazon’s Elastic Computer Cloud, or EC2, service to attack Sony’s online entertainment systems last month, a person with knowledge of the matter said May 13.

This article had this warning at the end:

• The episode will cause individuals and companies to rethink what data to put on the cloud and force companies to potentially double what they spend on application security, said Murray Jennex, an associate professor at San Diego State University who specializes in computer systems security. In the long run, it will be cheaper than being hacked, he said.
  “This puts cloud computing into proper perspective,” Jennex said. “Everybody’s been thinking it’s chic and ignoring the security aspect. I think this reminds companies that things that make them great need to stay under their control.”

Our point is not that Amazon's Cloud is more vulnerable that other systems.  It isn't; ask Sony about THEIR data security.  Our point is that we see far too many people buy into the hype of the safety and security of Cloud Computing.  And when they** move to Cloud Computing, do the computer equivalent of leaving their house keys under the door mat.*

*  Then too, we do see people** getting a web site and putting the keys under the mat.
**  Yes, this article is partially directed to 'you know who you are'.

In security matters, treat Cloud Computing no differently from other computer services.

"No boom today.  Boom tomorrow.  There's always a boom tomorrow."
Susan Ivanova

Now we do have a small bone to pick with Amazon AWS Services - Cloudfront.

Previous emails to Amazon Cloud customer service about their problem users have always resulted in mixed results.  Translation:  No Response.

Here's our public comment about the Amazon Cloud user from IP 46.137.248.139, who is using the Amazon AWS Services - Cloudfront - FRA.  This is what he did recently to an associated site.

46.137.248.139 /MyAdmin/scripts/setup.php 10/26/12 1:03 PM 0 404 GET ZmEu
46.137.248.139 /myadmin/scripts/setup.php 10/26/12 1:03 PM 0 404 GET ZmEu
46.137.248.139 /pma/scripts/setup.php 10/26/12 1:03 PM 0 404 GET ZmEu
46.137.248.139 /phpmyadmin/scripts/setup.php 10/26/12 1:03 PM 0 404 GET ZmEu
46.137.248.139 /phpMyAdmin/scripts/setup.php 10/26/12 1:03 PM 0 404 GET ZmEu
46.137.248.139 /w00tw00t.at.blackhats.romanian.anti-sec:) 10/26/12 1:03 PM 0 404 GET ZmEu

We do realize Amazon, that this had no effect on that site.  And virtually all web sites are immune to this not ready for amateur hour attack.  But maybe he'll learn and try something else, on someone bigger.

Could you have a talk with this Amazon Cloud customer?

Pretty please.

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"Captain Gideon, 'security' happens to be my middle name." Captain Elizabeth Lochley
"That's all well and good, but just in case your last name is 'breach' it won't hurt for me to double-check." Captain Matthew Gideon
Crusade (1999)

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Maine GOP versus World of Warcraft - Welcome to Fantasy Island

Maine GOP versus World of Warcraft - Welcome to Fantasy Island
EventHorizon1984
5 October 2012

The race for Maine's District 25 Senate seat, incumbent Thomas Martin JR (R) versus Colleen Lachowicz, according to Forbes magazine went to "supremely stupid" when the Maine GOP (Grand Old Party) posted a press release titled "Candidate's Bizarre Double Life Raises Questions."

You can view the press release at:
https://www.mainegop.com/2012/10/candidates-bizarre-double-life-raises-questions

Well you would be able to view the site (at the time of publication), if the site builders had a modicum of computer expertise:

"503 Service Temporarily Unavailable"

Here is a cache of the page.

And here is Colleen Lachowicz's response.

Then again, when the voting for District 25 is measured in the thousands,

Thomas Martin JR (R) - 1,195
Colleen Lachowicz (D) - 827
Dana Hernandez (D) - 755

and that site is build to accommodate the local electorate.  Hundreds of thousands of hits would be problematic.

"There's no such thing as bad publicity except your own obituary."
Brendan Behan

If not millions of hits.  Hits from hundreds of articles like the sample below:

On Video Games as a Political Liability
Paul Tassi, Forbes Magazine *
"The central idea here is that Colleen is lost in a fantasy world of violence, which in effect, can be claimed about anyone who has ever played an M-rated video game. It’s offensive to gamers, which are an increasingly large segment of the population, but that’s not the kind of vote the Maine GOP is going for here. That would be the hearts and minds of those too old to even lift a Wiimote, most likely."

Is Being a Gamer a Political Death Sentence?
Michael Peck, Forbes Magazine
"The central idea here is that Colleen is lost in a fantasy world of violence, which in effect, can be claimed about anyone who has ever played an M-rated video game. It’s offensive to gamers, which are an increasingly large segment of the population, but that’s not the kind of vote the Maine GOP is going for here. That would be the hearts and minds of those too old to even lift a Wiimote, most likely."

Maine GOP Attacks Candidate's Right to Choose Horde
Carol Pinchefsky, Forbes Magazine
"I would prefer to vote for a candidate based on issues of their policies rather than their personal lives."

* Forbes magazine, as in the late Malcolm Forbes, and two time Presidential candidate Steve Forbes (R).

Orc Assassination Rogue Running for Main State Senate
Dennis DiClaudio, Comedy Central
"I'm not quite sure that America is ready for an "orc assassination rogue" in one of our state legislatures…"

Democratic candidate slammed for playing World of Warcraft
Earnest Cavali, Digital Trends
"normally we’d hate to take sides in such an obliquely political argument as this — we write about video games, so who wants to hear our thoughts on governmental propriety? —  but our ability to reason logically and read through biases forces us to point out the absurdity of this attack."

GOP: World of Warcraft player should be barred from office
Chris Matyszczyk, c|net
"Oh, come now. It's not as if her name is Lash-o-Witch and you can hire her at $100 per hour -- as you can some politicians."

Maine Political Race Focuses On World of Warcraft
Stephen Johnson, G4TV
"Lachowicz posts that she "loves poisoning," likes to stab people and has an alt who is an undead warlock. This all seems pretty common for a WoW player, but out-of-context, such revelations could make non-gamers a bit nervous."

When World of Warcraft Met the World of Politics
Alexander Abad-Santos, The Atlantic Wire
"It's supposed to be a smear, not because WoW is addictive and time-consuming and could possibly ruin your social life, but because her character in the World of Warcraft likes to stab things and steal from people.  That, of course, is sort of silly."

State Senate politics enters 'fantasy world'
Michael Shepherd, Morning Sentinel
"the Republican website, which prominently displays a large picture of Lachowicz's "World of Warcraft" character, is "one big joke," Dixon said. "It's just going to be bad publicity for the (Republican) Party.""

The GOP press release also got a bit of international attention.

World of Warcraft hobby sparks US political row
BBC  (Great Britain)
"the Republican party in the state created "Colleen's World" - a website that compiles information about Ms Lachowicz's orc rogue Santiaga. An orc is a mythical human-like creature, generally described as fierce and combative."

Republican attack on World of Warcraft backfires
The Week  (Great Britain)
"A REPUBLICAN campaign to expose a Democratic candidate’s penchant for playing the World of Warcraft has been described as "absurdly pathetic" by gaming fans."

Republican Party wants to ban Warcraft player from office
Nic Healey, c|net Australia
"incumbent Republican Senator Tom Martin has seemingly distanced himself from his party's attacks, saying that he was unaware of the press release and that when he met Lachowicz, she "seemed like a nice lady""

"Bite the Hand That Feeds You"
Steven Colbert

Then there's the 'bite the hand that feeds you' aspect.

According to the U.S. Federal Election Commission:

Activision Blizzard individual contributions (total):
$2,500 - Romney, Mitt / Ryan, Paul (R)
$950 - Obama, Barack (D)
$600 - Paul, Ron (R)
$3,000 - Boehner, John (R)

Ok, these amounts are peanuts to the GOP.

Number wise, what is not peanuts, are the over 10 million subscribers to the World of Warcraft.

Definitely not all Maine voters, but a rather potentially large number of people to annoy.

"A billion here, a billion there, pretty soon, you're talking real money."
Everett Dirksen

The owner of World of Warcraft is not a small company to push around.  Activision Blizzard, had a second quarter 2012 GAAP net revenue of $1.08 billion. 

A multi-billion dollar company might object to having one their biggest money maker products slammed.

Compare this revenue to the State of Maine's "expected yearly revenue of just under $3 billion."

Incidentally the video game industry global market is "$67 billion" and forecast to grow "to $82 billion in 2017."  As stated by Forbes magazine, "This is good news for all companies involved in gaming including Sony, Microsoft, Activision, Electronic Arts, Disney, and even Nintendo"

Let's not forget that World of Warcraft and other online computer games are not played in thin air.  You Need A Computer.

Hint to the technologically ignorant, the millions of U.S. World of Warcraft customers use computers.

"We love platforms that are hundreds of millions of users"
Jens Begemann

Perhaps they use World of Warcraft compatible computers from U.S. companies like:

HP ** - "Second quarter net revenue of $30.7 billion"

** The current HP CEO is Meg Whitman (R).

Dell - "Revenue of $62.1 billion for the fiscal year"

Apple - "quarterly revenue of $35.0 billion"

And what about that software company that has their Windows operating system running on the bulk of those computers?

Microsoft - "quarterly revenue of $18.06 billion"

Finally, what about the companies that connect millions of online gamers together?

Like the cable industry?

Cable Industry Revenue 2011:
$38,310,000,000 - All Other Revenue

Was it not conventional political wisdom, that taking pot shots at the revenue streams of large corporations is not a good idea?

"You are fools."
Colossus

Perhaps the technologically inept individual that thought up the World of Warcraft attack, should look up "infrastructure" and "collateral damage."

Infrastructure - "the basic, underlying framework or features of a system or organization."
Collateral Damage - "Collateral damage occurs when something incidental to the intended target is damaged during an attack."

And he should also look up World of Warcraft's customers.

Such as Chuck Norris (R):

• "There are 10 million people in the World of Warcraft... because Chuck Norris allows them to live!"
• "I'm Chuck Norris, and I approved this game."

You're interfering with Mr. Norris's revenue stream too.  Bad idea.

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"The billionaire philanthropist said there are lessons to be learned from the enthusiasm kids have when playing video games, including that winning can be a motivator and that students should be able to move to the next level when ready.
“We’re not saying the whole curriculum turns into this big game. We’re saying it’s an adjunct to a serious curriculum”"
Bill Gates: Getting schools into the game to engage students

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Addendum 13 November 2012

The voting is over, and MMORPG won.

Maine State Senator Playing Orc on World of Warcraft Elected Despite Opponents Attacks On Her Gaming Hobby

• "Colleen Lachowicz, Democrat for Maine state senate, won"

For the slightly tongue in check analysis:

How The Republican Party Should Have Attacked Colleen Lachowicz

• "it’s fair game to judge any politician based upon their personal life these days, so Lachowicz should expect some judgement when it comes to her WoW character. Does she have a reasonable excuse as to why her character has the achievement The Descent Into Madness two entire years after Ulduar’s release? Or what about the fact that she’s never completed a Onyxia run without a member of her party being hit by Deep Breath? If she believes she’s the right candidate to represent an entire state’s worth of people why has she never successfully completed 25 man Icecrown Citadel?"
• "Either way you look at it the accusations previously pitted against Lachowicz making the assumption that gaming would keep her out of touch with society's needs is as wrong as it is insulting. Her recent placement into Maine’s senate and the incredible support she’s received from gamers all over the world show that despite the gritty details that may make her a casual WoW player it’s important to the people that our politicians share the same human interests as us. Not everyone enjoys golf after all."

Colleen Lachowicz, Maine's World of Warcraft-Playing State Senate Candidate, Wins Office

• "Turns out, however, that Maine voters either didn't care, or are a big fan of orcish rogues."
• "Lachowicz, as you may have guessed, won her race for State Senate."

The British weighed in, apparently having some deep seated European connection with dragons.

Democrat candidate attacked for having 'disturbing double life' as an orc assassin in World of Warcraft wins key battleground district

• "It turns out most voters don't see a history of killing dragons in your free time as an impediment to holding office."
• "Lachowicz took the office with a final vote of 8,666 to 7,753 over incumbent Republican Tom Martin"

This election was the hard mode way to score a reward:

• "She says Blizzard sent her copy of the latest "World of Warcraft" expansion — "Mists of Pandaria." It was signed by the entire development team. After she catches up on her sleep, she plans to give it a play."

As a voting demographic, WoW subscriptions slipped to 9.1 million from 10.2 million.

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