Electronic Arts’ shareholders are biting their nails as they watch the company's stock value plummet. For November, EA shares have dropped 8.5 percent. That equates to $3.1 billion in valuation wiped out in only one month. Industry analysts are blaming the plunging stock price on the debacle over Star Wars Battlefront II and its money-grubbing loot box / microtransaction system.
Players with early access were disappointed to find that some of the game’s heroes were locked behind a very expensive paywall. Due to public outcry, EA reduced the cost of heroes substantially just before launch on November 17. However, one player calculated that it would still take thousands of hours or dollars to unlock everything. Developers were finally forced to pull microtransactions (MTX) altogether.
The uproar has garnered so much attention that Hawaii, Belgium and other places are looking to ban loot boxes or at least have them classified as gambling. Such a classification would doom any title that uses the loot box model since it would carry an "Adults Only" rating, which most retail outlets have policies against carrying.
The bad press also hurt sales with GamesIndustry.biz reporting that physical sales of the game were down 61 percent compared with the release of the game’s predecessor. It does not even register on the top 100 sellers list on Amazon for 2017 whereas Battlefront ranked number 37 for 2015. Granted, this only accounts for physical disc sales and not digital downloads but it still provides a fair comparison.
CNBC reports that stock analysts have been less than impressed over the title’s performance during the Black Friday / Cyber Monday shopping weekend.
“We were underwhelmed by sell-through for Star Wars: Battlefront II (EA) over the Black Friday weekend, which follows a controversial launch for the game,” said Drew Crum, an analyst with Stifel.
They have clearly overdone loot boxes with Battlefront II, Need For Speed and FIFA 18, all of which have received heat recently. Because of that, EA and its shareholders are being punished. It appears that EA’s only option out of this mess is to dial back its MTX model according to Cowen analyst Doug Creutz.
“Battlefront II is the pointy tip of the iceberg. … The biggest recent controversy has centered around EA's Star Wars Battlefront II, where early evidence suggests player anger over a mishandled loot box economy may, in fact, be impacting initial sales. We think the time has come for the industry to collectively establish a set of standards for MTX implementation, both to repair damaged player perceptions and avoid the threat of regulation.”
Unfortunately for EA, the MTX model seems to be the crux of its business plan. Chief Financial Officer Blake Jorgensen informed investors back in February that microtransactions were responsible for $800 million in high-margin sales in 2016. He also said the company intends to expand that model into other properties such as “Battlefield” and “Battlefront.” If EA is forced to dial back this strategy, profits will dip well below initial projections, hurting share price even more.
While this is bad news for EA, it is nowhere close to dooming the company. Even with the almost 12-point dip this month (shares are down another three percent today with three hours to go), stock prices are still up 24 percent from this time last year.
EA won’t be going out of business anytime soon but we can probably expect to see a change in the way it has been conducting business.