Why a Microsoft bid for EA doesn't make sense. - RaychelSnr's Blog

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RaychelSnr's Blog

Why a Microsoft bid for EA doesn't make sense. Stuck

Posted on September 24, 2009 at 04:40 PM.

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In a not so surprising event, Microsoft denied they had any interest in buying Electronic Arts. Microsoft's Corporate Vice President of Game Studios said, "We have no plans to acquire EA."

Doug Creutz, a market guru, did not see a deal as highly likely, "There is simply no way the math works due to the massive hit to EA's revenue and earnings post acquisition. This is even assuming such a deal would pass regulatory muster, which we find highly doubtful."

The only reasoning for Microsoft wanting to buy EA would be to make EA titles first party titles, but the price of admission probably wouldn't match the benefits given. First off you would have to figure out the licensing issues of EA's biggest sellers, as many of EA's exclusives such as the NFL, NCAA Football and their movie titles would have to be examined to make sure such a deal would fit within the framework of the agreements. I doubt EA/Microsoft would retain many of their licenses since they probably act under the conditions of EA being a third party multi-platform publisher.

Secondly, 89% of EA's GAAP earnings came from non-Xbox platforms, so the bottom line earnings potential really isn't there for Microsoft. A bulk of EA's earnings actually occur on the PS3 (19%) and Wii (25%), both of which are direct competitors to Microsoft's XBox 360 console.

So when you put it like that, you see how a Microsoft bid for EA is not only illogical, it actually makes little sense for Microsoft. So for now, I'm going to declare this as either an incredibly stupid set of business decisions about to happen or just another unfounded rumor, with more weight on the latter.

Comments

# 1 sambowie @ Sep 24

Good post.

With this economy and the lackluster Madden sales, it might be that EA is really struggling and is looking for a buyer despite the fact that a lot of its revenue is derived from non-xbox 360 titles. It may make sense for Microsoft in that they want to make Madden, Need for Speed, and other EA titles exclusive to the Xbox.

The only thing that doesn't make sense is the numbers. The asking price for EA is unlikely going to be worth the benefit of getting EA's library exclusive to the Xbox. But on the whole, it's hard to get to worked up about this as it is an unsubstantiated rumor.

# 2 superstarshad @ Sep 24

Can't happen....won't happen.

# 3 TreyIM2 @ Sep 24

I said it before, I highly doubted it. EA would give up A LOT by going to MS.

# 4 tbach @ Sep 27

Yeah the NFL would lose money. The NFL would stop making any money that would normally come from Madden for other systems that aren't Xbox. Like it said in the blog, this would most likely mean that exclusivity of the NFL to Madden would be a problem for this deal.