Last week I linked to this video by Skill Up, which talks about how the concept of loot boxes developed inside of EA and how we got to where we are today. This time let’s talk about it in detail.

Synopsis

EA CEO Andrew Wilson.

Like I said last time, it’s an excellent video and worth a watch, but if you’re not inclined to hit the play button then here’s a breakdown of the key points. And just to be clear, everything in the next section is from the Skill Up video and not commentary by me, so if you see something you disagree with make sure you know who you’re arguing with before you jump down to the comments. Also, this is a synopsis, not a transcript. It’s a long video with a lot of information and I’m just boiling it down to a few key points for the purposes of discussion.

The narrative floating around in gaming culture is that Overwatch is to blame for the current scourge of loot boxes. But the truth is that Overwatch loot boxes don’t make that much money, and the modern pay-to-win loot boxes pre-date Overwatch, they pre-date the pay-to-win mobile craze, and they even pre-date the loot box system of Team Fortress 2. In fact, the whole system leads back to Andrew Wilson, who currently runs EA. Back in the 90s, EA locked down exclusive rights to make officially licensed FIFA games. Given the popularity of international football this was a huge win for the company. Even today, FIFA accounts for about a quarter of EA’s earnings. At the time they also made another game called UEFA Champions, which was basically like FIFA but with some different game modes. In the 2006 edition of UEFA, they created a mode called “Ultimate Team”, which was sort of like football blended with a collectible card game. Cards represented players, and you built your team by earning card packs. The packs came in the familiar tiers of bronze, silver, and gold, with the better packs offering better players. None of this was connected to microtransactions just yet. Packs were earned through gameplay and couldn’t be obtained with money, but the groundwork was there. Shortly after that, the EUFA license lapsed and EA decided that rather than paying to renew it, they would simply drop the series. However, they took the Ultimate Team gameplay mode and put it into FIFA, their flagship game. One of the FIFA developers wrote up a design paper for how they could hook Ultimate Team Mode into microtransactions. This design was approved by the executive producer, who was Andrew Wilson, future CEO of EA. FIFA 2009 launched with microtransaction-based card packs, making it the first example of pay-to-win loot boxes in a AAA game. The loot boxes of Overwatch and Team Fortress 2 came after this point, and their designs were much more friendly. They were focused on cosmetic items, while the FIFA Ultimate Team system built a core progression system around obtaining cards packs which could be bought for money. Here the author even coins the term “Wilson Lootbox” to denote loot boxes that are pay-to-win and tied to the core progression system. The system was so successful that it spread to other parts of the company. In 2012, BioWare developers worked closely with the FIFA team to implement their own version of loot boxes in Mass Effect 3. Meanwhile, the FIFA Ultimate Team mode was making hundreds of millions of dollars. That’s not sales of the game itself, that’s just what they made selling Wilson LootboxesWhich were called card packs in this context.. In 2014, it brought in $380 million dollars. EA put the Ultimate Team mode in other EA Sports titles like Madden. By 2015 these games were bringing in $600 million a year in Wilson Lootbox sales alone. By March of this year, these sales were up to $800 million. ln 2014 EA released Dungeon Keeper, a mobile game featuring EA’s pay-to-win Actually, it wasn’t so much “Pay to win” as “Pay to do anything at all”. scheme. It led to backlash a lot like what we’re seeing today. At the time CEO Andrew Wilson responded, and his response then sounds a lot like his response to the Battlefront controversy now. EA didn’t learn from their mistakes because pay-to-win was deeply ingrained in the company culture. An example of this is with the closing of Visceral games, who were working on a new Star Wars title. Project lead Amy Hennig did an interview where she talked about her time with EA: Hennig also wasn't used to working with a corporation like Electronic Arts. Despite being owned by electronics giant Sony, Naughty Dog had been able to operate autonomously, in large part because they were widely perceived as the corporation's prestige video game studio. At EA, however, things were different. “She was giving these massive presentations on the story, themes,” said one person who worked on Ragtag. “EA executives are like, â€˜FIFA Ultimate Team makes a billion dollars a year.' Where's your version of that?” The usual defense for this is that games need this kind of monetization because production costs have gone up. But in truth production costs are actually going downThe author doesn’t say where this information comes from. I assume the EA earnings reports?. Costs peaked in 2009 and have gradually fallen since then. Adjusted for inflation, last year EA spent $300 million less of game development than they did in 2009. In 2012, about 17% of EA’s revenue came from stuff like loot boxes and season passes. This year, about 45% of their revenue did. In 2012, EA made $76 million dollars, and in 2017 they made $976 million. The kicker is that we know $800 million of that comes from FIFA, which means all the rest of their games combined earned the other $197 million.

Wow. That ended up being longer than I anticipated. Again, all of this comes from the video. Actually, this is just a little over half of the points the video has to make, but it’s a long video and I can’t hope to do the whole thing justice here. I think I’m missing some context because at one point the author says FIFA makes about 45% of EA’s revenue, but then they also present that $197/$800 split and that doesn’t jive with 45%. If I’ve misrepresented anything the video claims in my summary then I apologize, but I wanted to get the key points into writing before we move on.

So What Does it All Mean?

Taking the claims of the video at face value, it confirms many of my suspicions regarding EA, but disproves others.

In the past I’ve said that EA could be making more money if they understood their products and their customers. This is true if we’re talking about their games, but loot boxes are far more lucrative than I would have guessed and criticizing their policies is going to require a bit more finesse.

See, making $800 million on FIFA is really good from a business perspective. I might not like it, but I can’t claim it’s bad business. Even better, it comes from an optional game mode within FIFA. While I don’t play FIFA myself, fans have explained that you can still play FIFA in standard mode and get the full FIFA experience. (Whatever that is.) So that $800 million is coming from people who willingly choose to play the optional Ultimate Team mode and who then choose to pay for card packs. That’s completely amazing to me.

Maybe you don’t like Wilson boxes because they’re gambling. Or they exploit people. Or they’re aimed at kids. Or whatever. Maybe you dislike them on moral or aesthetic grounds. That’s fine. I’m not here to argue about that. Over the past several years my criticism of EA has been focused on them as a money-making entity, because even if you accept the premise that the only legitimate goal of a CEO should be to maximize short-term shareholder value, EA has still come up short. Having said that, I admit that the FIFA Wilson boxes are a huge win for the company and I can’t really come up with an argument against them that doesn’t involve an appeal to altruism.

But this doesn’t begin to excuse their other blunders. In fact, it sort of highlights just how inept and uninformed the EA leadership has been. The vast majority of their income comes from one mode in one game. EA locked down the FIFA exclusive license 20 years ago and they came up with the Wilson box idea 9 years ago. Those decisions are making them a lot of money right now, but what has the current management accomplished? They’re riding the coattails of past leaders and not really coming up with fresh ideas of their own. Instead they’re burning through IP and alienating their customers chasing the Wilson Box dream rather than trying to make good products. At this point is seems like EA doesn’t want to make games except as a vehicle for loot boxes.

Wilson rose to the CEO spot. It’s reasonable to assume this was at least partly because of the success of his Wilson Box policy. But now that he’s at the top his only strategy is to implement that same idea in all their other blockbuster games, ignoring the important differences between the titles in terms of gameplay, user experience, and playerbase.

Imagine if Andrew Wilson was a product manager at General Mills. Someone gets the bright idea to put little colored marshmallows in Trix, their unpopular and almost flavorless breakfast cereal. Wilson approves the plan. Overnight the cereal becomes a smash hit and makes the company billions. So then he gets promoted to CEO of General Mills based on that success. Once in power he announces his vision for the future: Marshmallows in everything, without regard to flavor or the intended market. Wheaties. Cheerios. Pillsbury biscuits. Chex Mix. Progresso soup. Hamburger Helper. Totino’s Frozen Pizzas. Old El Paso Tex-Mex foods. Everything. Marshmallows everywhere. This is how absurd and primitive their monetization strategy has been.

Actually, it’s worse than this. The latter implementations of Wilson Boxes are more heavy-handed than the system used in FIFA. In FIFA the Wilson Box is part of an optional game mode, and in Star Wars Battlefront they have been made part of the core gameplay mode. FIFA Ultimate Team Mode has a single-player mode where you can play against the AI while you’re building your team, so you’re not doomed to go against an entrenched playerbase with fully-developed teams when you’re just getting started. (Yes, Battlefront has the single-player campaign. But you can’t unlock PvP loot boxes by playing the campaign. The point is that FIFA doesn’t just shove you into a world of pay-to-win PvP. It gives you a chance to prepare.)

EA duplicated the Wilson Box idea, but they put it into a new franchise that has very little overlap with FIFA players and they made the Wilson boxes part of the core game mode, which is PvP only. I can’t blame them for wanting another shot at a $800 million cash cow, but I can certainly fault them for doing so in a way that’s so clumsy, crass, tone-deaf, and reckless. A clever CEO would have rolled out an optional new game mode built around Wilson Boxes, waited until players were used to the idea, and then (assuming there wasn’t a backlash) tried to encourage players to engage with this new mode of play by quietly neglecting the original mode and focusing their free content updates on the mode driven by Wilson Boxes. That would be scummy and money-grubbing, but it would at least be the cunning form of scummy money-grubbing.

It’s not like they weren’t warned. When Dungeon Keeper blew up in their face it should have been a pretty big clue (not that a CEO at this level should need one) that “gamers” are not a single monolithic group and that different groups of people require different products and different marketing approaches. The Dungeon Keeper backlash. The SimCity backlash. The UFC backlash. The Star Wars Battlefront backlash. EA keeps getting blindsided with these disastrous product launches. Ubisoft and Activision are far from perfect, but note how they don’t seem to have this same inability to judge public reaction before a product launches. Having it happen once is understandable. Having it happen twice is unfortunate. But having it happen again and again suggests a complete blindness to what the market wants.

People have argued about whether or not loot boxes are gambling. Regardless on whether or not you think they’re gambling for the end user, they certainly seem like gambling for EA. They won the jackpot with FIFA, and now they keep coming back to the table and hoping the magic will happen again. Only they’re not gambling with money. (At least not directly.) They’re gambling with IP. EA bet Need for Speed, UFC, and Star Wars on their Wilson Box idea. It’s like a guy who wins the lottery by betting his house number, and now he’s convinced that’s his “lucky number” and he’s going to keep betting on it again and again.

Last week in the comments Richard said:

The other bit of idiocy is that EA have almost certainly lost all Disney franchises forever. EA put something that is now publicly associated with gambling into a Disney game.

â€" The UK gambling commission have been publicly investigating whether loot boxes are legally gambling for over a year (they have yet to report), so it's not as if it was a surprise. Disney have a fundamental, core company value of “No Gambling”, going all the way back to Walt himself. They know how much profit casinos and other forms of gambling make, but it is simply not what they do. For a concrete example: Every cruise line has an onboard casino â€" except for Disney cruise ships.

That is particularly damning. And let’s not forget the quote I mentioned earlier. When the EA executives were looking at the single-player Star Wars game and asking, “FIFA Ultimate Team makes a billion dollars a year. Where's your version of that?” If I was an executive at Disney and I heard about this, I would be pissed.

We entrusted these guys with our billion-dollar family-friendly property, and their first priority is to turn it into a slot machine?!

Yes, Disney entered into this Star Wars deal to make money. But unlike EA, they’re incredibly brand-conscious. They want EA to make cool Star Wars stories that keep people interested in the property. Their priority is not damaging the brand, because the brand is already making billions elsewhere.

The deal giving EA exclusive rights to Star Wars was made back in 2013, and the terms of the deal have not been made public. It’s unclear what the duration of the deal is or if Disney has any power to end the deal early or otherwise punish EA, but it will be interesting to see if there’s a reaction.

Killing the Golden Goose

Like we saw in the video, EA makes $800 million on FIFA Wilson Boxes and $197 million from everything else. (Note: I’m going by the claims of the video. I still haven’t dug into the EA financials myself.) The overwhelming majority of their income comes from one game mode in one game. They should be very keen to protect that FIFA income.

But this hard push to put Wilson Boxes into Star Wars didn’t just damage the Star Wars brand, it’s threatening the FIFA boxes as well. Before this, nobody was much concerned with loot boxes and gambling. EA could have continued to quietly soak up that $800 million every year and nobody would have made a fuss. But now that they put it in a Star Wars game, they’ve triggered a moral panic and politicians are eager to jump on the “We must protect the children!” bandwagon. Maybe you think it’s gambling and maybe you don’t, but what matters is what the lawmakers think. If microtransaction-based loot boxes gets banned in enough countries, then EA’s sweet FIFA money would be in danger as well.

No, it doesn’t look like the USA is moving to enact any big bans. But the USA isn’t exactly a huge fan of FIFA. This is an international brand and it depends on international sales. What happens when a handful of important countries all enact anti-loot box legislation? I promise they won’t all use the same definition of “loot box”. EA will have a compliance nightmare on their hands. Not only can they not sell their sweet Wilson Boxes in a few countries, but they would also have to make region-specific versions of FIFA to comply with local laws, or they would also lose the retail sales!

So they pissed off their gargantuan business partner Disney, they pissed off their customers, they’ve pissed off a bunch of politicians, they didn’t make Wilson Boxes work in Star Wars, and they’ve perhaps even endangered their cash cow. And just to rub salt in the wound, they managed to make shareholders very nervous. This entire story has been a stunning display of carelessness, arrogance, and clumsy greed.

The rot goes deep. EA doesn’t just need a new CEO, they need a new company culture.