SHANGHAI, China--With billions of dollars flowing annually into its coffers and with millions in the bank, Electronic Arts can do just about anything it wants. Or rather, it can do just about anything its shareholders will let it. In a bold move that's sure to incite conversations among those investors, the company took a couple of moments this week to talk up its plans for the marketplace that just about everyone in North America and Europe is trying to figure out: the fast-paced and highly profitable online gaming space in China.
Unlike its competitors, however, EA is allocating more than just one or two scouts to peruse the landscape. Through conversations with EA staff present at this week's ChinaJoy, an online game conference and consumer exposition, and through two highly visible presentations by executives at the expo, the company is making no bones about its goal to have a local operation that supports a staff of more than 500 in place by the end of the decade.
To that end, EA has moved one of its top executives, Erick Hachenburg, to Shanghai to deliver the goods. And as might be expected, the chatter among experienced China hands has been intense, running the gamut from "if they think they can waltz in to China and start doing business" negativity to opinions that are far more favorable. Those who dabble in offline product, in fact, see EA's effort in China as one that will solidify the standing of all publishers and distributors of shrink-wrapped product.
GameSpot spoke with EA's Hachenburg in Shanghai.
GameSpot: Welcome to China, Erick. What's behind EA's interest in the market here?
Erick Hachenburg: The fact is that China, for all industries, is a huge, huge market.
GS: Games included?
EH: We just went from a world where there was absolutely no business model to speak of to a fast-emerging online gaming business model that no one had predicted [would] happen. And what's interesting is that the consumer has said something we didn't expect: "We will pay for content." That's a huge, huge change in the marketplace as we roll into China.
GS: Where's the research on that point?
EH: We're looking at the existing players in the marketplace. We're looking at Shanda, at The 9, at Optisp, and at Netease.
GS: And the money looks to be what?
EH: Out of nowhere, we have seen projections that suggest this year will be a $250-million online games business in China. If you look at the entire retail games business in China over the last several years, I don't think it's grown much. Including pirated software, I think [most analysts saw it at being] about $100 million, flat, for years and years. Now, from zero to $250 million in two to three years in a marketplace that just had no control, no business model, no opportunity.
GS: I can see the prospects look good. What's the current status of conversations between EA and the government, and how important are those conversations in facilitating your entry into this market?
EH: It's very important. We look forward to working with the government closely.
GS: Your interests and theirs--how close?
EH: I think the government and EA have similar interests in the sense that we both believe that China can be a leader in the online games business--from a technology perspective, from a production perspective, and from a content perspective. That's where we have aligned interests.
GS: Conversations go how?
EH: When we talk to the government, we have very similar interests: How do we build an online games business here in China that can be a leader for the rest of the world? How do we bring technology here? How do we train people here? How do we bring the same kind of studio capabilities that we are renowned for all over the rest of the world? How do we bring that to China?
GS: Is this week's news only about China?
EH: Online games are the key to our return on our investment here, but the ambition is beyond China. It's build for China, and then build for the rest of the world.
GS: To accomplish that, is it just a matter of finding some real estate, building a couple of buildings, and hiring people?
EH: For us, launching and being successful in China will almost certainly require partnerships. China is such a fundamentally different world from what we know in North America--not just because it's online games versus retail games, but also from a cultural perspective. Everything about China is different from what we see in the United States or even in Europe .It's a long laundry list of challenges that we face in China.
GS: You mentioned four or five gaming players in China. Is the likely partner for EA somewhere in that group?
EH: We're talking to everybody in the China market. We're trying to learn a lot about the market as quickly as we can, so we certainly talk to the online game operators, but we also talk to companies in and around the online games market.
GS: Will it be just a single partner here in China?
We won't have one partner. We'll work with lots of different companies in China--the same way we do in the United States. We've done a lot to build our own intellectual property in the United States and in the Western markets, but we've also combined that with licensed properties in those markets. It's the combination of having control over our own destiny, as well as partnering, so the strength of both of those together is likely our success.
GS: How does what you've learned at EA, and at Pogo, translate into creating competent, competitive product for this market?
EH: We have to do two things right. We need to take what we do really well at EA already, and bring better production value to the games that are in the marketplace today--in the markets that have been so successful in China. We'll grow the market as the computers upgrade and as broadband rolls out more broadly in China.
Another thing that we do at EA that we'll bring here is broad genres and multigenres. EA's been successful in many, many different genres. Sports haven't been developed in China in a meaningful way online, real-time strategy games are just starting to develop that way, and also first-person shooters There's a lot of opportunity for us to bring new genres with our production values here, but for us to come in here and say that we have all the answers, that's not the right approach. That's why we need to partner with folks in China.
GS: When will you start hiring staff in China?
EH: We have to set up a physical presence in China first, getting the process under way, but that takes many weeks and months to get into place.
GS: Are there any similarities between what is happening here in China and your experiences with startups in the past?
EH: It's as if we're going back to the days when we started Pogo. It's like, nobody's ever done this before, so let's go try to build something brand new. We get to do that now in China. It's the largest country in the world, it's developing its economy faster than the other countries in the world, and they couldn't care less about retail. They only care about online. The consumer, business model, and content all have to be online, so that's a tremendous opportunity for us.
GS: I understand that you're going to build a studio here?
GS: Can you talk a bit more about that operation?
EH: Well, the reason we're building the studio in China is because for us to be successful in China, we believe we have to be on the ground in China. It's a different enough culture that we have to be on the ground to get the right flavor for the games. There's no question that there are whole-new storylines and mythologies here that we can build on, and that presents a tremendous opportunity.
GS: The size of the operation will be what?
EH: We're talking about having an organization of something like 500 people in the studio working to build games. That's not the [executive] organization and operations. That's our studio function. By the end of the decade, it seems like a reasonable goal for us to have that kind of presence.
GS: Thanks, Erick, and good luck.