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EA: Too Big to Succeed
The video game industry's high variable cost makes economies of scale difficult to realize.
1 Min Read
Gamasutra recently wrote an op-ed on why Electronic Arts is not an attractive acquisition target. The reasons cited include:
It's too expensive.
It'd make an acquirer look bad on paper.
Integration would be too challenging.
Investors are tired of big buys.
Acquirers don't have the cash on hand.
They wouldn't really get much out of it.
The article goes on to say,
In the analyst's opinion, "While EA management hasn’t done a great job, there’s no indication that a major media management team would do a better job -- and more likely the contrary would be the case."
The last comment is probably the most important. EA is the largest publisher in the industry and its portfolio has become unwieldy. For banks, energy companies, and automotive manufacturers, economies of scale often support mergers. Yet even in industries where mergers make sense, they often don't work.
The video game industry's high variable cost makes economies of scale difficult to realize. One need only look at the success of small independent publishers to see that corporate giants are no longer leading the way in innovation.
For EA to merge with another large publisher would only make matters worse. That is not to say that large publishers and studios can't be profitable, but the most successful ones need to focus on particular franchises or genres.
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