Electronic Arts Inc.
Q1 2012 Earnings Call Transcript

Published: 27 Jul 2011

[Operator:]

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Rob Sison, Vice President of Investor Relations. Thank you, you may begin.

[Rob Sison:]

Thank you. Welcome to EA's Fiscal 2012 First Quarter Earnings Call. With me on the call today is John Riccitiello, our CEO; Eric Brown, CFO; Peter Moore, President of EA Sports; and Frank Gibeau, President of EA Games. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks, an audio replay of this call and a transcript. This presentation and our comments include forward-looking statements regarding future events and the future financial performance of the company. Actual events and results may differ materially from our expectations. We refer you to our most recent Form 10-K for a discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of July 26, 2011, and disclaims any duty to update them. Throughout this call, we will discuss both GAAP and non-GAAP financial measures. Our earnings release and the earnings slides provide the reconciliation of our GAAP to non-GAAP measures. These non-GAAP measures are not intended to be considered in isolation from, as a substitute for, or superior to our GAAP results. We encourage investors to consider all measures before making an investment decision. All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated. Now I'll turn the call over to John Riccitiello. John?

[John Riccitiello:]

Thanks, Rob. Our first quarter was an excellent start to fiscal '12, with results ahead of expectations, both top and bottom line versus the guidance provided on our Q4 call. We came in at the high end of the range for both revenue and non-GAAP EPS versus the updated guidance provided on our July 12 call when we announced the agreement to acquire PopCap Games. Our top line reflected strong performance of Portal 2. The bottom line reflected strong performance from digital games and services and ongoing cost management initiatives. We're off to a good start to the year and feel bolstered by strong pre-orders for Battlefield 3 and Star Wars. We are also pleased to see that the NFL lockout is resolved. While we are increasing revenue guidance to include the addition of PopCap, we feel that it's still too early in the year to revise our FY '12 EPS guidance. Accordingly, we are reaffirming our non-GAAP EPS range of $0.70 to $0.90. On today's call, I'll update you on the progress of key titles and initiatives. Eric will provide a financial and sector update on Q1 followed by greater detail on our financial guidance for Q2 and fiscal '12. Peter will offer some color on our football and soccer franchises, as well as our free-to-play sports titles. Before we begin, I'd like to offer a brief overview of the industry. Most of us on this call recognize that the industry has radically changed and the pace of change has accelerated dramatically. Gone forever is the 4- to 5-year console cadence that gave developers ample time to invest and retool for the next big wave. Consider that just 18 months ago, there was no iPad, Google was just experimenting with Android and most big games were limited to a single revenue opportunity at launch. Consider that each of the major consoles now has a controller that encourages users to get off the couch and get into the action. On smartphones and tablets like the iPhone and iPad, the top paid apps are all games. Recognize that the fastest-growing revenue streams for console, PC, smartphones and tablets are all digital, and that EA is partnering with its retail and platform partners to help jointly grow these digital revenue streams. While the game industry has fundamentally changed, games are reaching a far larger audience base than ever before. With this in mind, we are building our business around 3 key strategies

[Eric Brown:]

Thank you, John. EA performance in Q1 exceeded the non-GAAP revenue and EPS guidance that we provided on the Q4 earnings call and is at the upper end of our financial update that we provided on July 12. Q1 non-GAAP revenue was $524 million, driven by strong performance of Portal 2, which sold-in over 2 million units in the quarter. Catalogue revenue was $144 million or 27% of Q1 non-GAAP revenue, resulting from strong performance by Crysis 2, FIFA 11 and Tiger Woods PGA TOUR 12

[Peter Moore:]

Thanks, Eric. I'm dialing in from here in New York, where about an hour ago, the Madden team and I just came out of a meeting with our NFL partners. We're working closely with both the NFL and the Players Association. Both sides recognize that between signing free agents, rookies and other undrafted players, there's a lot to do before the start of the season. We're now fully engaged in the promotional ramp up to the launch of Madden NFL on August 30. Like the players and the owners, we couldn't be happier with this resolution and we're beyond excited about having a full season of football this year. As you know, we have 2 outstanding American football franchises

[John Riccitiello:]

Thanks, Peter. Starting in fiscal '12, our focus is on

[Operator:]

[Operator Instructions] Our first question today will be from Brian Pitz, UBS.

[Timothy O'Shea:]

[Technical Difficulty] Yes, this is Tim O'Shea, speaking for Brian. I was wondering if you could give us a little more color on the stats with Facebook. I think I heard you say that average lifetime revenue per user is $56. Can you give us a little and maybe some color on what percentage of users are actually paying to play the game? And if you could just remind me what games specifically you're seeing the $56 lifetime revenue for?

[Peter Moore:]

Tim, I'll take that. That was my comment. There are 3 games we're looking at there. That's Madden Superstars, FIFA Superstars and our World Series Superstars games. The metric I'm referring to is average revenue per paying user, which when we look at the lifetime value right now, the $56 is the cumulative spend of the people who actually pay us. We're not breaking our paying users yet but, as you can imagine, this is such the nature of this type of games, it's in the small single digits. The great majority of people still play for free, and we enjoy them adding to the ecosystem that type of game.

[John Riccitiello:]

One of the positive aspects of Facebook credits is the primary impediment to getting above low to mid-single-digits for paying users among the total audience of those playing is many people don't want to stop their gameplay and/or credit card. As the Facebook credits ecosystem expands and they see 1/3 or 1/2 or 3/4 of their users with credit balances, we think that's a growth engine for us and, if you will, a playfield leveling program for Electronic Arts and social.

[Operator:]

Our next question is from Brian Fitzgerald, UBS.

[Brian Fitzgerald:]

[Technical Difficulty] Sorry, I wasn't sure if it fits your guideline or not. The question we had was regard to Battlefield 3, and I wasn't sure if he had asked that.

[John Riccitiello:]

No, please go ahead.

[Brian Fitzgerald:]

Okay. So in terms of Battlefield 3 pre-orders to date, can we get some color on that perhaps relative to Medal of Honor and which platform is seeing the most interest there?

[Frank Gibeau:]

This is Frank. Battlefield 3, we've been comping against Battlefield

[Operator:]

Our next question will be from Brian Karimzad, Goldman Sachs.

[Brian Karimzad:]

One on The Old Republic. Can you help us understand how the capacity management is going to work at launch? What kind of lead times you have to add capacity? And how do you plan to manage the effect of people wanting to level up with their friends together if demands starts to significantly exceed the capacity out of the gate?

[Frank Gibeau:]

Yes. I think we're in pretty good shape to do that. We've got a very aggressive plan to be able to scale multiple millions of users coming into the Star Wars franchise and service this fall. We're looking at pre-order campaigns and telemetry coming in from retail as well as online to get a sense of the overall base, and it's very strong. We're pretty relaxed about what we're going to be able to achieve there. We'll be able to scale up and light up new servers on a fairly quick base. And we've got a plan to do that over the months following ship, and we have a lot of capacity built into that.

[Brian Karimzad:]

Okay. And then just one on The Sims Social. I know it's marketing stuff you may not be able to share but any sense on intent to play as a percentage of that user base? It shipped over 100 million units so far.

[John Riccitiello:]

So just for everybody on the call, the 100 million units, it's like 120 million now in terms of lifetime units against The Sims franchise. And no, we aren't going to put out the stats because you're right, they're highly sensitive, competitive comparisons, which is one of the reasons we also aren't giving you a launch date. It's relatively easy for a competitor to buy all the relevant advertising say 24 to 36, 48 hours prior to a release. So in the social and frankly also in mobile, you're offering you to learn about our big ideas in terms of the specifics shortly after the fact, as opposed to leading into them because the market dynamics are sizably different than retail.

[Operator:]

The next question is from Edward Williams, BMO Capital Markets.

[Edward Williams:]

A couple of questions also on Star Wars. Can you talk a little bit about what you see as being the size of the MMO RPG market as a whole as we look at North America and Europe, how you kind of go about trying to get a sense for the scale and the interest in that specific genre? And then also in terms of Star Wars, is this something we should kind of look for kind of after-the-fact in terms of when we can get some details and thinking about modeling it and looking at how pre-orders have gone? Will we hear that kind of after-the-fact or can we hear it kind of leading into it?

[Frank Gibeau:]

No, I think on the next call, we'll definitely be briefing you in more detail on how the launch is shaping up and how we're tracking there in terms of your second part. The MMO category is extremely large. It's a tens of millions person opportunity for us, both in Europe and the West. It's not only personified by World of Warcraft, but you see a lot of other games in there like the RuneScape, MapleStory that qualify as MMOs and also contribute to that overall market size. We feel very bullish to be able to come into this category with a fresh offering, something that's brand new that appeals to a majority of that category. And it's a category that hasn't seen a lot of releases that fit the scale over the years and we feel like we're in a good position to pick up on a lot of latent demand. Frankly, people who have played Warcraft, which is the market leader in laps, to bring them back into the market and activate them that way. So it's a big segment, it's a strong segment and yes, I think the response on pre-orders over the last 5 days has indicated that we've got something that's going to appeal to that overall market.

[John Riccitiello:]

A couple of added points, this is John. One is that there are -- we're going to try and be broader in this commentary on the size of the sector but there's about as many definitions on what's included in the RPG MMO market. Our internal market, our judgment based on what we've included shows the double-digit millions of subscribers in the Western markets, 12 million, 14 million, depending on what's included or not. And higher, if you start including some of the lower price per month competitors. But in terms of how to frame the business model and its impact on margins, I think is what you're getting at there, these are actually pretty complex models but you need a lot of information like over the lifetime of the user, churn rates. You need to know a lot about conversion from initial purchase. And at least at this point, we're obviously not in a position to give you that but we have framed this in prior discussions. What we told folks was that this is a product that it starts to make profitability about 500,000 subs. At about 1 million subs, it's a business that makes good money on an ongoing basis but it doesn't feel great about the historical investment that sort of got us here. And anything north of 1 million, as we approach 1.5 million or 2 million, starts to look like a great investment and justifies the entire purchase price of VGH stock filed in a very positive way. So we frame that out. We also said as we fit into that latter category, we're moving from the high-30s to the mid-40s in operating contribution. So if you pin those 2 points, you can pull a lot of numbers in there but that sort of gives you a frame on how to look at that. We have provided that same framework previously because we recognize how difficult it might be from the outside looking in for modeling an MMO from Electronic Arts.

[Edward Williams:]

And just one other quick question for you. Where is your thought on getting third parties onto Origin?

[John Riccitiello:]

We've had a lot of inbound inquiry about getting on. I think forward-looking, publishers really want their content on any and every platform possible, one more sale is better than not. By way of example, even though we have Origin, we are pushing EA content digitally on any and every EA platform we can. And in fact, just this morning, we were talking to the guys at GamesFly. I was personally talking to him about just that. They're great partners for us in and around things like -- we've been reading about lately about what we're trying to do on the doing subscription side for our marketing service for the sports business and we'll be great partners for a lot of our digital initiatives. So we love what we're getting with Origin, if you will. We hope to be HBO if it means Netflix to gaming, but we're also very keen to have our contract distributor anywhere and everywhere gamers are.

[Operator:]

Our next question will be from Arvind Bhatia, Sterne Agee.

[Arvind Bhatia:]

Just a couple of product-related questions. One on Harry Potter, any color if you could provide us, how that product is doing in the market right now. And then on FIFA, given it's the end of the quarter but you can recognize revenue of course upon the shipment. Eric, can you give us some color on how to model that for the September quarter versus December?

[Eric Brown:]

In regards to FIFA, it's still a -- we still think of it principally as a packaged good so we're expecting the non-GAAP revenue to hit the September month there for fiscal Q2. So we expect it to be a normalized launch in respect to how it launched last year.

[John Riccitiello:]

In terms of Harry Potter, we had a good solid sell-in. I do not have great data at this point on sell-through, too, it's a little early to read. Rob should be putting more information on that on the course of the next call.

[Arvind Bhatia:]

Let me ask another one then. Housekeeping, Catalogue for the quarter, Eric?

[Eric Brown:]

Our Catalogue performed well. We'll pull the Catalogue stat here for you in just a moment. I think it was 27% in the comments and so reasonable catalog percentage. Most notable for us though in the quarter is the percent of digital. Digital was 40% of overall revenue in the quarter versus the $524 million of non-GAAP revenue and I think that's one of the highest numbers that we've experienced in terms of mix.

[John Riccitiello:]

And on that, one stat I would draw your thoughts to within the release. On a trailing 12-month basis, our digital was up 35%. We've noted in recent quarters a number of sort of lumpy entries when we get some one-time revenue, but the trailing 12 is a good way to iron all that out. And it shows growth across EA's range of digital offering that's greater than the industry, so we're gaining share.

[Operator:]

The next question is from Justin Post, Bank of America.

[Ryan Gee:]

This is Ryan Gee calling in for Justin. Couple of questions for you guys. First, with PlayFish and PopCap soon part of your digital portfolio, do you think you really have enough there to win on the social platforms? Or do you really -- is it possible you might need more assets to go head-to-head with the likes of Zynga and those players? And then second, maybe this is for Peter, but on sports, what do you really attribute the growth in that category to? With FIFA growing really well last year and then NCAA off to a good start this year, is it just simply product innovation or is there more going on there?

[John Riccitiello:]

So I'll start with the social side. First off, I would say we definitely think we have the assets we need to grow in social. But I would certainly not limit it to PopCap and Playfish. We have -- as Peter just mentioned a few moments ago, we're pushing hard on social with our sports businesses. And we've already announced Sims Social, which is intellectual property from EA's core that's been built at our Playfish studio in the U.K. You've seen it has grown up. You're going to see a from the games label. I was personally addicted to Dragon Age

[Peter Moore:]

Yes, as regards to question on sports, I think product innovation is obviously key. But also, we now look at a situation where we've really matured with our digital offerings. The ability to bring our sports consumers not only vertically down our franchises deep on multiple platforms but across, and I think the Ultimate Team stats and the Facebook stats that I presented to you in the prepared remarks are just the tip of the iceberg of what we're looking to do. So we're not losing our consumers as readily as we did in the analog world, if you will, of the past. We're able to communicate with them every day. Our marketing this year so far has been spectacular. And as I said, I just left the NFL offices where we presented our marketing plans for the next 60 days as we get close to launch. But really I think the focus on online, connecting our consumers, communicating with them everyday, driving hard at retail. Our retail partners are doing tremendous work for us on presales, and we're seeing strong growth at retail and in particular here in the U.S. at GameStop, Best Buy and Wal-Mart, as you might imagine. But they're also playing a very important part in the growth of our digital business. They're strong partners not only with packaged goods but also selling digital content. And they're a very, very important part of the ecosystem now and beyond. So retail becomes even a bigger player as we have more offerings every single day now rather than singular launches we may have had in the past. So I would encapsulate it as product innovation, digital offerings, and then all wrapped up in tremendous world-class marketing.

[Eric Brown:]

To put a point on the digital engagement of FIFA and how that's improved significantly year-over-year. As of the end of Q1, we realized $64 million of digital non-GAAP revenue, which is console, DLC and FIFA 11, compared to $33 million on the predecessor title, FIFA 10. So basically, a doubling in digital revenue on that one franchise year-over-year.

[John Riccitiello:]

And the strong start in NCAA, we've given it a little bit more room by moving Madden back a couple of weeks. But it's frankly a product that's been exceptionally well reviewed, not just the professional reviewers, but if you read any of the social blogs that are sort of a lighter consumer, they're paying us as one of the better football games ever. So quality pays.

[Ryan Gee:]

Okay, great. And then one follow-up question maybe on Madden. With the NFL season seemingly back on track, has your outlook for that title changed at all? Or now with the move out of the launch date, has your outlook there changed?

[Eric Brown:]

This is Eric, I'll comment on that. Certainly, the news regarding the NFL resolution is positive. It's a late-breaking development. In terms of revenue impact, we expect some upside in the fiscal year that would start to appear in Q3 versus Q2. We'll assess the initial sell-in later this quarter and provide a revenue update on our next call. In terms of fiscal '12 EPS impact, we've already pointed out the fact that we hedged our royalty cost in that margin, meaning that we protected the P&L downside, which at the same time limits net margin upside from a normal season scenario. To set expectations, we would not expect revenue upside to have a significant fiscal year 2012 EPS impact.

[Operator:]

Our next question is from John Taylor, Arcadia.

[John Taylor:]

I've got a couple of questions. First, I wonder if you could briefly touch on the distribution upside and what's included in that number. The second question maybe, I wonder sort of maybe talk about sales and marketing and how that's being allocated amongst vehicles or whatever as a revenue mix shifts into other areas and you're addressing a different audience than maybe you have in the past. And the third question is I'm interested in your comment about revenue being up so much at Playfish. Is there anything you can sort of talk about there as it relates to increasing trends in revenue per paying or what the key levers are behind that?

[Eric Brown:]

Well, I'll take the first part of the 3-part question. The distribution change, we've increased guidance from $200 million to $250 million, and it's a function of the very strong performance of Portal 2.

[John Riccitiello:]

On the sales and marketing side, I would say that there are sort of 2 broad trends going on. And it's obviously very specific to a lot of our products at the high level. The first thing that I would articulate is that we've been shifting dollars from traditional television and from other sort of both traditional ways to bring product to market and investing increasingly in a variety of digital media where we have really, really, really good data on return on investment. We're doing that across the portfolio of our products, and that's working very well for us. In terms of our digital offerings, most of our digital offerings fit into one or both of the following categories. They're either under the umbrella of a major brand launch and they in a way almost get free marketing. It's not exactly free, but there's no question that our sports franchises on Facebook benefit from very strong brand awareness. And so we're getting that with Dragon Age. We're getting that with our sports franchises. We get that with Hasbro. We've got major brands where our competitors have got to create their brands in order to elbow their way into marketplace. The second factor is just an honest admission that marketing spend on a lot of these products is a little bit tough to budget. The reason it's tough to budget is we measure so well. And so when we are marketing a social product and we are seeing statistics that suggest that the revenue is significantly in excess of the advertising, we increase our advertising budgets immediately. And they flex up and down with our opportunity. And that's not just the ad. Most of the more sophisticated players and digital channels are operating just that same way. We do a lot of testing on the business model, what exactly works best for micro-transaction for the offering and the price. But we also deal with our marketing and distribution. If we buy an ad at a particular -- from one of our products like a Battlefield play-for-free or 1943, if we buy an ad on a gamer site and the click-through is such that it's a positive return on investment, we do it again and then we do it again until it stops being a positive return on investment. So in general, spend is moving from, if you will, the analog world to the digital world. And then secondly, for digital products and when we are in the world, we use a lot of data to help guide our spend. You're asking about what's been driving revenue on the social side, and I would say that you might in a way think about it as a one win and one loss for EA, and I hope to be in the 2-win category over the course of the next 6 months. We have not seen the growth in DAUs that we would have liked in the last couple of releases. What we have seen is strong increases in revenue for the paying user and revenue per user overall. In other words, if DAU is roughly flat, we roughly double our revenues. So what's happening is we're moving revenue per user up sharply. That's a very good thing, and that's going to help us a lot as we launch some major brands. We have several major launches in the balance of the fiscal year in social where we've learned the right lessons around monetization. And then lastly, if you go back to the July call that we made on PopCap, one of the things we've pointed out is that they have a lot of interesting products with relatively low monetization and that's an area where we can present a strong synergy between our learnings and their IP.

[Operator:]

The next question will be from Mike Hickey, Janco Partners.

[Michael Hickey:]

Just curious on Star Wars. You said record pre-orders. I was hoping that you could wrap some context for us on that and maybe specifically how pre-orders for that game are pacing your expectations. And also curious on your beta testers, if you can give us any update there and perhaps what you're seeing in terms of your beta testers converting to pre-order buys?

[Frank Gibeau:]

Sure. I'm not going to give you an actual number yet on the pre-orders. I want to get through the first week and all the telemetry come in. But in general, the pre-order numbers are ahead of our expectations on Star Wars. It's ahead of the curve that we plotted for what we need to do in terms of reaching our goals. It's about -- it's the largest number we've done at EA in comparison to other titles. The next closest title is Battlefield 3, and it was up significantly from there. In terms of the beta test, we have thousands of people that are in current beta test going on right now, and we're learning a lot of great things and getting a lot of great telemetry that's improving the game on every new release. The purchase intent through third-party research companies is some of the highest numbers they've ever seen. So some of our partners on that front have come back and given us extraordinarily high conversion rates from who's actually in the game and playing it through 10 levels, 20 levels and so forth and so on. As we get through the bulk of the summer, we're going to be ramping up our beta campaign. And by the time to get around September, we'll be in a position to be able to really call the ball and give you the hard ship date.

[Michael Hickey:]

Okay, great. And then one follow-up if I can. On your -- Eric, I know you raised your numbers for the year and that mostly reflected FX distribution and PopCap. What I'm hearing from you guys is that Star Wars is at a record level in terms of pre-orders. Madden, at least the season back on. I think we have to be more hopeful. NCAA Football, up strong. Battlefield 3 pre-orders, I can imagine are likely outpacing our expectations. And hearing from Peter, it looks FIFA, double-digit growth, that's the biggest franchise you have. So are you just being conservative? Do you think, Eric, in terms of your outlook for the year or are these kind of in line with what you're thinking? Or how should we wrap that up for the rest of your year?

[Eric Brown:]

Well, I think it's important to keep in mind the shape of the fiscal in the quarters. We still have 150% of our non-GAAP EPS ahead of us, the all-important December quarter. And so I think that has to be taken into account as well. I think it's fair to say that we're on track. We feel good about where we are, our major titles. The initial indicators in terms of pre-orders, interest, et cetera, are all positive. But frankly speaking, we're just too early in the fiscal for us to flow through any of the revenue upside to the bottom line at this time or making other adjustments to the full year non-GAAP EPS range.

[Operator:]

[Operator Instructions] Our next question is from Atul Bagga, ThinkEquity.

[Atul Bagga:]

I have a couple of questions for you. EA was trying -- I was hoping if you can help us understand the sequential decline in digital revenue from Q4 to Q1. And secondly on Origin, can you talk about what are the KPIs or metrics that you are managing this business by? I know it's still in very early stages but maybe if you can share some early reception, number of partners, number of games, download, what are the things that you might be sharing with us?

[Eric Brown:]

I'll take the first portion of the question here. So again, you saw the sequential revenue is down but bear in mind, we had a large number of packaged goods titles shipping Q4. And so if you look at your declines and we also ran a large number of promotions in areas like mobile, and so the packaged goods related to revenue, whether its full game PC downloads or console DLC, they're going to follow some patterns of seasonality that relate to when you ship the titles. And so that's exactly as we expected as we look at Q1 Digital. It landed in line with our expectations for seasonality. So we're not at all surprised at the overall outcome.

[John Riccitiello:]

So this is John. With respect to KPIs in and around Origin, we have frankly several dozens that we're tracking very carefully. And I don't think we've really come to a conclusion to what we want to share on this call, but I will give you a couple of things that we've been through to give you some sense of where we are. The first issue was whether this was going to stand up to traffic. A lot of folks have said our platforms that they don't work. And that result some pressure to like we've managed the Star Wars pre-order program through Origin. They can fall down for a bunch of reasons. So the platform has demonstrated it to be very robust, very stable, up 99.99-something percent. So at least in terms of its stability, we feel great about it. The second issue is our consumers using it. And while I'm not going to give you the numbers today, we're seeing good uptake. By way of comparison, when we've had good success, for example, on Steam, and then a similar -- that same title is released on Origin, we see similar revenues throughout, service is much more mature and of higher scale at this point in time. So we're seeing good revenue flow through on Origin. And of course, that's a good thing because we capture virtually 100% margins there. I think the trick and probably the most important issue for us is watching how this thing scales. And this is clearly going to be an issue of number of users, one, and ARPU per user like any digital business. Obviously, margins are going to be very, very important. But it is going to be how frequently they use, how many we have, how frequently they use it and how much they spend when they use it. And we have 3 to 4 metrics around each of those because there's a different set of statistics on what actually defines the user. Is it past week, past month, past quarter? But as we manage through this process, we'll come to a presentation for investors probably later in the fiscal year to give you the kind of visibility you're looking for. But to be honest, what I was hoping for when we introduced it last month was to get through the pre-order launch of Star Wars without falling over. And I know that may sound like a low bar but that was actually a very important issue for a very complicated system that underlies Origin, and the team nailed that with flying colors. I wanted to see the beginnings of consumer acceptance in terms of usage. We've seen good statistics there, and I wanted to see the beginnings of solid monetization. We've seen good statistics there. From here, the fall will be very telling. We're going to see a lot of consumers on December 26 and the Monday before the holiday.

[Atul Bagga:]

Just a quick follow-up on that. You had mentioned a partnership with GameStop. And if I understood right, I mean, it seems like GameStop with their Impulse, Respawn and Kongregate acquisition, they're also working on a similar online gaming platform. Can you help us understand how the partnership with GameStop is going to work on the EA-Origin side?

[John Riccitiello:]

Sure. It's really the EA, overall. So first off, we support virtually every retailer around the world as they enter the e-tailing business. And it's actually more of the exception to the rule when a retailer doesn't have a big e-tailing business today. In terms of our ecosystem versus theirs, they're going to have a loyal customer base inside of GameStop with loyalty programs across a range of products that is inclusive of EA and many other publishers. We're obviously going to be going deeper around our own particular offerings. We think they coexist nicely. But by way of example, if they sell a downloadable product on GameStop, they get a retail margin as they do in retail. And they also sell prepaid cards. They're going to be selling downloadable content. We're going to issue them codes. But we're very much strong enablers of GameStop and do not see a conflict. And our strong supporters of Wal-Mart and Best Buy and media market and retailers around the world. This is core to our strategy. Yes, our margins are better at Origin but we think our ecosystem is critically important to the, if you will, the vitality of our sector and the our company. So we're strong on supporting them.

[Operator:]

And our final question will be from Sean McGowan, Needham.

[Sean McGowan:]

A couple of quickies. Could you give us some bracketing of what you think the one-time charges will be for PopCap?

[Eric Brown:]

Millions of dollars. We haven't given a precise number but we expect substantial. It will incur substantial legal costs to do the deal, and we expect to incur systems and other integration-related costs during the September quarter.

[Sean McGowan:]

And that will all be taken care of in that quarter assuming that the deal closes in that quarter?

[Eric Brown:]

We expect to have a significant portion of them done in Q2. And there will be others trickling into the second half of the fiscal.

[Sean McGowan:]

Okay. Then regarding the Star Wars launch...

[John Riccitiello:]

Mr. McGowan, you understood though that's offset by incremental margin, driven by PopCap. So hence, the forecast, it's EPS neutral this year and at least $0.10 accretive next year, as we're benefiting from the full drop here and no restructuring charges.

[Sean McGowan:]

Right, I understood it to mean that it was basically somewhat accretive excluding those one-time charges for this year. On Star Wars launch data, can you give us some -- I think you've commented on this in the past, some idea of what potential range of impacts there could be depending on the launch date within the holiday period? And the kind of corollary to that, would there be any impact on the contribution from Star Wars in the subsequent quarter, the fiscal fourth quarter or beyond that, depending on where in the holiday season it launches?

[John Riccitiello:]

I'm going to top line that and maybe Frank or Eric will follow up. But when we provided our original guidance for the fiscal year, what we said was we're providing a relatively wide EPS range, $0.70 to $0.90. And the reason we did that is while we were targeting Q3 for the launch of Star Wars, we recognized the possibility that through beta testing, feedback and our operational scaling, there's a possibility that we may move the title into Q4. So really, what our $0.20 range or the lion's share of our $0.20 range, is dealing with is the movement or the potential ship dates of the title. What you've heard from us today is a series of good markers relevant to the progress that we're making, both developing the product, consumer feedback and operational feedback. But the difference, say, between a Q3 and a Q4 launch date is a relatively binary event, hence we've kept the range intact. But our focus is strongly on Q3. That's where we're focused on. But we've maintained the guidance range, which captures a few more events as Eric mentioned in his comments.

[Eric Brown:]

Yes, this is Eric. One of the thing I would add, maybe assist with your modeling here is that we've given an updated non-GAAP OpEx number of $2.15 billion for the full fiscal year. And we see that as breaking down into approximately 49% falling into the first fiscal half and 51% falling into the second half. So that gives you a little more context on what's happening in the respective Q3, Q4 versus first half time period in terms of OpEx.

[Sean McGowan:]

Okay. And then depending upon whether it's Q3 or Q4, would there be any impact on your -- on the total number of users you would expect in the following fiscal year? Or does everybody who's going to sign up, sign up right away, and you don't lose time by maybe missing a few weeks?

[John Riccitiello:]

It's actually because we're trying not for that to be the case by giving you a range. What I mean by that, not to be cheeky, is that we have high expectations for potential for the product. And the one mistake we don't want to make is if there is an issue to make sure that we ship the right product. But I mean, yes, there's clearly scaling curves but we don't think the ship window is going to change the long-term potential of the title. And I want to be clear about this. We're focused in driving hard towards Q3. We've kept the range out there as I think smart managers need to for a range of potential outcomes. Until something is certain, it's not done. Most MMOs have been announced in terms of ship dates, 4 to 8 weeks prior to introduction, that's relatively standard. People have target quarters. But whether it's World of Warcraft or it was our last launch or Sony's last launch, 4, 6 weeks is relatively typical. You usually want to have high-scaled testing completed under your belt before you open it up to the paying consumer because the paying consumer can be very harsh. They have high expectations for perfect performance, and that's what we intend to provide at launch.

[Rob Sison:]

Okay. So that's the last question. We thank you for your time today, and we will look forward to speaking with you next quarter.

[Operator:]

Thank you. This concludes today's presentation. You may disconnect at this time.