Electronic Arts Inc.
Q2 2012 Earnings Call Transcript

Published: 28 Oct 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. You may begin.

[Rob Sison:]

Thank you. Welcome to EA's Fiscal 2012 Second Quarter Earnings Call. With me on the call today is John Riccitiello, our CEO; Eric Brown, CFO; Peter Moore, COO; and Studio President, Frank Gibeau, will join us for the Q&A. 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 future financial performance of the company. Actual events and results may differ materially from our expectations. We refer to you our most recent Form 10-Q for discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of October 27, 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 a 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 S. Riccitiello:]

Thanks, Rob. We are pleased to report a strong second quarter with results ahead of the top and bottom line expectations that we provided on our last earnings call. Our results reflected a tremendous performance by our EA SPORTS titles and a strong showing for our newest game on the Facebook platform, The Sims Social. EA has delivered solid results in the first half of our fiscal year, and we are now focused on our biggest titles for the holiday. FIFA 12 is having its best year ever with a critical index of 92 and record sales in both North America and Europe. Battlefield 3 was launched on Tuesday and has opened very strong. We shipped 10 million units to retail and we are already receiving reorders. The data is still early but sell-through is strong. Next up is Need for Speed The Run on November 15 and then the most anticipated event of the year Star Wars

[Eric F. Brown:]

Thank you, John. Starting with a review of Q2. EA performance in Q2 exceeded the non-GAAP revenue and EPS guidance that we provided on the Q1 earnings call. Total Q2 non-GAAP revenue was $1.034 billion, growing 17% versus last year. The growth was driven by a strong performance in each of our sports releases. The current releases of FIFA, Madden, NCAA and NHL each grew year-over-year and collectively, they grew more than 20%. Q2 Digital non-GAAP revenue increased 30% year-over-year to $216 million. Downloadable content and Free to Play micro-transaction content was $85 million in Q2, up 33% versus last year due to the inclusion of PopCap revenue and The Sims Social game which launched midway through the quarter. FIFA was a key contributor, generating more than $20 million of non-GAAP Digital revenue for Q2. Mobile and other handheld Digital revenue was $55 million, up 8% versus last year, due to continued growth in smartphone-related revenue. New titles likes Spy Mouse for the Apple iOS and established brands like FIFA contributed to the smartphone revenue growth, which offset the reduction in the feature phone-related revenue. Full game downloads were 26 million, up 44% year-over-year, driven by downloads for Sims 3 and PopCap Games. Additionally, Battlefield

[Peter R. Moore:]

Thanks, Eric. I'm going to cover 3 topics today

[John S. Riccitiello:]

Thanks, Peter. We feel that EA is executing well. We're halfway through our fiscal year and delivering on our plans and raising guidance. We began the year with 3 objectives that none of our competitors can deliver. First, we vowed to drive our key brands further, we did that with investments in quality and by driving them to mobile, social and micro-transaction models, madden, FIFA, Battlefield 3 and soon Need for Speed The Run, and Mass Effect 3. No other company can deliver that superior quality and digital experience from as many brands. This year, we're adding Star Wars

[Operator:]

Our first question is from Edward Williams, BMO Capital Markets.

[Edward S. Williams:]

Just first of all, a quick question looking at FIFA for a moment. Can you give us a little bit of color as to how much the revenue and profitability of that franchise has been enhanced by the move in to digital?

[John S. Riccitiello:]

First part of your question, Ed, was cut off. Could you repeat that again please?

[Edward S. Williams:]

I'm curious about FIFA and how to look at how FIFA 12 is performing relative to prior versions of it given the significant focus on digital. And what I'm trying to figure out is how much is the revenue of that property been enhanced? And how much is the profitability of that property been enhanced as you really embraced digital for that particular game?

[Peter R. Moore:]

So Ed, it's Peter. I think it's -- think of it in these terms, obviously, with the Packaged Goods business being up 25% globally, so far this year, we're feeling very good about that and it'd be at the core SKU as I spoke about in the prepared statements. We're seeing over 2 million people now already engaged in FIFA Ultimate Team. If you recall on the last earnings call, I believe it was I talked about the ARPU, I think it's fair to say when I look at the projection going forward, we could get as much as 25% more Digital revenue on top of the core Packaged Goods business. Last year, we did over $100 million with Ultimate Team, which was FIFA 10 and FIFA 11 combined. Also important to note we're still getting considerable revenue right now from our FIFA 11 franchise where Ultimate Team is still open in FIFA 12 as well. So as I said in the statement it's already at $13 million, I think approximately 25% on a go forward run rate feels like a good figure for me.

[John S. Riccitiello:]

I think Peter's talked about Ultimate Team, which is the extension to our console game. To that, you would have to add what we get in mobile, what we get in social, what we have in career with FIFA Online. And just another observation, the telemetry data is pretty clear. When we extend our brands in the new platforms, we actually create more users for our Packaged Goods games. So it's actually a very virtuous cycle that drives frankly a stronger brand and a stronger revenue opportunity. And without getting -- putting too sharp a point on it, FIFA's development costs have not been escalated in line with this type of growth in revenue opportunities so it's a margin expander.

[Edward S. Williams:]

Okay. Great. The other quick question I have for you is looking at Sims Social, can you give us an idea as to what monetization trends are like for that?

[John S. Riccitiello:]

In terms of trends, I think that's a little hard to pinpoint. Only because I don't know that we've been in the market long enough to experience anything I would call a trend. We're getting very solid monetization to, if you will, similar games in the industry. We feel great about the number. What we're focusing on at this point is understanding what we can do around the game architecture and design and feature set over time to see if we can buff the trend of sort of decline after titles are out there for some months while driving ARPU. We've been very good with all of our social games to get them out there and then to drive up ARPU over time, we expect to be able to do that. What we'd like to be able to do, it's probably a little bit different, you will the best in class is driving ARPU to offset traffic declines. We want to drive ARPU while driving a second stage in, if you will, user growth.

[Operator:]

The next question is from Brian Pitz, UBS.

[Brian J. Pitz:]

Congratulations on the successful launch of Battlefield 3, it looks great coming out of the box. Just a couple of questions on that. We're hearing there's some issues with recent server outages that prevented gamers from accessing the multiplayer game. Did these servers go down due to a larger-than-expected demand, or was it some other issue? And second, a quick follow-up, can you share any data points for how the game is selling on Xbox versus PC?

[Frank D. Gibeau:]

Sure, this is Frank. In terms of the network services, we have had unprecedented and historic peaks in terms of the activity that we're getting from the Battlefield community and players, and it's caused parts of our networks to experience some outages. We were very rapid in our response there. We were able to get those back up. We feel like we've really gotten a handle on it now, and the service as it scales to the release in Europe this weekend, should be solid. In terms of the mix on PC and Xbox sell-through, we've only been out a couple of days, and we really haven't seen enough information to give you a solid trend answer for the mix there. I can tell you that the PC SKU is performing extremely well.

[Brian J. Pitz:]

Okay. And just one quick follow-up. Given what you've seen on this launch, are you confident that your servers are going to be ready for the Star Wars launch when that comes out just a couple of months from now?

[Frank D. Gibeau:]

Yes, we are. It's a very different configuration than what we're experiencing with Battlefield. It's a PC-only configuration and one that we have full control over, and we're very confident that Star Wars will be a solid launch.

[John S. Riccitiello:]

As I would recall, Star Wars is already in beta and will be getting the amount of units we put in this channel to match our capacity. We take a slightly different approach with a Packaged Goods game where so much is hanging on the first week sell-through.

[John S. Riccitiello:]

If you recall, Star Wars is already in beta and we'll be gating the amount of units we put in the channel to match our capacity. We take a slightly different approach with the packaged goods game where so much is hanging on the first week sell-through.

[Operator:]

The next question is from Brian Karimzad of Goldman Sachs.

[Brian Karimzad:]

Yes, I guess first one is can you help us put the 10 million shipments in context, maybe versus what you had initially shipped on Medal of Honor or Bad Company 2 and then I have a follow-up.

[Peter Ausnit:]

Yes, Brian, this is Peter. This is, to be very clear, this is the biggest one they shipped and the company has ever done. So as regards to relating it on an index basis to Medal of Honor, I don't have that information, we can probably get it for you but this is -- we think it may be as much as double what we did on Medal of Honor.

[John S. Riccitiello:]

Yes, if I recall, Medal of Honor was a little bit less. I think it was like 3 to 4 day one, and over the course of the first month, we got -- over the first couple of weeks, we got 2 by 5. So it's actually larger than that. Of gapping it over Battlefield

[Brian Karimzad:]

Okay, that's fair. And then, I guess on the guidance. So you made it clear that there would've been a $0.10 deduction for the timing of Star Wars, and then we had essentially about a $0.10 bp, so the high end remained the same. But my sense is you probably, when you laid out the initial guidance, didn't plan to ship 10 million units of Battlefield upfront. Any sense for what needs to happen to hit the high end of the guidance and why you didn't raise that high end?

[Eric F. Brown:]

Well, we didn't specify what the assumption was 90 days ago on Battlefield 3, and we've had high expectations for the title throughout our planning process. Other key things to keep in mind for the back half of the year are the following

[John S. Riccitiello:]

Just to make sure the math is clear though, when we gave our initial guidance for the year, we were very clear that our $0.70 to $0.90 can essentially be explained that $0.20 range virtually entirely on the basis of the ship date for Star Wars. More or less, what we had was sort of a September window, early October window around the high end of our guidance, so January window, around the low end of our guidance. And we basically lost it on have we known Star Wars was a December ship, we would've given you a $0.70 to $0.80 guidance. We've now updated the $0.70 to $0.80 as if it were on the $0.75 and $0.90. So I think it's fair to say it's the other things going well that is a lot of added nickel to the bottom and a dime to the top, holding Star Wars static in around December had we done that to begin with. We didn't have that information. We were open about that and we gave our guidance, I think, for the last 2 calls.

[Operator:]

Neil Doshi, Citigroup.

[Neil A. Doshi:]

Question on The Sims Social. You guys had tremendous success on the game itself but we've seen, at least through third-party data, some of the daily active user numbers come down. What have you been able to do to address this? And is there a target daily active user number that you like to get to or maintain?

[John S. Riccitiello:]

First off, I think what people should note is that a couple of weeks back, the data that you see which is not necessarily the data that we see on app data, reported a pretty substantial shift of about 25%, 26%. They changed their methodology for tracking DAUs and MAUs. By way of example, Zynga shifted down about 26% across-the-board and for all of their key titles as did we. For some odd reason, we're slightly less effective and in a couple of our titles but it was pretty much a change in methodology and everything shifted down so when we were hitting 10%, now we're hitting 8%. I would say that if we follow the pattern of others in the space, we would probably drift down starting essentially now through January to March while driving ARPU to offset the decline in daily active users. That's the pattern of social games, now absent gigantic news, relaunch the version 2, et cetera. It's my view that Sims Social is a much deeper game with more opportunity, feature expansion and reengagement of new players than other games have been launched on the Facebook platform. And we're looking for ways to ensure that doesn't happen or at least testing the limits of what's possible. But if you expected us to follow the normal arc of a leading game that gets in one of the very few that gets into double-digit millions of DAUs, you'd have 3 or 4 months followed by a decay. We haven't really seen much of a decay yet other than the one-time shift based on methodology but that's what you'd expect.

[Operator:]

Justin Post, Bank of America.

[Ryan Gee:]

This is Ryan Gee calling for Justin. Getting onto Battlefield real quick, I was wondering if you guys can talk about your downloadable content or sort of add-on content plans for that over the next maybe 3 to 6 months? And then we're coming up to November when there's going to be competing shooter titles out there. How do you guys plan to maintain engagement for Battlefield during that time? And then maybe if you wanted to talk about Medal of Honor and how usage patterns either at retail or online changed in November last year?

[Frank D. Gibeau:]

Sure, this is Frank. In terms of engagement, the Battlefield community has the highest engagement rates inside of Electronic Arts in terms of the online play. We do that through a variety of means. First and foremost, we have a fairly aggressive downloadable content plan out in front of us. We've already announced the Strike at Karkand Map Pack that is going to becoming available and we'll be constantly updating on the servers and infrastructure with new features and enhancements. Our plans over the next 6 months is to have a very robust set of expansion packs past on Strike at Karkand and that we think the community's going to be very, very excited about. With regards to your question about this fall, in terms of looking at the overall market, we expect that we're going to grow share in our overall shooter business, and we see that the overall category's going to grow share. So I think that looking at past periods isn't probably the most indicative thing to trend out what's going to happen next, also Medal of Honor's a very different design than Battlefield. Battlefield is a tremendous multiplayer online game, 90 rated across-the-board in terms of its multiplayer. I mean, it has a very different offering than the other competitors out there.

[Ryan Gee:]

Okay, great. And then I was wondering if you guys can update us maybe on the pre-orders for Star Wars? And then any update on what subscriber potential could be either in fiscal '12 or '15 -- fiscal '13 now that we have a firm release date for that game?

[Frank D. Gibeau:]

Yes, in terms of pre-orders, we haven't announced anything specific. I can characterize them though as very, very strong. They're the highest preorders that we've ever had on a PC game so we're feeling very good about the momentum and consumer demand out there. In addition to that, we really haven't set the expectations for what the subscriber levels are going to be. We're very excited about the potential of the game coupled with the mass-market license like Star Wars. But as we get closer, that will be information that we can communicate further.

[Operator:]

Colin Sebastian, R.W. Baird.

[Colin A. Sebastian:]

Just 2 quick questions. Eric, sorry if I've missed this but the higher CapEx in the quarter, is that related to ramping up servers for Star Wars? And I have one follow up.

[Eric F. Brown:]

That is in part what's driving the CapEx up as we put in place or purchase the equipment leading up to the December 20th launch date.

[Colin A. Sebastian:]

Okay. And then maybe Peter, Madden obviously a very strong launch. The later release date, does that have any impact on how that game sells in the fiscal third quarter, either reorders or just holiday uptake?

[Peter R. Moore:]

I mean the strategy, Colin, as you might remember from the last call, was to actually coincide with the kickoff. It allowed us to be able to actually give NCAA a little bit of its own oxygen and it clearly benefited from that. But we think as we ramp into the holidays and then towards the end of the fiscal year, that the curve of Madden is going to hold strong and we're very, very optimistic for the games that we've already accrued in Madden holding title away through the fiscal year. It's been a very good start for the Madden team.

[John S. Riccitiello:]

In fact, I think we may actually have found a better cadence with, I think, a little bit more room for NCAA to breathe, and we clearly weren't hurt by an August 30 release for Madden. So sometimes, you get a little lucky when you make changes in reaction to market realities.

[Colin A. Sebastian:]

So next year, we could perhaps see the later date repeated?

[John S. Riccitiello:]

We're not going to be -- by guidance, even on dates for next year, but that's a nice try.

[Operator:]

Arvind Bhatia, Sterne Agee.

[Arvind Bhatia:]

I wanted to see if you guys can refresh us on your long-term margin goals and kind of how you get there, how is it that's going to be through the mix shift towards digital? How much is going to be from leverage on cost, et cetera, just your long-term goals?

[John S. Riccitiello:]

So first off, I wanted to point out a couple of things here. I'm going to let Eric pick up on this because of course he's focused on it in a laser-like way. Over the last 3 years, we've gone from negative to 5% of margins, from 5% to 8%, and our guidance for this year is tracking to 9% to 10%. We've previously stated that we felt, absent sort of tod [ph] level breakout hits, getting into the teens seems like a very logical and straightforward thing to do and that digital can help enhance it from there. We haven't been more specific. I'd say another key aspect of this of course is more top line when you got discipline on cost is a driver of margins. And by way of example on a competitive basis, one thing that I'm pretty pleased with is, if you take a look, by way of example, the last fiscal year, as our principal competitor in Los Angeles, they had about $1 billion in more top line than we did. In the last fiscal year, if you take their year end in calendar '09 and ours ending in March of '10, it's about even now. We've made up about $1 billion in revenue, and that's one of the drivers that allows us to expand our margin structure. So we've been making steady progress. We've got some inflection points which I'm sure Eric is going to talk about, but a key driver is holding down costs, of course, while pushing up the top line.

[Eric F. Brown:]

And to elaborate a bit further again, without setting any specific timeframe on this, what we've been doing is if you look at the last 3 to 4 years is we've significantly re-weighted the portfolio to the point where it's effectively 90% high-definition packaged goods software and digital combined versus a 55, 45 mix in FY '09. We expect that we're going to continue to grow rapidly in Digital. And as we move well past $1 billion this year, we're guiding well past $1 billion in Digital, we can see getting to $2 billion in digital and beyond. With that, we expect to see margins expand. Right now, we're at a 9% to 10% non-GAAP op margin guidance for the current fiscal year. We've talked before about getting into the mid and the high teens again without setting a specific timeframe. So in essence, margin expansion will follow with continued Digital growth rates. And again, just to be specific on a trailing 12-month basis to date, 37% growth, we're already at $900 million in actual TTM Digital revenue. So we're well on that path.

[Arvind Bhatia:]

Great. One question on Battlefield 3 as well. Can you just remind us the mix of PC versus consoles for the last one? And are you expecting a similar mix for this one as well?

[Frank D. Gibeau:]

This is Frank. The mix going forward on those titles, we haven't really announced, and I don't think we're in a position to really talk to those yet. I mean, we're only 2 days in terms of sell-through and we're looking at the reorders. But the PC, as I said before overall, we expect would've grown as an overall business just because of how spectacular the software is on the PC and what it looks like.

[John S. Riccitiello:]

In part, we have obviously the lion's share of the entertainment console.

[Operator:]

Atul Bagga, Lazard Capital.

[Atul Bagga:]

I have a couple of questions, mostly on EA Origin. First of all, can you talk a little bit about how big the market is for downloadable game? And what kind of share do you expect to gain in this market? And b, right now, it seems like Origin is more about e-commerce market place for the longer term. I mean, how do you expect this to evolve and what kind of milestone we should be watching out for? And how do you manage the channel conflict with, let's say someone like GameStop?

[John S. Riccitiello:]

Let me start with one clear observation. We don't think of ourselves as participating in a downloadable games market. Yes, Origin has -- as a principal component of what we know what happens there, the download of a PC client. We also play games linking off with that through the browser. You can also stream games through the service with our partnership with Gaikai, with also micro-transactions. One of the things we try not to do is sort of parse the concept of downloadable because we're not particularly partial to any one technology delivery system. There are times when it's appropriate to play something to a browser. There's times when it's appropriate to download. There's times when streaming works best. There's times when client/server works best. So I don't think that we would parse it that way. We would say though that we think we've got a very substantial revenue opportunity just with EA titles with Origin over time. We think that consumers that are buying directly from us are going to buy more often, pay for micro-transactions more often and grow their loyalty to our brand more often and, of course, adding third parties can add materially to that. In terms of the channel conflict, the most sophisticated of our partners, one of them by way of example would be GameStop is in our offices this week, and we're not actually seeing conflict between their online ambitions and ours. And in fact, there's an awful lot of cooperation and partnership. They sell products on codes through their store from products in Electronic Arts, and we do a lot of things where they sell things, we sell things -- Origin and GameStop's Web service get closer and closer. I expect -- really it's sort of a 1990s thing to see a conflict in some of these things. At this point in time, you don't exactly own a consumer but you can have a strong revenue stream and a margin expansion from it. But there's really not the hostility that you might have expected if you were looking at it through the prism of say the last couple of years.

[Atul Bagga:]

Makes sense. And John, can you just elaborate on the milestones? The vision that you have around EA Origin, what are going to be the big milestones? And when we should be expecting those things to come out? The micro-transaction, I think, you guys already have the Gaikai partnership in place but for streaming kind of a service, when can we expect to see that?

[John S. Riccitiello:]

We can do that now, but I would say that -- what I would be looking at here was a first major milestone was getting into market and not having it fall over. I know that sounds pedestrian but the number of companies that have attempted, sort of material platforms with a window onto it is directly intersected to the consumer. It's amazing how many of these things fall over and go nowhere. From there, we wanted to get the scale and be able to deploy our games with -- smoothly and efficiently. If you've tried the Star Wars beta or Battlefield 3, you'll note that it works very smoothly and efficiently and a number of clicks through the system. I still think it's more cumbersome that it allowed to be but it's one heck of a lot better than it could be in a lot of computing services are. Another milestone along the way was getting third parties to sign up for it. We've announced 3 of those this week. A lot more interest beyond that out there. I would say the principal things to look for in the next couple of years without sort of putting a target on my back for the competition, are a lot more in a way of social features and more capability relative to channels beyond the PC. So that's where we're focused. It's not that I'm trying to withhold information but there are competitively sensitive issues in on what we do here.

[Peter R. Moore:]

Yes. And as previously stated, the Origin's -- going forward, you're going to hear 3 things from us about Origin. The numbers that we acquire, acquisition rates and we're seeing that tremendous, of course, this week with Battlefield, then the level of engagement, we'll update you with that on a regular basis as the number of times people visit, what they're doing when they visit. And then obviously, for those of you on the call, the monetization and we're starting to derive from this customer base that we'll build over the next few years.

[Operator:]

John Taylor, Arcadia, you may ask your question.

[John Taylor:]

I've got a couple of questions as well. I guess the first question relates to how you're leveraging Nucleus and I think there are 2 parts to it, one, may be Peter on the sports side, can you talk about what you're seeing now that the sports portfolio is up across-the-board, what you're seeing about unit consumption per sports fan or dollars per kind of average revenue per player? And then the second part of that is maybe for you, John, maybe talk about what point you get to a place where you can pivot and leverage Nucleus such that you can bring down some of your sales and marketing media spending kind of thing. So that's the first question, I got another one after that.

[Peter R. Moore:]

Well, JT, you won't let me get out of my sports roots. EA SPORTS Football Club is a model you should keep a very close eye on. We'll update you as we go forward into the season here. The ability to provide both persistence and presence is going to be key to this across all the platforms, the FIFA in particular is going to be available upon. As John mentioned from the earlier question, the availability of FIFA right now, I think it's 11 platforms, is unprecedented. And been able to tie it all together, we award those FIFA fans no matter what they're playing on from both Facebook all the way up to Xbox Live is very important to our future here. And being able to monetize those consumers ultimately when they come on and engage with us is going to be key. So that's the first of a pile-up program you'll see across SPORTS and then of course across the company itself. Where it's still a little early were only 6 or 7 weeks into FIFA so we're going to be -- as we get into the height of the holiday and FIFA numbers continue to grow, maybe on the next call we can update you on how that's working, give you some ARPU numbers which we are able to do last year but a little early with FIFA 12.

[John S. Riccitiello:]

So JT, your question about marketing costs. I say it's a profoundly important question for us. And while I'm very proud of EA, the quality of its product and its business model, I would say that relative to where we want to be and in a 2-year time frame or thereabouts, is we've got an incredibly leaky bath tub. What I mean by that is -- and on all game companies do, one is you're forced to reacquire your customer every year at a cost that is very significant. If a company's running on a -- just in the Packaged Goods business, by way of example, if they're running 10% of variable marketing costs against revenue they're running $5 a customer to acquire. And if they're running 15%, they're running $7.50. That's an incredibly expensive thing to do to reacquire your customer every year. The second thing is the ability to cross-sell to new services, whether those services be within a franchise or cross-franchise or even cross-platform. The contact makers, historically, the ability there has been virtually nonexistent. Our vision with the investments and platform is to solve both problems. Now I can't tell you exactly how it works when we solve both problems because no one's been there before. What I can tell you there are precious few companies that have taken great contact and added strong platform components so they've created a lot of value. HBO is a company that's done that. I believe frankly we're in a similarly situated to create an enormous amount of value here. That is exactly what we're focused on. And yes, we're going to see it, I think in both ends of the equation. One is a lifetime value of the consumer, we should be able to drive that up by giving them more products and services and then we have the cost supplier or the marketing costs which will be able to come down dramatically. We see margin leverage in both directions and that it can be quite substantial. Two or 3 years ago, I was telling you that quality -- and through our titles would deliver us into a better revenue and margin structure. That may well have seemed slightly unbelievable a few years ago. This may seem slightly unbelievable today but I'm more convinced of this and almost anything we're working on.

[John Taylor:]

So in terms -- I'm not going to try to tell you to a specific timeline but it's something we could start to see some meaningful impact in next year? Is it if like more of a 2 or 3, 4-year thing out?

[John S. Riccitiello:]

We've already given hints about what are the drivers for our margin structure next year in and around the 12-month Star Wars business versus half year and that type of thing. I really don't want to get into fiscal '13 guidance before the fiscal '12 holiday. I'd like to actually experience the business before I give you an index of how we improve upon it. And literally, if you all well know, our Q3 guidance from a profit perspective looks an awful lot like our fiscal year guidance, so all the profits in the current quarter. So I want to deliver that before I start getting more precise over how we're going to -- how we're going to beat it.

[John Taylor:]

Okay. Let me ask another one if I can. So you've had -- I think, huge success with Sims Social. That particular property lines up nicely with who we think of is sort of the average Facebook gameplayer who tends to be different from first-person shooter player. So in looking at your portfolio, it doesn't look like there's an immediately strong second choice. I wonder if you can talk a little bit about how you're going to leverage that traffic and cross-sell it with the other properties you got.

[John S. Riccitiello:]

I'm going to make this really short but there are a couple of properties that we think have got enormous potential against that mass demographic that's on Facebook and other demographics especially when you look at -- look deeper into our portfolio and also look at Playfish portfolio or in the particular PopCap portfolio. Second thing I would tell you is, more games will be not as slow on Facebook, they might have a fourth or thereabouts of the traffic. A lot of times, they will have 4x the ARPU if not more. And ultimately, Facebook is a business of finding your whales and harvest them in many ways. We think we've got IP that will do really, really well there. And you'll see more from us on that front over the course of -- so frankly, every quarter when we give you an update on something. This past quarter, with Sims Social, we've got some major launches in each quarter moving forward but we don't point to them in advance, JT.

[Operator:]

The next question is from Doug Creutz, Cowen and Company.

[Douglas Creutz:]

Earlier, you talked about gating the ramp for Star Wars at launch. And I wonder if you could maybe go into a little bit more about how you're thinking about initial users you're going to let in? How quickly you think you can ramp that to demand? What you're planning to do if pre-orders sort of hit that level? How are you going to handle that and so forth?

[Frank D. Gibeau:]

Sure, this is Frank. We've taken a very detailed approach to looking at, how do we maximize the customer experience when they go online with Star Wars, to maximize the fun that they're having online, the stability, the quality, the experience? And we're using our beta test to inform us of what scale that we can handle. So our pre-order campaign is tailored towards how we're going to do that. And we're looking at a rollout plan that is fairly ambitious. We don't feel like we're going to be leading too much demand behind at launch but we definitely are going to be very cautious and thoughtful about how many people we bring on and in what order. It's a very interesting proposition from that standpoint because you have the Star Wars brand that draws in a lot of people. And that is a good thing because we think we can sustain the business over a very long time as we grow. There's going to continually be new customer segments that we can open up and bring into the service.

[Operator:]

James Hardiman, Longbow Research.

[Phil Anderson:]

This is Phil Anderson from Longbow Research filling in for James. Just wondered if you could quantify the -- you guys mentioned on a previous call that you were hedging or placing a color around Madden's performance with the NFL players' strike or lockout. And just wondering if you can quantify what the impact of that was during the quarter?

[Peter R. Moore:]

It's pretty simple. We certainly -- you've seen the numbers -- on the sell-through numbers, we've grown our revenue but it has not been what we call high calorie attribution to the bottom line. Top line revenue growth has been strong but our focus all along was about mitigating the downside for the potential of a lockout. We did that and did that very successfully in combination with our partners in both the NFL and the NFL PA. So sales are strong at the top end but there wasn't necessarily -- and we stated this pretty clearly on the last call for Q1, wasn't going to filter down directly to the bottom line.

[John S. Riccitiello:]

But it does bode well going forward. Left this late in the cycle, especially with the negative overhang at the PR from the NFL during the lockout. If we'll be able to outperform last year and to reignite growth is a testimony that it's some great work inside the SPORTS label.

[Peter R. Moore:]

And on top of that, of course, we've got a digital lay of Madden Ultimate Team that ultimately should benefit from more copies being sold.

[Operator:]

The last question comes from Mike Hickey, National Alliance.

[Michael Hickey:]

On Battlefield, thinking forward strategically, how important do you think the single player experience is versus perhaps focusing purely on multiplayer with the service layer or more aggressive PDLC plan?

[Frank D. Gibeau:]

This is Frank. It's a great question because we consider Battlefield an online service. First and foremost, that brand was built on its multiplayer prowess and the technology really lends itself to that. The single player experience is important. It's a great way to get fans into the experience, have them trained up and get ready for multiplayer, and a lot of fans just enjoy having that single player experience. So I think you have to have both. And clearly the multiplayer is the richer opportunity for us because of the services opportunity in keeping a customer engaged 365 like what John talked about earlier on the call. Fortunately, Battlefield is a franchise since the late 90s, has been configured around multiplayer, and I think that's why you're seeing such popularity around the design.

[John S. Riccitiello:]

Remember, as well that single player has often had new players ramping into the game and important -- just to make sure, Frank mentioned that one, I'll make sure you understood it, it's the way new players -- gets exposed to the franchise.

[Michael Hickey:]

And then for John, you're definitely hitting on the platform theme and you have for a couple of quarters now. Does it make sense strategically for a Playfish direct platform?

[John S. Riccitiello:]

Personally, I don't think so. I actually think it'd be no more logical, frankly, than us doing either player -- Playfish or PopCap doing a PlayStation 3 direct platform. There's a great social direct platform out there that's called Facebook, and I think they do really well with it. Where I think we add value is on open platforms like PC in general, where there really isn't a platform manager. And probably most importantly, as we drive our intellectual properties across multiple platforms, consumers have every valid expectation that as they make progress on one type of hardware platform, that's recognized, rewarded and connected to their experiences in others. I play SCRABBLE with friends of mine and my family, when we're going back and forth between Android and Facebook and iOS and PC. We're playing a similar -- we're playing the same products represented differently on those devices. And we're increasingly tying that together to create more value for the consumer. This is an awful lot in that over time. I think one of the most valuable aspects of Electronic Arts is we're one of the very few players that has both breadth in intellectual property and then the ability to project those properties successfully on Android, iOS, Facebook, PC, console, U.S., international, micro-transaction, Packaged Goods and ad models. I think that's really the equation that's going to work in the future which is why we bring it down and concentrate on our most important dozen intellectual properties. I’m summing up, if you will, what our investment proposition is but why platform is so important to it.

[Peter Ausnit:]

Okay, we'll wrap it up there. We thank you for your time today and look forward to speaking with you next quarter.

[Operator:]

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