Electronic Arts Inc.
Q3 2012 Earnings Call Transcript

Published: 2 Feb 2012

[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 Third Quarter Earnings Call. With me on the call today is John Riccitiello, our CEO; Eric Brown, CFO; Frank Gibeau, President of Labels; and Peter Moore, our COO will be joining us for the Q&A portion of the call. 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 you to our most recent Form 10-Q for a discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of February 1, 2012, 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 third quarter on both the top and bottom line. Our results reflect a great performance by Battlefield 3, Star Wars

[Eric F. Brown:]

Thank you, John. Starting with a review of Q3. EA performance in Q3 exceeded the non-GAAP revenue and EPS guidance that we provided on the Q2 earnings call. Total Q3 GAAP revenue was $1.061 billion, relatively flat compared to the same period last year. GAAP loss per share was $0.62, a 36% improvement versus the loss per share last year. Total Q3 non-GAAP revenue was $1.651 billion, growing 17% versus last year. This is slightly better than the top end of our guidance range and was driven by the successful launches of Battlefield 3 and Star Wars

[Frank D. Gibeau:]

Thanks, Eric. Today, I'm going to take you through some highlights from our biggest games in Q3, including some perspective on the launch and consumer experience with Star Wars

[John S. Riccitiello:]

Thanks, Frank. Before we move to your questions, I want to offer one last perspective. EA will finish the fiscal year, a profoundly different company than where we were at the start. We've launched Star Wars

[Operator:]

[Operator Instructions] Our first question comes from Brian Pitz with UBS.

[Brian J. Pitz:]

Just regarding Star Wars and the margin opportunity going forward, I was wondering if you could help us think about the impact of the 1.7 million subscribers? When will we start to see that affect really start to play out? And then you talked a bit about how you'll be delivering fresh content for Star Wars. Can you help us think about the level of R&D required to support this game on an ongoing basis?

[Eric F. Brown:]

So this is Eric, I'll take the first part of the question. I think it's important to note that we're at the very, very early stage of the Star Wars launch. We're not even 2 months into this, and so it's difficult to -- if you'd extrapolate off of where we are today with 1.7 million active subscribers. Suffice it to say, it's been a really strong launch, great stability and a great take rate and create engagement. As to the future content plans, I'll pass that to Frank.

[Frank D. Gibeau:]

Sure. We have very ambitious plans for the content strategy in front of us for Star Wars, including very frequent, high-quality releases in areas such as the Elder Game, PDP, in addition to future expansion packs. So that's going to require some level of R&D that we will continue to maintain post-launch. And part of the R&D that was pre-launch will also flip into the ongoing service and infrastructure of the service. We will be setting up smart goals for operational efficiency gains and looking at ways to continue to leverage the business now that we're in the market and live. It's a little early yet to identify what those enhancements will be, but we have an ongoing plan and look forward to being able to report on that later in the future.

[Peter C. Ausnit:]

Yes, this is Peter, as well. As Eric mentioned, we've got a strong marketing plan to support those initiatives here in Q4. You're going to -- if you haven't seen it already, network television, very strong boost to our marketing support of this very important title.

[Brian J. Pitz:]

Great. And just one really quick follow-up. Can you give us a sense for how many of those 1.7 million active subs we could expect to convert to paying subs after the initial free month? How should we kind of think about that?

[Frank D. Gibeau:]

Yes, let me -- maybe what I can do is I'll define active subscribers for you, and then give you a little color on that. We're not going to be able to talk too deeply on conversion just because it's so early in the life of the product. We're only 10 days past our first month anniversary. But essentially, we're using the industry standard for active subscribers. If anyone paying a subscription or playing on an active prepaid timecard, and those who have registered to play are still in the trial subscription period. I can't tell you that the majority of the 1.7 million are paying subscribers for us currently, which is great considering we're only, like I said, 42 days into the launch, and you have a 30-day trial period. So a lot of people are voting that they want to be a part of the service and are engaged, which is great news.

[Operator:]

And the next question comes from Justin Post with Bank of America Merrill Lynch.

[Justin Post:]

I don't know if you can help with this question, but how would you say Star Wars in total is contributing to this year's earnings? And can you help us at all on how it might affect next year's earnings? Like are you expecting a lot of contribution next year versus this year? And how would you think about that? And then maybe you can give us an update on Sims Social, how that's gone against your plans? And do you think you can grow kind of games and your presence or market share in that category as you look out to fiscal '13?

[John S. Riccitiello:]

So Jus, This is John. I'm going to give you a very high level. We don't generally break out profitability on individual titles. I would say, more or less, the way to think about Star Wars is in terms of its trajectory, as both Eric and Frank noted, we need to know more about the trajectory of the business, but where I can give you a full and balanced projection for fiscal '13. One of the reasons we're going to do guidance in May is we think we'll be in a good position to do that. Another way to look at it is the lion's share of revenue from any given purchaser of the game is in subscription, so the packaged goods sale isn't frankly that influential to the total P&L by comparison to subscription. And I would note that we basically go from a 4-month business this year to a 12-month business next year. And frankly for years prior to this we were carrying pure cost, so we definitely identified this as one of the positive levers in our P&L if you move in F'13. We will give you a lot more color on that in 3 months. Peter is going to pick up the question on Sims Social.

[Peter C. Ausnit:]

Yes. On Sims Social, as you know we launched back in August, I think the game has settled in nicely. As I look at update right now realtime, we're over 4 million DAUs, daily active users, and 21.7 million monthly active users. You can expect to see, over the coming weeks and months, rich content and features that will continue to drive, in particular the DAU number back up again our studio, our PlayFish studio in London in collaboration with access here obviously. Overseas The Sims IP are working very, very closely together, as well as with the community, and making sure that we keep these contents and feature insertions into the game, keeping those MAUs and DAUs pointing upwards. But overall, we're very happy where we are. We're at the top 5 game on the Facebook platform in gaming.

[Justin Post:]

And is the monetization meeting your expectations? And any update there on revenue per DAU?

[Peter C. Ausnit:]

We don't give update on that, but the monetization is meeting our expectations. And in fact, we expect that to increase as you would expect with the introduction of fresh content and features.

[Operator:]

Your next question comes from Brian Karimzad with Goldman Sachs.

[Brian Karimzad:]

I know you don't give profitability by title but maybe directionally, you can help us out, not for Star Wars actually but on your social and smartphone businesses. Can you give a sense of what the current run rate is on operating margin there when you factor in both what's launched and the overhead of development that will be continuing as we go forward?

[Eric F. Brown:]

This is Eric, I'll respond to that. Again we're talking about businesses at slightly different stages of maturity. So our overall mobile business, where we're the leader in Western world, is more developed and has margins in excess of certain other areas in digital because it's at scale, it's growing, it's taking share, it grew 30% year-over-year, and we're working through a transition of feature phone to smartphone. So mobile is a good example, they scale, which we've defined as greater than $100 million business, with margins well in excess of where we are as a company overall. The portfolio of social games is at a slightly different stage of development. To date, we've brought out one major EA intellectual property, The Sims Social, in this fiscal year, and we're realizing a portion of that in fiscal '12. As we look to fiscal '13, we will have more social titles with the benefit of EA branding and history behind them. And so I would not compare that profitability of that business directly to that of mobile just given the stage of development. But it will indeed scale profitability over time, and we expect it to be additive to our total company operating margin.

[Brian Karimzad:]

Okay. And when you think within mobile, though, on the smartphone side, is that one that's operating currently above your total company margin? I understand the feature phone side was very high margin to begin with.

[Eric F. Brown:]

Well in terms of mobile overall, feature plus smartphones isn't measured on a kind of standalone basis, it is above -- it delivers a net margin above that of the composite EA op [ph] margin.

[Brian Karimzad:]

Okay. And then quickly on the double-digit revenue growth for next fiscal year, can you just give us any sort of walk you have on puts and takes or maybe it's just all puts and no takes?

[Eric F. Brown:]

Well there are -- no, there are a series of puts and takes. I would say that John's already called out one of the really important adds year-over-year, that's 12 months of Star Wars subscription revenue in the fiscal year versus effectively 2.5 months of paid subscription revenue in fiscal '12. So that's a significant delta or improvement year-over-year. On the packaged goods title slate, we have highlighted that we expect to have fewer titles next year compared to this year, so there are some puts and takes within that portfolio overall. The other thing is to keep in mind is the rest of our digital business is trending very favorably. Great example of this is downloadable content on the FIFA franchise. We're expecting in fiscal '12 to realize $100 million in total digital revenue, net digital revenue from the FIFA franchise, from -- principally from the FIFA Ultimate Team mode. And that's a number that has compounded very, very nicely over the past couple of years, and we expect those types of trends for certain franchises like FIFA, Battlefield FPS to likewise continue into FY '13.

[Operator:]

Your next question comes from Edward Williams with BMO Capital Markets.

[Edward S. Williams:]

Just a couple of questions. Can you comment a little bit about your plans for Star Wars as far as international markets are concerned? As we -- as you look to increase your marketing overall, are you looking to move it into existing markets? And as we look into fiscal '13, are we going to see it migrate into more markets on a global basis? And then secondly, looking at the success you've had with FIFA and driving the digital revenue, can you comment a little bit about how you're looking to achieve the same sorts of goals with some of your other key sports title, such as Madden and potentially the return of an NBA title?

[Peter C. Ausnit:]

So this is Peter. Let me -- I'll take the Star Wars question, and hand it over to Frank on the other one. Yes, I mean in succinct answer to your question, we are looking at global expansion from the perspective of, in particular, looking at the Asian market. We recently announced that we're -- on March 1, that we'd be in Australia and New Zealand. It's all about, as you might imagine, server location down there, but we have a very strong demand from all of our consumers in that particular part of the market. We're looking at other opportunities to go into Asia as well. But you will see more and more announcements as we roll this title out globally. We want to make sure the level of service is there, and that does require the investment in hardware. But demand is certainly there, and you're going to hear a lot more about that in the coming weeks.

[Edward S. Williams:]

How long could it take to kind of get into the Asian market?

[Peter C. Ausnit:]

Well certainly we're taking the low hanging fruit of the Pacific, if you will, with Australia and New Zealand. I was there personally and saw the demand there a couple of months ago. It may take a few months. We need to make sure that we're meeting obviously the service level agreements that we have with our studio on making sure that it's the best experience for the consumer. But you've got to be thinking in months rather than weeks, that's for sure.

[John S. Riccitiello:]

To put a fine point on that, though. Just if the individual major Asian markets will be -- announcements that take place when they take place, we're bound by confidentially agreements with our Lucas partner. We're trying to give you an indication that we're keen on getting there, and we have work underway. But these are going to be discrete announcements, and I think they can yield some really good upside. By way of example, when WoW was introduced in November of 2004, they were shortly after that in Korea and within 9 months, they were in China. I would admit that in those days, it was easier on the -- if the service had temporary outages or failures that was considered par for the course. It's certainly not par for the course today. And so what Peter's getting at and I think Frank would underscore is what we would seek to do with any Asian expansion is execute flawlessly as we have in the North American and Western Europe launch.

[Frank D. Gibeau:]

And this is Frank. On the question about digital expansions within the Sports label based on what we've been able to do with Ultimate Team, we're certainly looking at that as an opportunity in our other sports, but not just limited to our sports. We have a very ambitious plan to drive digital revenues off of our console businesses in our shooters category, in the racing category, in action. So we're taking the key learnings that we're developing from Battlefield and FIFA and we're applying it to our entire suite of brands and across all of our different labels.

[John S. Riccitiello:]

One of the things that I think just to build on that just a little bit, and I don't have the statistics at my fingertips, but I would point out that some folks have thought of EA as driving to $1 billion in digital and the growth we exceed from here is being somewhat acquisition-driven. The vast majority -- or at least the significant majority of our digital revenue is in fact, based on EA IP and coming from studios like BioWare. In the scheme of things, we are extremely excited about the fast growth from additions like PopCap and Playfish, et cetera. But at this point in time, the majority of our business is actually organic. And I think that's worth noting and we expect to continue to drive organic growth there and have the M&A deals we've done, extend our footprint, our channel exposure, our business model exposure.

[Operator:]

Our next question comes from Doug Creutz with Cowen and Company.

[Douglas Creutz:]

Yes. Sims Social was a big hit back in August, and I think people were surprised that in the 6 months since then, you guys have kind of gone a bit of radio silence as far as new social titles. We've seen that the trends in that space seem to be that the titles do really well for a few months and then start to shed users rapidly, and your major competitor has clearly made a decision to vastly increase their frequency of title output. So I'm just wondering, I know you're a little reluctant to talk about what's coming for competitive reasons. But if you could just talk about how many social titles you think you're going to release in the next 12 months, that would be really helpful.

[Peter C. Ausnit:]

Doug, it's Peter. So yes, as per the prepared statements, you did hear us say that we slipped a title out of this quarter into Q1. It is a major title based upon a major piece of the EA brand IP, and that's an important point. What we do here may be different than our competitor is leverage the power of our brands in IT in a way that has top quality game assurance to the consumer. And so they do take a little bit more time because quite frankly, they're better. And so from the element of us putting out a lot of games on the quantity basis rather than quality, we're always going to err towards quality. Having said that, you can expect approximately 5 new social games based on our IP going forward next year, and I'm talking about the Facebook platform specifically. Social is a broader scope for us than obviously just Facebook. But from that perspective, the Playfish studios in London, San Francisco and Beijing are working diligently, making sure they convert our intellectual property where relevant to that platform. But we're not going to ship a game before its time. And in particular, this one that we're referring to, we felt the engagement monetization elements of the game were better served holding on for a few weeks. And so you'll see that one in this quarter of FY '13.

[John S. Riccitiello:]

Just to give you some color on that, think about our social games being in these categories. BioWare is where we consolidated KlickNation, and so we have a social game capability there. Our Sport studios have already launched 2 social games, learned a lot from that and are fast working on that -- 3, excuse me. We've got our Playfish studio, which is what Peter is referring to, and then we have PopCap. So I will admit that we have -- our SKU plan is such that it appears that we pulled back. I think you'll see a good, solid slate from us on the strongest of our intellectual properties in fiscal '13. And we'll probably be just as coy with you on the May launch except for the one significant game that we'll have launched by then. We have to deal with the reality that -- I won't call it copying, but say mimicry is common in this industry, and fast generation and mimicry is something we have to guard against. And so we don't put out a lot of information on the individual titles, Doug, to your exact point when you started the question.

[Operator:]

And your next question comes from John Taylor with Arcadia.

[John Taylor:]

I wonder if we could talk a little bit about sales and marketing and your commentary about the timing of Star Wars shipments. So I'm really interested in and an update in how you think about leveraging Origin since those numbers are ratcheting up really quickly, and what implications that might have for your assumptions for sales and marketing? And that being sort of a larger question but the more specific tactical question is, I think you indicated sales and marketing in Q4 was going to go up a little bit to support Star Wars. So was some of that -- is some of that, new spending that you didn't expect? Or is there a shift from Q3 to Q4 on that one? Can you help us with the timing of the shipments and matching those up with the sales and marketing spend on Star Wars specifically.

[Eric F. Brown:]

This is Eric. I'll take the first part of that. So I think it's important to recognize that Star Wars was exceptionally stable in terms of its rollout. We talked about bringing them more users than what we'd originally anticipated. We sold more units in Q3, at the very end of Q3, units that we otherwise would have expected to meter out in early Q4. So that was a definite phasing benefit in regards to Q3 due to the success of Star Wars. In regards to the comments about we expect to spend a bit more marketing on Star Wars in Q4, it's to maintain momentum and take advantage of this incredibly successful MMO launch. And so we're moving from a phase where we had a lot of preregistered demand, and we're looking to reach out past the core audience and bring new users into the funnel in our fourth fiscal quarter. That will benefit not only in Q4 but obviously, it sets us up nicely in terms of fiscal '13.

[Peter C. Ausnit:]

JT, it's Peter. Let me just add on to that. What I talked about earlier is a major mass-market network television campaign. Interestingly as well, that we'll take advantage of some of the synergies that we're working with our partner at Lucas. That as you probably know, there's the 3D movie coming out in the next 6 or 7 weeks, and you're going to be able to see a lot of cross promotion between the 2. And in particular, you'll see our ads are tagged with the movie as well. We think there's a huge synergy right now, and we fully intend to take advantage of the momentum we've got coming out of the quarter, as well as our ability to get to that more mass-market consumer that is a Star Wars fan, and that's what you're going to see on network television, and that's where a lot of the spend is going.

[John S. Riccitiello:]

Can I provide just a little bit of perspective? The intention here, right, is we're connecting so many of our games online. And I would say that in terms of that massive synergy where all of the 300 million or so consumers we connect to between Nucleus accounts, nearly 170 million plus mobile and social, which are currently not in there and direct and redirect traffic, the million of consumers hitting our Origin website. If you're on the question of is there marketing synergy in that? The answer to that is yes. And in my prepared comments, I referenced what Rajat and Kristian do. I would say that we are on the -- I'm not sure you'd even call it the early innings of realizing that synergy. We might still be arguing that we're sort of dragging fly balls in the pregame exercise. But what we're starting to see, by way of example, is the ability for EA to send hundreds of millions of impressions to an individual title from other parts of our company to help drive exposure. We've just begun to do that at scale, and we expect to be able to do that at much greater scale. I'd say that we'll be, JT, what, maybe 1/4 of the way there or 1/3 of the way there through the FY '13 time frame and more fully and robustly take advantage of that opportunity in F '14. Frankly a huge, high leverage transformative aspect of what we're trying to do as a company, and it's the reason we've invested in Nucleus. It's reason that we've pushed so hard to become a player in social and mobile in addition to our packaged goods business. It's a reason that we're pushing the play-for-free model. Is we are trying to aggregate the eyeballs, minds and wallets of gamers around the globe.

[John Taylor:]

Okay, great. Let me ask a follow-up, if I can. Maybe this is for you, Peter, or for you, Frank. When you look at the download, the DLC that you're attaching to Battlefield, to a Battlefield user, to a FIFA user, so on, can you give us a sense on what's going on turn-wise with average revenue per?

[Peter C. Ausnit:]

I think -- this is Peter. I think it varies radically from game to game. The engagement levels are different. One thing I will tell you, and Frank can elaborate, is that we've got plans for all of our major franchises to turn them into more of as we're seeing with FIFA and with Battlefield more as games for service that have constant flow of downloadable content. But it does vary with the pinnacle, as Eric pointed out, being FIFA. But we're 3 years in into a pretty well established and sophisticated global audience with FIFA there and the Ultimate Team, which we also do in both Madden and NHL, works out very well. Same, you're going to hear some announcements from us on Battlefield actually as early as next week in an event we've got in New York. But Frank, I don't know if have anything else to add?

[Frank D. Gibeau:]

Yes, we're trying a lot of different models here, and they're working very effectively. In the case of Ultimate Team, because it's a micro-transaction-based system, we actually are able to generate a sizable number of whale-type consumer behaviors, and it becomes a business that scales much more aggressively than maybe some of the traditional DLC models you've seen where it's a download pack every once in a while. The MTX level really helps us do some really dynamic and interesting things there. So we've got a lot of different programs in place right now. We're learning from all of them. All of them seem to be succeeding in double-digit ranges. And on the ARPU level, we're seeing some great enhancements to our P&L's.

[Eric F. Brown:]

Yes JT, this is Eric, too. Maybe to put some rough numbers on this. If we compare the total digital revenue from FIFA 11 Ultimate Team to what we expect for FIFA 12 Ultimate Team in this fiscal year, we're looking to see about a 25% increase franchise-to-franchise, and so the overall packaged goods units sold is not increasing by 25% year-over-year. So we are expanding by a decent margin, the micro-transaction revenue per user of FIFA.

[John S. Riccitiello:]

What we're basically finding -- I know you've kind of caught us, I think we all like here, so we're expanding a little bit because I think it's really important. When we look at what we do and what our competitors do, there's a number of examples of I would call it as sort of the best work of our industry in terms of making this work. A lot of it is clearly the Xbox Live in terms of monetizing online consumers. One of them is clearly Ultimate Team, which we pushed across a range of our titles, and it's doing really, really well. One of them is what we've done recently with FIFA online in both Korea with our Neowiz partner and in Japan on mobile social with GREE. Frankly, I gave a compliment to one of our competitors. It's got a subscription on the back end of an FPS title. I think that's a best-in-class performance. And we study all of these, and by way of example, when we put Ultimate Team out there, we had a competing idea with Madden, none of which I'm sure -- none of whom I believe on the call would even know the name of it because it quickly faded and it was replaced with Ultimate Team because we're learning from best practice. So the reason this is such a fast-growing revenue stream for us is we're identifying and implementing best practice across the range of our products, and you'll see lots more to come including an announcement near term that Peter just alluded to.

[Operator:]

And our next question comes from Atul Bagga with Lazard Capital.

[Atul Bagga:]

I thought I would give you guys a break from Star Wars questions and maybe talk a little bit about EA Origin. If I look at EA Origin, it still seems like it's more of a digital marketplace than a gaming platform. I was wondering if you can maybe highlight what are the milestones we should be looking for Origin as you're taking Origin and building it more as a game as a service platform and what your plans might be for taking Origin beyond desktop to include mobile also?

[Peter C. Ausnit:]

Atul, it's Peter. So you're exactly right. We're only 7 months in. Let's all remember here, we only announced this in June of last year as regards, the inception of this platform. It has started off and has done very well. It's a commercial platform for us to transact directly to our consumers. You're going to see, over the next 12 months, some milestones and a roadmap of features that will include more social features, enhancements to the way that our consumers can access Origin, and to your point, not only just focus on the PC but other platforms as well, and then building in different business models, so that we can not just do direct-to-consumer downloads as we currently do with full games or DLC but also different types of business models will allow us to aggregate our consumers and provide them with better opportunities and price value relationships for our content. So there is a very detailed and long-term roadmap to make this a portal to our consumer on a global basis. Rolling it out in a fundamental way as well globally is part of our plans as well. It's pretty much Western world only right now, and as you can imagine, our ability to reach into other regions will be very important. But think about more social community-oriented features, think about different models and think about more and more third-party publishers coming on board than already the pretty good slate that we have right now. And I think 12 months from now on this call, I'll be able to report that we have a full and very robust portal to the consumer on a global basis regardless of platform or geographic location.

[John S. Riccitiello:]

And if you take your Android or iOS device right now and open for example, Scrabble and hit the EA button at the bottom, you'll be linked to what is essentially the Origin store, and that's transacting today and effectively so. So it's a very early implementation, but it provides access to your Origin friends, has links to all of your Facebook friends, has access to all of our mobile content. And that's been deployed. I use it everyday. We haven't made a big noise with it yet, primarily because it's in its early stage, think of it as a second early beta. But those who are interacting with it like it, and short-them on our roadmap is a big lift there in terms of features and functionality towards the end of the fiscal year.

[Atul Bagga:]

And John on mobile, I mean you've seen pretty strong traction from your smartphone business. But seems like, again, most of your smartphone businesses games, which are download -- premium download businesses not as such on social mobile games. Can you talk a little bit about what your strategy might be for social mobile games?

[John S. Riccitiello:]

I think Peter is going to look at some data for you. But I think our growth in the holiday quarter was on Free to Play. And so -- which is essentially what you're asking about, the Free to Play micro-transaction model. I think it's very fair to say we were a little late to that party. We were running mostly download games in the early part of the year but there's an awful lot coming there. And you can imagine the blend of our own IP, what we're doing with Playfish, with PopCap and you can see a very substantial, I think, lift for us there. One of the -- one great example of this is social mobile game for FIFA that we launched with GREE a few months ago. It went to #1 and #2 on their platform, an enormous success for a Western IP in Japan. And so it may not be as visible to those of you who live in the U.S. but a good hit, and we're pursuing similar strategies around the world.

[Peter C. Ausnit:]

Yes, just to add to that. The real growth is freemium. As John said, we shipped Sims FreePlay, FIFA Superstars, Theme Park and as we've spoken about on the GREE platform in Japan, FIFA World Class Soccer. That title in particular is a big breakthrough for us because the FIFA franchise has had difficulty in the Japanese market, competing for a number of reasons, and this is a major breakthrough for us. So freemium is where our growth is. You're going to see continued growth on that. I also want to point out that we continue to be the #1 worldwide publisher on iOS. We had, I think, if I would just look at my notes here, 10.5% market share. That's more than double the segment share of our nearest competitor, and then our ability to continue to grow that on a global basis. Keep an eye on the Japanese situation because I think it's great.

[Operator:]

Your next question comes from Arvind Bhatia with Sterne Agee.

[Arvind Bhatia:]

I wanted to actually go back to your March quarter guidance for a second. You cited, I think 4 different reasons, and I think John you said $0.15 impact from these. I was wondering if you could maybe rank the importance of these? How much of this is from pulling demand for Star Wars? How much of this is marketing-related moving to social game? And then the bad debt you talked about. That would be great.

[Eric F. Brown:]

This is Eric, I'll respond to that. I would say that the ability for us to have pulled forward and sold in more units of Star Wars, I think, is the most important thing to call out. It was hundreds of thousands of extra units versus our expectations, and bear in mind, this is a PC product with a very, very high gross profit margin percentage and hence, very, very good flow-through. The marketing spend on Star Wars is also, I think, a change again. 90 days ago, we were somewhat cautious in terms of our expectations for the rate at which we'd be able to roll out the service in correlation to its stability. We've clearly done much better than that and scaled much more rapidly than any other MMO to date. And we're taking advantage of that, the momentum, and that's going to be reflected in the type of marketing and acquisition campaigns that Peter alluded to. And so I would probably rank that as #2 on the list there. And then in regards to the isolated retailer risk, hard to call that one exactly so -- it's on the list, it could very well be a significant. We have to wait for the quarter to play out. So that has a range on it. And so that's how I would characterize that particular item.

[Arvind Bhatia:]

And one last one from me. Going back to Star Wars for a second. I think the only number in terms of profitability that you guys have talked about that I can remember is that it takes about 0.5 million subscribers to be profitable on a sustainable basis month-to-month. Has anything changed in terms of the launch, the interest level, et cetera that would make you want to update that? Or would you still work with that assumption?

[John S. Riccitiello:]

I think that was me that made that comment a number of times. What I basically said is 0.5 million subs, we could break even at the margin, 1 million subs would be meaningfully profitable but nothing to write home about. It would just -- it certainly would not make us feel good about the investments to date. It would simply be a good business on an ongoing basis. And then from there, as we scale, the business gets to be very attractive. I don't think anything has changed with regard to that general summary other than it looks like we can take the bad scenarios off the table at the present. And what we're now trying to figure out is what combination of customer acquisition, managing through the funnel and attrition will yield the P&L were looking for going forward.

[Operator:]

And your last question comes from Neil Doshi with Citi.

[Neil A. Doshi:]

Just had a question on social and mobile in terms of how you guys think about rolling out EA branded titles versus developing new titles for these platforms. And then secondly, on the mobile side, are you starting to see more traction in tablets versus smartphones? And is there a greater revenue opportunity on the tablet side versus the smartphone side?

[Peter C. Ausnit:]

This is Peter. So on that concept, we are focused on obviously extending our brands across all platforms. And that's why you see a more deliberate approach, and that's why you see a better quality of experience from our perspective. We also, at the same time, look at opportunities to be able to build where the consumer's looking for IP that is relevant to that consumer game mechanic. But you're seeing The Sims Social obviously, you see what we do in Sports. These are all based on Electronic Arts international property or license intellectual property that we feel A, has a relevance to the consumer on that platform and B, in a lot of instances, has a global reach, and we'll continue along that strategy, interspersing with some of the other IP as well. Second question, John, do you want to?

[John S. Riccitiello:]

Let me just add a little bit on that second question. First off, there's no question that smartphones outnumber tablets by a gigantic proportion, and we monetize very well on smartphones particularly iOS. We've seen an improvement on Android in terms of monetization on their platform as they've made improvements to their marketplace. So those bode very well. Personally, we're all really bullish here on the tablet business because it's a great presentation of our products. But right now, the installed base and even the wildly optimistic expectations for the installed base are likely to keep it smaller than what's going to happen on the handheld devices. I think moreover, the most important point is this, we're pretty much agnostic as to whether a consumer gets our fare on a console, a PC, a handheld, smartphone, a social network or tablet, and we're able -- we're driving revenues with our IP across all of those. So for us, I know this is maybe an odd way to say it, tablet or a phone to us are both similar opportunities, and we're chasing the consumer wherever they want to play the product. A lot of consumers are playing, by way of example, SCRABBLE crossing an Android device, an iPhone, an iPad and Facebook, and I'm in circles right now where that's happening. So I think that's more of the future than trying to think of it as independent channels. With that, Operator, I think we're going to wrap up. Thank you, everyone.

[Operator:]

Thank you very much for your participation in today's call. The call has concluded. You may disconnect at this time. Thank you.