Will Electronic Arts become gaming’s Netflix?
Electronic Arts is one of the world’s most iconic video game companies, and it could be about to transform the industry. According to a Wall Street analyst, who gave the stock a big price-target hike last week, the company’s new approach to game streaming could turn it into a “Netflix for video games”. Given the incredible success that Netflix has had over the past few years (its share price has already appreciated by more than 100% year to date), that’s an appealing thought for investors.
Electronic Arts’ share price has appreciated by 34% so far this year
SOURCE: Yahoo Finance
Needham analyst Laura Martin sees Netflix capitalising on the shift to “games as a service” – a delivery system analogous to streaming in the video world, where customers pay a subscription to have access to a library of content. This, according to Martin, is the business model of the future, as far as entertainment is concerned. In a report to clients, she made the following comment:
"It is our view that millennials want to rent content (e.g. Spotify, Pandora, Netflix, Hulu) rather than own it, and that content companies with data about what their consumers view/play/use create valuation upside from programming, e-commerce, and advertising revenue streams."
Here, Martin is reiterating a view that Dominion has held for a considerable length of time. Electronic Arts has long been a t the forefront of the trend towards digital downloads and subscription options for content. This year, it pushed even further into this space, with the debut of Origin Access Premier – a subscription service that will let gamers access more than 100 of its titles for $14.99 / month or $99.99 / year.
Martin said: “we believe that EA is building a Netflix for video games.” That’s a market-leading proposition from a company that has a proven track record.
Dominion holds Electronic Arts in its Global Trends Ecommerce Fund.
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