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There’s been a new sheriff in town at Electronic Arts since John Riccitiello rode back in to EA about  a year ago. His campaign promise was change. Slowly, he’s making good on that pledge.  In June, he reorganized management into a more accountable hierarchy and he recruited Activision’s former publishing president Kathy Vrabeck.   In July, EA signed a high profile in-game ad deal and Microsoft’s Xbox VP Peter Moore joined the team. In August, they signed a deal with Hasbro.   In October, more than $600m was dished out to acquire Bioware and Pandemic.  It’s now a New Year and time for more new beginnings. 

On Monday, EA announced the latest installment of popular PC game Battlefield 1942, Battlefield Heroes, will bypass retail.  Instead, the new installment of the franchise (which has sold more than 10m units) will be re-invented later this year as a free online multiplayer game.   In its new incarnation, the game will be supported by an experimental combination of advertising and micro-transactions.  It’s a first for EA in western markets.

The conceptual business model may be new to some parts of mainstream western audiences but it’s not new to EA or gaming.    Long popular in the multi-player online games running out of Asia, the basic idea is:  game players get free access to a game but pay small sums if they want to customize a character or buy virtual products that might otherwise enhance the game play.   Maybe it’s a special costume or uniform to personalize a character.  In a fantasy war game: they can buy a weapon.  Online soccer: they buy upgraded cleats for better traction. 

Whether it’s a kid’s game, a fantasy game, or a sports simulator, these small inexpensive transactions expand the game play.  For the publisher, along with advertising, they will provide the revenue.  Unlike traditional product sales, it’s a recurring revenue stream instead of a one-time purchase.

For some companies this model has proven very lucrative.   Korea’s Nexon has had success using it with Maplestory and Kart Rider. Habbo Hotel (now called Habbo) has also built a successful business around the model.   Surprising as it is to some, enough money is changing hands in virtual worlds and roll playing games that some are even trying to set up legitimate financial services platforms to handle the trading and transactions for these virtual worlds.

EA has developed experience with this type of game over the past two years.  Since 2006, FIFA online soccer has been free to play in Korea.  An experiment in its own right, the game has drawn more than 5m subscribers and is generating more than $1m a month in sales.

Battlefield Heroes will be EA’s first U.S. test of the same model.  It isn’t likely to bring in the same kind of money  but benchmarks for success will likely be different here. 

Statements in press releases from some involved concede 95 percent of players probably won’t spend a dime. (And what they can buy won’t provide advantages in the game play). Advertising may not be a dramatic revenue source in this case either.  Unlike sports games, where the virtual world is filled with billboards in their natural environment, a game like Battlefield Heroes doesn’t have many places within the game that an ad would fit naturally without interrupting game play. As a result, ads supporting Battlefield Heroes will most likely be limited to the website, or run like pre-roll video ads prior to the launch of the game.  Even so, the absence of strong revenue results won’t diminish the value proposition for EA.  Battlefield Heroes online is a market experiment. It’s less about money today than about market opportunity for tomorrow.

The future financial opportunity at risk  is sizable.  Some estimates peg the online gaming industry at more than $10b by 2011.  Start ups like Outspark, K2 Network and Trion World Network are lining up investors to capitalize.  EA can’t afford to miss the opportunity and see market share eroded by more innovative and nimble competitors.  And with rival Activision merging with Vivendi Games (which owns Blizzard, maker of the 800lb gorilla of online games: World of Warcraft), EA can’t afford to be slow or indecisive either. The stakes are high and competition is likely to get intense.

The new version of Battlefield Heroes is expected to launch by summertime.  To prepare for the shift some changes are being made to the original game franchise.  Among them, the new version will have much lighter weight graphics and more approachable, easy to use, playing controls.   Deep commitment to developing skill or advancing the game won’t be necessary in this installment. Short sessions, as brief as ten or fifteen minutes, are anticipated.   The idea is to make the game appeal to the causal gamer.

The lesser graphics and reduced technological overhead are also to insure the game can be enjoyed on a wide array of computer configurations.  No high end gaming PC’s will be needed here.  EA wants as broad an audience as possible.

In a statement, EA’s Gerhard Florin said “people want to play games in new ways, with easier access that is quick to the fun.  With Battlefield Heroes, EA brings its first major franchise to North America and Europe with a new distribution model and pricing structure adapted to the evolving way that people play.”

If EA is successful at reinventing the game for online play and building audience, it’s probable they will expand this pilot program to other titles in their portfolio.

Launching Battlefield Heroes online is unequivocally an experiment but it’s also a bold move to try and try and keep pace with the changing gaming industry.

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