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Tuesday, January 18, 2005
Electronic Arts and ESPN Sign 15-Year Deal to Sell Games


Electronic Arts, hoping to shore up its eroding dominance in the sports video game market, said yesterday that it had signed a 15-year deal giving it the exclusive right to use the ESPN brand in games

Under the agreement, Electronic Arts, the largest independent video game publisher, will pay $750 million to $850 million for the right to use the ESPN brand for games based on at least nine sports, including baseball, basketball and football, according to people briefed on the contract's terms. Some of that money will pay for commercials promoting the games on ESPN channels, they said.

Beyond the deal's length, which is substantial by industry standards, it comes at a significant juncture in the video game business. In the last year, Electronic Arts' long-dominant position selling sports games has come under assault amid heavy price competition.

The challenge came from Take-Two Interactive Software, which teamed up with Sega to sell sports titles at cut-rate prices, forcing Electronic Arts to lower its prices as much as 50 percent.

The games from Take-Two and Sega were built around the ESPN brand name. But when the three-year relationship between ESPN and Sega ends in 2006, the rights to the use the sports network's brands will go to Electronic Arts.

Video game industry analysts said the deal indicated that Electronic Arts took the threat seriously and was responding like an awakened giant.

"It's an absolute show of strength and a consolidation of power," said William Lennan, an analyst with W. R. Hambrecht.

He added that the deal was a strong effort to turn away Take-Two, which has said in recent months that it intended additional challenges to Electronic Arts.

"It's a slap. It's a slam dunk - pick your sports metaphor," Mr. Lennan said. "This makes it tougher for people already facing an uphill battle to compete."

Take-Two Interactive, which is based in New York, said the licensing deal would not diminish its own plans to make games. It said the key to success in the market was not selling games associated with well-known brands, but selling games that are fun to play. "We believe we can continue to publish great sports games by focusing our dollars and creativity on enhancing the gamers' experience by using the base content from sports, leagues and players," Take-Two said.

The deal with ESPN - a joint venture between the Walt Disney Company and the Hearst Corporation - comes one month after Electronic Arts announced an exclusive five-year deal with the National Football League to design games using its players, stadium and uniforms. That deal was worth more than $300 million.

Industry analysts said brand relationships were a crucial part of the success of video games because they lent authenticity to the playing experience. That could be good for Electronic Arts, but it may be bad for consumers, said Evan Wilson, an analyst with Pacific Crest Industries, an investment banking firm.

Mr. Wilson said that some prospective competitors may shrink from making sports games if they cannot team up with big brands. "It will diminish the opportunity for competitors," he said. "That's bad for consumers."

Lawrence F. Probst III, chief executive of Electronic Arts, said that he thought his company had "very satisfied" customers and that he did not expect that to change.

But he acknowledged that Take-Two, in teaming up to distribute Sega's sports titles, put some heat on Electronic Arts and forced it to take aggressive steps.

"They certainly moved the needle, in the football category in particular," Mr. Probst said.

The pressure from the competition may help explain the timing and the speed with which the ESPN deal was completed. John Skipper, executive vice president at ESPN, said the two companies started putting the deal together in just the last two weeks.

Electronic Arts had about 63 percent of the $1.23 billion United States market for sports games in 2004, Mr. Wilson said, citing figures from NPD Funworld, a research firm.

Mr. Wilson said that Take-Two had about an 8 percent market share. But he noted that in 2003 it had almost no market share, meaning that it began making big strides in 2004.

Last July, Take-Two, working with Sega, began publishing a line of ESPN-titled games priced at $19.95. Electronic Arts then cut its prices nearly in half, to $29.95, to compete.

Mr. Wilson said that Take-Two, in recent calls and discussions with investors and Wall Street analysts, had said it intended to become more aggressive in the sports market.

Late last year, Take-Two acquired two video game studios that make sports titles.

Mr. Wilson said that Take-Two may still compete, but that the recent branding agreements by Electronic Arts had dealt a blow to that effort.

Electronic Arts "has created a virtual monopoly," he said.

From The New York Times



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