EA Goes Xbox Live

On the heels of Sony's (NYSE: SNE  ) big price cut announced yesterday, there is more intrigue heading into this week's E3 (Electronic Entertainment Expo). Electronic Arts (Nasdaq: ERTS  ) is finally going Xbox Live.

That's right, EA will bring its blockbuster lineup -- currently online compatible only on the PlayStation 2 -- to Microsoft's online network for the Xbox console, Xbox Live. Though terms were undisclosed, it is thought that EA may be getting some sort of deal -- perhaps a lower royalty payment -- to make the transition. In any case, the long-awaited move is a good one for both Microsoft and EA.

For one thing, EA's sports lineup hits the sweet spot of online gaming.

As I pointed out in February, online compatibility helped skew EA's platform revenue mix. In the most recent quarter, PS 2 titles, which are online compatible, outsold EA's Xbox versions of the same titles by more than 3-to-1. By comparison, Activision (Nasdaq: ATVI  ) had a slightly more even 2-to-1 mix. Indeed, online compatibility was a big enough issue to affect EA's platform revenue mix, despite the fact that the same titles tend to play better on Xbox.

I vividly remember the sales guy at Best Buy (NYSE: BBY  ) suggesting that I get Need For Speed Underground on the PS 2 rather than the Xbox because of its online capability. That will no longer be an issue, as EA brings Need For Speed Underground 2, as well as Madden 2005, NHL 2005, Tiger Woods PGA Tour 2005, the next Golden Eye, and many others to Xbox Live.

On the other side of the field, Microsoft's nearly 1 million-strong Xbox Live service is, in my view, a much stronger and more cohesive platform for online gaming than Sony's.

In the end, EA probably will see a slight sales boost, though the real effect will be a shift in platform revenue mix back towards the Xbox. Bigger picture, this latest move fortifies both EA and Microsoft's positions in a growing online gaming market.

David Gardner was an early fan of Electronic Arts and made it a top pick inMotley Fool Stock Advisor. Find out what he likes now. Give us your take on the Electronic Arts, Microsoft, and Video & PC Games discussion boards.

Fool contributor Jeff Hwang owns shares of Electronic Arts.


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