Talking innovation in video games with Electronic Arts

In this episode of The Committed Innovator, Electronic Arts chief strategy officer Mihir Vaidya speaks with McKinsey innovation leader Erik Roth about the opportunities and trade-offs involved in strategizing for innovation in an industry with intensely committed stakeholders, long investment cycles, and rapidly changing technology. This is an edited transcript of their discussion. You can listen to the full episode on your preferred podcast platform.

Erik Roth, McKinsey: The gaming industry is considered a leader in terms of entertainment and interactivity—tell us where you think the state of the industry is given all that is going on with technology today.

Mihir Vaidya, Electronic Arts: Put simply, we are in a large, growing, and structurally advantaged TAM [total addressable market]. It’s the largest in all of entertainment, and it’s propelled by the fact that games are the number-one form of entertainment for younger generations. There are hundreds of millions of gaming natives born every few years. By some reports, gamers will be nearly one in two human beings on the planet by 2030.

All purveyors of entertainment have to be able to continuously innovate and meet changing demands, but the gaming industry has to be even more adaptable for a few reasons. In addition to technological change, there are also the business model and the consumption model to consider. Games today are very much live-service, always-on products, as opposed to the onetime consumption patterns of years past. When you put this soup of change together, it can be a source of disruption, but the industry is so adaptable that it serves as an expansionary force.

Erik Roth: Give us an example of technological change and what it means for gaming.

Mihir Vaidya: In gaming, “the camera”—what a game shows you—changes every day, in effect, because the technologies used to portray the visuals of a game are changing all the time. The shifts you see in things like texture, ray tracing, lighting, and shading over recent decades are profound.

There’s also changing connectivity and network infrastructure, new hardware, new platforms . . . the list can go on and on. When you compound all of these technological shifts, what results is a “camera” that changes for our developers almost daily. It would be like if Martin Scorsese had to relearn how to use a camera every time he went to make a new movie.

Erik Roth: Your business model naturally evolves more slowly than your technology, so how do you manage those different speeds of change?

Mihir Vaidya: We focus on the nature of players’ experiences as a true north for guiding how we invest. Every other vector of change is secondary to that. We don’t only think about current players; we apply a long-term lens because games can take four to seven years to develop, so you have a very long-term capital cycle. When we think about future generations of players we think about how we will build and innovate for them to ensure we generate entertainment that’s truly timeless in nature.

What we are seeing in the youngest gamers is that they consume and contribute more media than any generation before them, and they like control of that consumption. They want choice. They want agency. They want social connection. Gaming is their number-one choice of entertainment because it offers them hundreds of hours of entertainment, not just a few hours, and it allows them to connect with their friends, and to have creative agency.

A natural question is whether this preference for gaming will extend over time, and also how we build for that future. We believe that preference will last, because historically the needs and motivations that have driven the demand for entertainment are somewhat timeless. Preferences change, tastes change, but the need for creativity, self-expression, and connection will likely always be there.

We think about innovating for this future in terms of four vectors: play, watch, create, and connect. We believe the innovation challenges you mention—changes in technology, platforms, and business model—will all be solved by focusing on those four vectors.

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Erik Roth: What does decision making look like when you’re solving across four vectors? If resource allocation is the lifeblood of innovation, those are four pretty dynamic things that are always in flux. How do you sort out a decision both to prioritize certain things, resource them, and then lock a product for shipping?

Mihir Vaidya: This is perhaps unique to the entertainment industry, but it’s not a top-down process. Creative autonomy is at the core of all innovation, and it is very much a bottom-up process. We think about it in terms of how we empower our creatives to have the appropriate context about the different forces of innovation that are available, that are driving player behaviors, and that are driving the market. We need the folks who are closest to the player to take that question and then channel action in the right ways.

Our strategy is really focused on three pillars. The first is the creation or building of games and experiences that entertain massive online communities. This is really at the heart of how we deploy time, energy, and resources. If you think of franchises like EA Sports FC, Madden, Apex, Battlefield, or The Sims, they entertain these global communities that number in the tens of millions, often on a daily basis over many, many years.

So we think in terms of how the resources we deploy will enable bigger communities to have greater depth of engagement, and whether we are redefining the nature of play in a given type of game. For example, in FC [the soccer game], we would be thinking about whether the game experience is as much about what happens off the field as on the field, and whether we are enabling new ways of creating not just assets in the game but perhaps entirely new worlds and objects, and whether we are provisioning new ways of watching [video of other players’ play—an increasingly popular aspect of video gaming]. One of my favorite stats is that there were more hours of FC watched last year than many of the most popular English-language streaming TV shows. It’s in the billions and billions of hours. Connecting communities is another aspect we consider, such as how we promote higher-fidelity ways of connecting with community.

Erik Roth: And so, in a world of so much dynamism, how do you weigh the different variables, and then make the proper trade-off, and then decide to go? That is not an insignificant act.

Mihir Vaidya: Strategy is one the most misunderstood, abused terms in business—it’s just a cohesive set of choices that you make to win in the fields that you want to play in. And you make those choices based on your strengths and macrotrends. But it’s not planning. It’s not detailed tactics that you use to execute against a strategy. In this environment, that’s super important, because as a strategist, I’m not saying, “OK, here are all the trends, and here are the set of forces, and therefore this is exactly what we should do,” because that ultimately takes away from the core of what we do, which is create new products and experiences from the ground up. Instead, our role as leaders is very much to provide our creatives the context we’re working in—market and consumer context, the competitor context, the technology—so that they have the fullness of context to marry with their knowledge of their audiences and gaming to deliver against the strategy.

Erik Roth: Do you think companies in other industries might benefit from this approach? A lot of companies do have this stage-gate approach to innovation, and they’re going to make the decision and then push it forward based on whatever they think they did or didn’t learn.

Mihir Vaidya: I think every company needs to have a bit of a hybrid model. And I think creative industries in particular need to over-index on the bottom-up part versus the top-down part, just by virtue of the fact that creativity is usually a function of real bottom-up thinking and innovation. You can’t do it only one of the two ways—you could have chaos if it’s only bottom up.

One of the things that we do very well is when it comes to top-down innovation, we focus our energies on those enterprise-level bets that are in areas where scale matters, such as technology and marketing. But these bets don’t necessarily represent new, stand-alone, player-facing products—they are things that will help the studio teams innovate the player experience. So we have a group called SEED, or the Search for Extraordinary Experiences Division, that is a group of world-class PhD researchers who work on bleeding-edge creative technology problems that are of interest to us. Two years ago they started a generative AI [gen AI] arts vector, which was well ahead of all the mainstream interest in gen AI. That let us get up to speed and figure out ways to incorporate it into our work streams ahead of everyone else. As a result, our teams today are not just talking the talk but walking the walk when it comes to gen AI. I think 65 percent of the patents we filed last year were based on AI or ML [machine learning], and 47 percent of those inventors who filed patents were first-time contributors.

So this is just to illustrate that innovation is not just a bottom-up or top-down process. You need a hybrid approach. And then you can be surgical, deciding, for example, that the bottom-up parts are where, for us, there is real creative autonomy. That’s the unlock. And the top-down efforts are where we could benefit from scale. And when you bring those together, it’s a real competitive advantage in the context of innovation.

When technology gets better, creativity gets better. When creativity gets better, technology gets better.

Mihir Vaidya, chief strategy officer, Electronic Arts

Erik Roth: Let’s go back to generative AI. As you look at a technology like that with so much disruptive potential, how do you fit that within your innovation framework?

Mihir Vaidya: It starts with an important philosophy—from the very beginning, the game industry has uniquely existed at the intersection of creativity and technology, and the relationship between the two can be thought of as a flywheel. When technology gets better, creativity gets better. When creativity gets better, technology gets better. And the reality is that every time there’s a step-function improvement in technology, it benefits creativity, because it expands the canvas on which you can paint, and it broadens the color palette that you can paint with.

I don’t think this is any different in the case of generative AI. We think of generative AI’s potential for innovation across three vectors: efficiency, expansion, and transformation. For example, efficiency in game development is all about harnessing the power of generative AI to free up precious time for our world-class developers to create more and better experiences for our players. This lets them spend more time on the things they like to do—the highly creative tasks—and less on the manual tasks. Creativity in game development is highly iterative, so helping our creatives find the fun faster is very valuable. Production is another area. We already have models that have dropped stadium development in many of our sports games down from six months to six weeks. I wouldn’t be surprised if it drops further to six days or even a few hours. This means that a lot of those folks can now focus on building other assets or, within stadiums, making them even higher fidelity, focusing on the clubroom, and the restaurant, and so on. Testing is another area where AI can help speed up development and help our play testers focus on how to make a game more fun as opposed to just testing for the ways a game can break.


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Erik Roth: Are there aspects of AI that are unique to gaming?

Mihir Vaidya: Yes, especially with gen AI, where efficiency is a big factor. Ultimately a lot of how we free up developer time is going to be a function of what the technology unlocks. Much of the great value that we may see from an expansion and transformation standpoint is going to be on the creative side. For example, expansion might mean taking existing player experiences and expanding the canvas and color palette available for creators as they design them.

A good example is EA Sports FC 24. In sports, the goal has always been to marry the real world and bridge the gap between the real world and virtual world. This is not easy. Recently the team captured millions of frames of advanced match animations from matches between professional players and then processed them with proprietary, machine-learning algorithms to create a much more realistic gameplay—the most realistic in the history of the franchise. It’s not just about eye-catching visuals. It’s about making the experience more responsive, dynamic, real, and true to life, because in a real football match, players need to react to a multitude of variables: the trajectory of the ball, or the movements of their teammates and opponents. It’s complexity that’s hard for game developers to model. But this new ML system makes it possible for virtual players to respond very intelligently to their surroundings. It’s just one example of an experience that our players have always asked for: authenticity, realism, and a higher level of immersion.

And in sports gaming, AI is probably more important than in any other context, because there are daily reminders of the sport outside the game. You see [Erling] Haaland score a new type of goal and if you can’t score that type of goal in the game, your sense of authenticity and immersion breaks. We think ML and gen AI will have a meaningful impact on bridging the real and virtual, and allow us to unlock more immersive and authentic experiences.

Erik Roth: What about the business model? Whether it’s in-game monetization, or sports clubs, or betting, the business model is changing. How does that affect innovation?

Mihir Vaidya: The business model of games is particularly interesting, because it has actually gone through multiple cycles of innovation. Twenty years ago, the business model was pretty simple. You launched a game, and then you sold it for a fixed price—what many folks call “box product” sales. It’s very similar to the movie industry. If you go to the box office, you buy a ticket, and you watch. Today the business model is less about units sold, and more about minutes engaged and live services. Every day, you’ll see our games like FC and Apex have new content, new features, new updates. And those drive engagement, and in turn, monetization.

Over time, what you’ll see are new and interesting ways for the business model to evolve. There are largely untapped opportunities. Advertising, for example, has historically not been a meaningful vector in gaming. We also see subscriptions in some contexts, but it’s not that scaled. Commerce that extends to the real world has not really come into gaming. For example, with generative AI you could have NPCs [non-player characters] that have real depth and range of personality. Then games evolve from being a two-sided network of creators and communities to a three-sided network, where the AI is an important node that adds to the experience, which could yield another business model altogether.

There’s a lot of scope for innovation. It boils down to the nature of the experience we’re creating. As long as we continue to expand the frontiers of play, watch, create, and connect, the business models will present themselves. And ultimately we have the benefit of so much optionality that isn’t necessarily the case in many other categories of entertainment.

Erik Roth: What about culture—what does it take to make such an innovative industry work well?

Mihir Vaidya: Culture is very much at the core of the company’s history of innovation. It starts with the very nature of a creative leader’s job—they’re in the business of creating new things, so by extension the very act of innovation is embedded in their job description. It’s core to their identity. The culture they embody then extends to the rest of our people, because innovation is not the privilege of a few, but an obligation shared by all. We have dedicated innovation teams within many of our studios to push the boundaries of each franchise. Our role in management isn’t to tell the studios, “Hey, you know, here’s how to innovate,” but rather to equip them with tools, guidance, and governance to innovate effectively and efficiently.

Erik Roth: Can you give us an example of how that plays out? How do you push the boundaries of potential?

Mihir Vaidya: We can look to the Apex Legends franchise from Respawn Entertainment, which is led by Vince Zampella. He and his team previously had a successful franchise in the Titanfall series, and they realized that players were becoming interested in a new genre called battle royale, which is effectively a last-man-standing mode where your character gets stronger throughout the match, through new gear and other items, but once your character dies, you’re out, rather than just respawning until the match is over. That raises the stakes from traditional multiplayer shooter games. This wasn’t a simple lift of taking Titanfalland making a new mode; they had to rebuild the game from scratch around a new type of gameplay and create new Legends [character and ability] systems.. All of this was done from the ground up at the studio because their philosophy was, “We’ve got to chase the fun,” and they had the creative autonomy to do so. It really starts with the creative leader, and with us giving them a framework in which they can think through new concepts that align to modern consumer tastes and preferences, but with a lot of freedom in how they paint on that canvas and the colors they use to paint with.

Erik Roth: What do you see as EA’s competitive advantage given the landscape of gaming competition out there?

Mihir Vaidya: Great innovation always starts with foundational strengths, and ours fall into four categories. First, we have world-class talent and creative leadership at the core of our foundational strengths. Second, we have world-class technology and we continue to push boundaries there. Third, we have our IPs and brands—in an era when content seems infinite, IPs and brands stand tall. And fourth, we have our player network composed of 700 million unique active accounts, almost half of which are under the EA Sports brand, which gives us a meaningful opportunity to aggregate in a digital age. These foundational strengths give us the opportunity to position ourselves for a game-centric future of entertainment.

Erik Roth: If innovation is really about the future and creating that future for your company, what does the future look like for EA?

Mihir Vaidya: I talked about our first pillar of building games and experiences that entertain massive online communities. I really want to emphasize how important the word “community” is here. A community is a group of people who share common characteristics, interests, values, goals, interact with each other to exchange value on a regular basis. With the internet, we have bigger communities than ever before, but they’re quite fragile. Often they are a handful of loud, active members, with limited participation by the majority. Games, however, have a richness of community, allowing for interactivity, shared experiences, different forms of engagement, and emotional investment. There’s also the second pillar of our strategy, which is around creation of blockbuster interactive storytelling experiences. These are franchises like Dragon Age, Dead Space, Mass Effect, and Star Wars. These are often single player in nature, consumed one time. They don’t offer in-game environments where folks can connect with others in the game social network. But we think it’s still super important. In both cases, though, this is the core of our craft, as builders of worlds, narratives, and characters.

And the third pillar of our strategy is about harnessing the power of community in and around our games. Games have a unique, active, and engaged player base and as a result, they are modern aggregation platforms. But we’ve just scratched the surface in terms of extending these aggregation platforms beyond the bounds of the game experience. If we execute against these three pillars, we will be well set to lead what I think is going to be a very game-centric future of entertainment.

Erik Roth: We are excited to see the possibility and the potential of that game-centric future. Thank you so much for joining us.

Mihir Vaidya: Thanks so much. It was a pleasure.

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