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Final Paper for Finance - Electronic Arts Incorporated...

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Electronic Arts Incorporated History of Electronic Arts When choosing a company to adopt, a great deal of research must go into the decision. After doing such research, Electronic Arts Incorporated (ticker symbol is ERTS) was chosen. EA is publicly traded on the Nasdaq market. “Electronic Arts Inc. is a leading global interactive entertainment software company. EA develops, publishes, and distributes interactive software worldwide for video game systems, personal computers, wireless devices and the Internet (Electronic arts Inc., 2010).” Electronic Arts has published many of the most popular video games on the market, such as Madden NFL Football and Medal of Honor. EA was founded by a man named Trip Hawkins in 1982, although the name was not originally Electronic Arts, but was actually referred to as Amazin’ Software. In 1982, the main platform for games was the computer and that’s where Hawkins focus for development initially went. Trip Hawkins began the venture of Amazin’ Software when he quit working for Apple Inc., where he was the Director of Product Marketing, and met with Don Valentine of Sequoia Capital to secure financing for the venture. In May 1982, Hawkins invested $200,000 of his own money and created/incorporated Amazin’ Software. The next major development in Hawkins venture came 7 months later when he “secured $2 million of venture capital from Sequoia Capital, Kleiner Perkins Caufield & Byers, and Sevin Rosen Funds (Wikipedia, 2010).” Hawkins hired his former Apple Inc. colleague, Rich Melmon, and they spent over half a year improving on EA’s business plan. By the end of 1983, Hawkins had grown his staff count to 16, a few of whom had left Apple Inc. to come and work for him. “Hawkins was determined
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to sell directly to buyers. Combined with the fact that Hawkins was pioneering new game brands, this made sales growth more challenging. Retailers wanted to buy known brands from existing distribution partners (Wikipedia, 2010).” This didn’t seem to be much of a problem though, since revenue in the first year was $5 million and was $11 million in the second year. EA’s revenue stream continued to grow and rose to $18 million in year 3. Some of this may be attributable to the hiring of Larry Probst as VP of sales in late 1984. “This policy of dealing directly with retailers gave EA higher margins and better market awareness, key advantages the company would leverage to leapfrog its early competitors (Wikipedia, 2010).” In 1986, two employees moved to the UK to open up EA’s European Headquarters. This cut out the middle man, Ariolasoft, when the games had to be converted to compact cassette versions compatible in Europe. Almost all of the original staff disliked the name Amazin’ Software and it was time for a change. Many different name suggestions were thrown around. Some suggested “Blue Light” which was a reference from the movie “Tron”. Others came up with the names, “Electronic Artists” and “Electronic Arts”. Hawkins was very fond of having the word “electronic” in the name but couldn’t agree with “Electronic Artists” because he said that they weren’t the artists.
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