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One day last winter, Ruth Kennedy watched two bare-chested men assault each other with a brutal array of kicks, elbow chops, and choke holds. Kennedy was used to a little violence: As general counsel of the Redwood City, California�based video game maker Electronic Arts Inc., she has seen her share of animated body slams and bone-crushing quarterback sacks. But in Kennedy’s mind, this new fighting game � Def Jam Vendetta � went too far. The background rap music and the characters’ taunts bordered on the profane. The punches, neck snaps, and scantily clad women parading outside the ring � while technologically impressive � left far too little to the imagination. Kennedy feared the industry’s Entertainment Software Rating Board would stamp the game with EA’s first “Mature” rating, a designation that the company had previously managed to avoid. But Kennedy wasn’t concerned just about seeing an “M” on Def Jam‘s packaging. To her, the game represented a larger transgression: a breach of EA’s commitment not to publish games featuring gratuitous sex, violence, or profanity. Kennedy relayed her concerns to Lawrence Probst III, the company’s no-nonsense chief executive. He scrutinized Def Jam Vendetta and, after several heated debates with other executives, ordered the game cleaned up. The move angered many within the gaming world, and led some EA programmers to cry censorship. “But we adhere to certain principles at EA, whatever the cost,” says Probst. “And when Ruth says we may have violated those principles, I’m going to listen to her very carefully.” To be sure, the bulk of Kennedy’s responsibilities are the stuff of most in-house jobs. In her 13-year tenure as EA’s top lawyer, Kennedy has handled acquisitions, navigated tricky litigations, grown a thriving department, and cultivated an invaluable portfolio of licenses. But during her tenure, Kennedy’s duties have expanded beyond EA’s legal team. The attorney, 48, routinely advises Probst on business strategy, and has become one of the most respected members of an informal group of top EA executives that defines the outer limits of what the company will publish. “I wouldn’t call Ruth a censor, but I’d call her a fantastic conscience checkpoint,” says John Riccitiello, EA’s president and chief operating officer. EA is the 800-pound gorilla in a booming industry. The revenues of its nearest head-to-head competitor don’t even come close. But EA’s decisions to kill or clean up games have cost it untold sums in extra costs and lost revenue. And many analysts feel that EA’s stance is going to hurt its bottom line even more going forward. After all, gamers are getting older � the average age of video game players in the United States has climbed to 28. And twenty-something men and women consume a steady diet of violence, lewdness, and profanity on television and in movies and music. So why shouldn’t video games reflect popular culture, too? Kennedy thinks otherwise. She credits a genteel lawyer named Justin Vigdor � her mentor 20 years ago at a midsize Rochester, New York, law firm � for helping fine-tune her own highly developed sense of right and wrong. Vigdor constantly preached the importance of making decisions that squared not only with the rules of professional responsibility, but with a greater sense of ethics. To this day, Kennedy says she thinks about Vigdor when confronting vexing ethical dilemmas. But reserve some credit for motherhood, too. Kennedy is a single mother to two boys, 10 and 11. While she’s reluctant to share details of her personal life, she admits that she’s fiercely devoted to making “good spouses, good citizens, and happy people” out of her children. “She takes her job as role model to her children very, very seriously,” says Stan McKee, EA’s former chief financial officer. “And she’s totally unwilling to change her values when she walks through the front door of EA every morning.” For now, the company’s strong market position means EA can take the moral high ground. The business has stayed away from provocative games like rival Take-Two Interactive Software, Inc.’s wildly successful Grand Theft Auto series, which rewards players for buying street drugs, killing policemen, and having sex with prostitutes, among other illicit activities. But the success of the Grand Theft Auto franchise � today it stands as one of the most successful series of video games ever made � demonstrates what every gaming industry analyst knows: Video games are no longer geared only to 10-year-old boys, but to men and women in their twenties and thirties who have presumably seen one or two Quentin Tarantino and David Fincher movies. “At some point, EA executives are going to have to bend a little on their taste,” says Michael Pachter, a video game analyst with Wedbush Morgan Securities in Los Angeles. “It won’t be tomorrow, and it might not be next year. But people want edgy content, and if EA doesn’t yield, I worry that it’ll pay the price.” But in a lot of ways, EA’s future looks bright. Its long-term strategy � developing games tied to franchises with renewable pop cultural appeal, like the National Football League, James Bond, Harry Potter, The Lord of the Rings, and The Sims � has paid off in spades. The company took in close to $2.5 billion in revenue for FY 2003, about $840 million more than the combined revenues of Take-Two and Activision, Inc., its next-closest competitors among companies who make games for each of the three leading gaming platforms, Microsoft Corporation’s Xbox, Sony Computer Entertainment America Inc.’s PlayStation 2, and Nintendo of America Inc.’s GameCube. EA has no debt and currently sits atop $1 billion in cash. And the industry is still growing fast. According to The NPD Group, Inc., a Port Washington, New York�based market researcher, last year’s sales of game consoles and software took in $10.3 billion, a figure that for the second straight year eclipsed box office revenues for all of Hollywood. EA executives do more than acknowledge their success. They revel in it. Set on the northern edge of California’s Silicon Valley, EA’s sleek new headquarters feel designed with one goal in mind: to inspire envy among the neighborhood’s legions of dispossessed dot-commers. The ten-and-a-half � acre campus features an on-site movie rental store; an indoor basketball and volleyball gymnasium; a 750-seat movie theater; and a giant grass maze meticulously carved into a football field � sized plot of land. Ubiquitous televised loops of the company’s flashiest games serve as in-your-face reminders of EA’s creations; fantastic, good-versus-evil worlds comprised of epic sword fights, flying broomsticks, and game-winning home runs. Call it confidence or arrogance; inspiring or distasteful. The atmosphere seems to suit the personality of EA’s brass, largely a group of brash men who spend their days plotting more ways to leverage the company’s power and wealth. Two years ago, EA spent millions developing games for the nascent online gaming industry (a move that hasn’t yet panned out), and through the years, EA has gobbled up handfuls of smaller ventures. Last winter the company sparred with Microsoft over licensing fees for EA’s online games. In May, after months of back-and-forth, EA simply stopped selling those games to the software giant. Ruth Kennedy isn’t the only female officer at EA. Still, at first glance, she seems a strange fit at the company, a minnow in a school of sharks. She is cordial and soft-spoken. She’s unfailingly humble. She even looks out of place. Her close-cropped hair, dangling earrings, and makeup-free face are more suggestive of the San Francisco nonprofit world than of the legal department of a high-flying technology juggernaut. Riccitiello calls her “a left-wing hippie in a competitive, corporate world.” Adds Probst: “Ruth probably wouldn’t have liked life at a big law firm.” So how did this “left-wing hippie” end up at EA? After finishing law school at the State University of New York at Buffalo in 1980, Kennedy joined Mousaw, Vigdor, Reeves, Heilbronner & Kroll in Rochester. The now-defunct firm wasn’t Cravath, Swaine & Moore. Kennedy didn’t handle any headline-grabbing cases or billion-dollar mergers. And the firm’s lineup of upstate New York real estate deals and commercial disputes certainly didn’t make her rich. But the experience introduced her to Justin Vigdor, a name partner at the firm. Vigdor, now a partner at Rochester-based Boylan, Brown, Code, Vigdor & Wilson, cut his teeth in a bygone era, a time when many lawyers considered themselves role models and civic leaders. So while he taught Kennedy the fundamentals of legal practice, he spent as much time teaching her about responsibilities to clients, the profession, and the community. It left an indelible mark. “He was a tireless, zealous advocate for every client I ever saw him handle,” recalls Kennedy. “At the same time, he wore a moral and ethical cloak. He viewed law as a calling and never did anything without first considering both its ethical and moral implications.” Vigdor, now 73, says he always tried to lead the younger lawyers by example. “But Ruth didn’t need much teaching,” recalls Vigdor, who has fallen out of touch with his prot�g�. “She was a natural. She picked up the lessons as well and as quickly as any younger lawyer I’d ever seen.” Kennedy loved the firm. But after four years, she decided she could “do more from inside [a company] than outside,” and she left for the in-house world. After a short in-house stint in Washington, D.C., she returned to the Bay Area (Kennedy was raised in Middletown, Connecticut, but spent her high-school years in San Francisco). There, she worked for a handful of Bay Area technology outfits. While at a company called Network Equipment Technologies, she heard from one of her outside lawyers, Fenwick & West partner (and current firm head) Gordon Davidson, that a small but growing video game maker called Electronic Arts was looking to hire its first lawyer. The job intrigued her, so she signed up for the company’s long interviewing process. She passed. “We were taken with her intensity and thought she could grow into the role,” says McKee, EA’s former CFO. At the time, in early 1990, EA had just gone public, and Kennedy liked the prospect of joining a leading company in a growing industry. But little did she know how little she knew. Right away, she had to put together licensing deals with the leading console makers, negotiate acquisitions of smaller game makers, and give herself a crash course in intellectual property law. As the years progressed, EA grew from a niche technology venture into a full-fledged entertainment company. Above all else, that meant one thing for Kennedy: more licensing work. So, like an ambitious baseball owner, she scouted the rosters of other organizations, and plucked the best talent. In 1995 she brought in a young hotshot licensing lawyer named Steven Ben�, from Fenwick. In 1997 she convinced Joel Linzner, a San Francisco trial lawyer, to spearhead a new licensing department. Together, the departments got to work. They hammered out licensing deals with a host of famous athletes, several major Hollywood studios, and the players associations of all the major American sporting leagues. Kennedy’s success at the deal table might surprise David Caplan, her onetime boss at Tolerant Systems, who once reportedly wondered if she was loud enough “to get a taxi,” let alone handle bare-knuckled negotiations. But although she says she has “tremendous respect” for the outside counsel she’s closest to (chiefly lawyers at Fenwick and Washington, D.C.’s Covington & Burling), she often prefers to handle her own negotiations. For good reason: Over time her on-the-job style has morphed to fit EA’s hard-driving ethic. “There’s a reason why she’s known as ‘Ruthless’ among other lawyers in the industry,” says Riley Russell, the general counsel at Sony Computer Entertainment America. “On the one hand, she’s very down-to-earth. But when she’s fighting for something she believes in, she’ll push and push and won’t let up.” That style doesn’t always endear her to colleagues. According to some who have worked with her, Kennedy can be abrupt and prickly. And her unyielding moral rectitude can come across as holier-than-thou sermonizing. “She’s a great lawyer,” says one of her outside counsel. “But her style alienates some people. It might not work as well if she didn’t have EA’s institutional clout backing her up.” In the fall of 1998, EA purchased a Southern California � based game developer called Westwood Studios. With that deal, EA acquired Thrill Kill, a four-player fighting game that featured beheadings, dismemberment, and � not surprisingly � copious amounts of blood. Probst loathed the game and was inclined not to market it. But Thrill Kill had been a huge hit for Sony’s first PlayStation console, and Probst knew that a version updated for PlayStation 2 stood to make millions for his company. Plus, he knew that if he killed the game, he’d be vilified by programmers and hard-core gamers alike. “But senior management passionately believed that Thrill Kill didn’t belong in the EA catalogue,” recalls Probst. “When I heard this, and that Ruth was on board, I knew immediately my instinct had been right.” Probst killed Thrill Kill, and he took heat for it. Web sites protesting the move popped up, the industry press pilloried him, and grumblings arose within EA’s own ranks. The company admits that the decision cost it tens of millions in extra costs and lost revenue opportunity. “But I don’t regret it for a minute,” says Probst. “EA will not publish games with gratuitous sex and violence. I believe this as strongly now as I did then.” So does Kennedy. She says her views aren’t driven by religious doctrine, squeamishness, or the notion that violence in video games causes teenagers to shoot their classmates. Instead, her opinions are shaped by the lessons she learned from working with Vigdor and from parenting her two boys, Sam and Yevgeni. “I don’t want my company producing games that I’d be ashamed to show my kids,” she says. But sex and violence sell, especially in the video game world. The latest installments in Take-Two’s Grand Theft Auto series, Grand Theft Auto 3 and Grand Theft Auto: Vice City, were last year’s highest-selling games, beating out the number three finisher, EA’s Madden NFL 2003, by a healthy margin. “Take-Two is giving people what they want to see,” says Paul Kaump, a video game analyst at Dougherty & Company, a Minneapolis-based investment bank. “A little blood, a little guts. Most of [their games] have an edginess that EA’s games lack.” And companies are sharpening that edge. Take Glen Cove, New York � based Acclaim Entertainment, Inc. Last fall the company rolled out BMX XXX, a stunt-biking game that tests just about every conceivable limit. Gamers who reach a certain proficiency can visit virtual strip clubs and create female characters who prefer to do their wheelies while topless. The game’s Web site advertises “Pimps, Puke . . . Strippers, Constipation, Cosmonauts, Electrocution . . . and Dogs Who Love to Hump.” Pachter of Wedbush Securities says that much of the game’s racier content is unrelated to the game’s action. “But it shows that certain companies are pushing the envelope, testing the marketplace,” he says. “Of course, EA’s not one of them.” EA might not be on the leading edge. But what’s wrong with sticking to the straight and narrow? In the short term, maybe not much. “A game called ‘Harry Potter’ can be the biggest piece of crap in the world; it’s still going to sell,” says Pachter. “For EA, it’s all about the license; it’s all about the franchise. And they have plenty of those to bankroll them for a while.” EA has certainly tried to appeal to adult gamers. Madden NFL has always been an aggressive, hard-hitting game. The toned-down version of Def Jam Vendetta is still, at its core, a violent game. And EA’s war simulation games have grown increasingly realistic. In fact, in April the German government restricted the sale of an EA World War II game called Command and Conquer Generals, claiming the game was “prowar,” and “didn’t offer [enough] alternatives for resolving conflicts.” (Kennedy calls the charge “ridiculous.”) But some experts say that EA is going to have to change its tastes to keep up with its older customers. The company has yet to roll out an M-rated game, which many in the industry liken to a film studio never touching R-rated material. “At some point, EA is definitely going to have to [do even more] to get older audiences,” says Anthony Gikas, an entertainment software analyst with US Bancorp Piper Jaffray Inc. in Minneapolis. “The company might not have to get into sexually explicit or graphically violent stuff, but it’s going to have to broaden its product line.” Pachter compares the company’s situation to that of McDonald’s Corporation and Walt Disney Company in the 1980s. “At the time, McDonald’s and Disney were at the top of their game with good-quality, wholesome products,” he says. “But they failed to read changing consumer tastes. By the time McDonald’s started offering salads and Disney more adult films with Touchstone and Miramax, they both had lost a good chunk of market share.” Kennedy acknowledges the need to continue searching for games that cater to adults. Probst himself says the company isn’t averse to publishing an M-rated game, “but it would have to be ‘M-light,’ not ‘M-dark,’ ” he says. But both executives are adamant that “adult” content isn’t necessarily synonymous with sex, drugs, and assault weapons. “Look,” says Kennedy, her tone growing defiant. “People bought Grand Theft Auto because it’s a great game � not because of the sex or violence.” Maybe so. But a little sex and violence certainly hasn’t hurt Hollywood’s bottom line, or the gaming industry’s, for that matter. If EA wants to stay on top, won’t it eventually yield to these pressures? No one at the company can say for sure. But if and when it does, there’s a good chance EA will have to find itself a new top lawyer.

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