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Electronic Arts delays release of 3 games, cuts work force
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The Sims 3 won’t be released by March 31. Neither will Godfather 2 and Dragon Age.
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Published: February 12, 2009
Electronic Arts Inc. has hit the reset button on its video-game business.
The publisher of such franchises as The Sims and Madden NFL posted a deeper quarterly loss last week. It also said it would cut 100 more jobs and close three more facilities than announced in December because of disappointing holiday sales.
Electronic Arts, which is based in Redwood City, Calif., now plans to cut 11 percent of its work force, about 1,100 people, from its payroll this year and shut down 12 facilities. It's trying to reduce its 2010 operating budget to $2.1 billion, down $150 million from this year's budget.
"We've made the hard calls," Chief Executive John Riccitiello said during a call with analysts. "Now it's all about execution. We have been and will continue to focus on game quality and innovation."
Electronic Arts lost $641 million, or $2 a share, on sales of $1.65 billion during the crucial Christmas quarter. That compared with a loss of $33 million, or 10 cents a share, on $1.5 billion in sales a year earlier.
Much of its fiscal third-quarter losses stemmed from two one-time charges. The first was a $368 million charge to write-down the value of its $680 million purchase in 2005 of Jamdat, a mobile-games company in Los Angeles. The second charge resulted from reserving $244 million for deferred taxes.
But Riccitiello made no bones about the company's "disappointing" performance.
As the economy contracted, Electronic Arts said, consumers tended to buy well-known franchises rather than take a risk on new titles. This coincided poorly with Electronic Arts' plans, laid two years ago when Riccitiello took the helm, to develop homegrown franchises.
"As consumers focused on titles they knew well, EA did not do well on new intellectual properties such as Dead Space and Mirror's Edge," said Shawn Milne, an analyst at Janney Montgomery Scott, an investment company in San Francisco. "Retailers also cut them off at the knees by chasing top titles and not reordering on others."
Even though retailers were conservative in their orders, Milne said, many entered the new year with unsold games. As a result, stores are likely to slash prices much more quickly this year to goose sales, which will be good for shoppers but bad for video-game companies' bottom lines.
"The key risk to the industry at this point is software pricing," Milne said. "We have seen aggressive pricing of second-tier titles."
Determined not to be stuck in that second tier, Electronic Arts said it would cut the number of titles it develops. It also postponed three major games that were set to be released by the March 31 end of its 2009 fiscal year, in order to give the games more polish and a bigger marketing push. The Sims 3, Godfather 2 and Dragon Age will instead hit stores sometime in the next fiscal year.
Electronic Arts, which was late to align itself with Nintendo Co.'s popular Wii console, also plans to shift more resources to developing games for that platform. It plans to make half its future games for the Wii, with the other half split between Microsoft Corp.'s Xbox and Sony Corp.'s PlayStation 3, Riccitiello said.
"Nintendo's the leader," he said. "They're getting half our emphasis."
When Grand Theft Auto IV releases another downloadable episode on Xbox Live on Tuesday, there will be not only new story lines and characters, but also new music for the ride.
Busta Rhymes, Funkmaster Flex and others have been added to music stations on the radio dial in "The Lost and the Damned," an episode that features hours of new content for the popular video game, which released the fourth part of its series to great fanfare -- and sales -- last year.
Rhymes is also debuting a new song, "Conglomerate," exclusively for Grand Theft Auto.
Music supervisor Ivan Pavlovich said the featured songs are a key component of Grand Theft Auto, so they updated five of the radio stations in the game, including a hip-hop station and rock stations.
"Unlike movies, where you have a particular song that goes with a particular scene, what we do with the stations is really kind of allow each player to individualize how they want to play the game and how they set the tone," he said.
To that end, they've enlisted DJ Funkmaster Flex to make a show for the game's fictional Liberty City, which sits right outside of a New York-type metropolis. Rhymes' music is not only featured on the Flex channel, he also is interviewed by Flex.
The station also gives the rapper a chance to promote his upcoming CD and music, and fans can buy songs they tag during play later on iTunes.
"It kind of shows the reach of video games to influence people to buy music," Pavlovich said. "That's why it's important for people like Busta, when they have new material. He is pushing an album in this.... That's part of the whole thing that we do that's really important to us, is turning people on to new music."
A sequel to one of 2005's most popular games has just been released.
F.E.A.R. 2: Project Origin, a follow-up to F.E.A.R., was released Tuesday for the Xbox 360, PlayStation3 and PC. The game is a first-person shooter that follows a Special Forces squad (First Encounter Assault Recon) on a mission to stop a young girl with psychic powers who has twisted reality around her into a nightmare world.
The game boasts enhanced graphics and improved artificial intelligence from the 2005 original.
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