Game giant Electronic Arts posts loss, plans job cuts

The slumping economy just caught up to the video game industry -- and clubbed it across the head.

Electronic Arts, the publisher behind such franchises as Madden NFL and Rock Band, said today that retail sales of its games had slowed down in October -- right about the time the global financial crisis deepened. The Redwood City, Calif., company lowered its profit forecast for the all-important holiday season and said it planned to cut its workforce by about 6%, somewhere between 500 and 600 jobs, to try to save $50 million a year in expenses.

EA's shares cratered more than 15% to $23.50 in after-hours trading following its fiscal-second-quarter earnings report. Its shares had fallen 31 cents, or 1.1%, to $27.73 before the closing bell.

"Considering the slowdown at retail we’ve seen in October, we are cautious in the short term," Chief Executive John Riccitiello said in a statement. "Longer term, we are very bullish on the game sector overall and on EA in particular."

Chief Financial Officer Eric Brown said the job cuts weren't necessarily tied to the economy but were part of a broader restructuring effort the company has been undergoing since Riccitiello took the helm in early 2007. Brown said the cuts would be spread throughout the company's worldwide offices.

The game industry had been hiring furiously, especially in California, and video game sales have historically fared well during economic slowdowns. As we recently wrote in the first installment of our series about video-game jobs, the Work of Play:

In recent years, the state has witnessed an explosion of new jobs and global exports from the video game business, which is expected to deliver nearly $50 billion in sales this year despite the brutal economy.

Global financial woes have dragged down game makers' stock prices and are damping consumer spending heading into the holidays, when the industry typically generates 40% of its annual revenue. Still, analysts say that video games generally hold up well during economic slowdowns, and they expect 2008 sales to reach record highs.

So far, at least, game companies say they haven't scaled back their hiring plans. The state that gave birth to Pong in 1972 has become home to more than 18,000 video game workers, nearly half of the industry's domestic workforce. Tiny companies and giant corporations are braving high taxes and the soaring cost of living to tap into the state's unique blend of engineers in the north and artists in the south.

So much for that. Instead of hiring, EA is starting to let people go and leave some open positions unfilled. The company today reported a loss of $310 million, or 97 cents a share, for the quarter ended Sept. 30. That was steeper than the loss of $195 million, or 62 cents a share, a year earlier. One bright spot was revenue: EA said sales rose 40% to $894 million, from $640 million. But it spent more to develop and market its games, hurting the bottom line.

-- Chris Gaither and Alex Pham

Photo: Scene from Facebreaker, an arcade-style boxing game from EA. Credit: Electronic Arts

Comments

[aaron]

I can't help thinking this slump in sales has less to do with the economy and more to do with EA's seemingly single-minded mission to alienate and insult the very people they are trying to sell games to. (John Riccitiello's outspoken attitude towards games; EA's archaic DRM policy; and now their new forums policies)

Perhaps if they treated their customers with a little respect they would see some repeat business. Myself I have not bought anything from EA in 4 years, and that's not likely to change...

[Ubi1]

EA's behavior towards its customers has been absolutely unnacceptable with draconian DRM (DDRM) killing game longevity for legitimate customers, negative remarks about honest gamers by EA's CEO John Riccitiello and probably illegal forum policies, where a ban will result in the inability of the consumer to play all legitimately purchased games from the EA.

With those kinds of policies, I would not be surprised if EA were losing money even in a booming economy...