Electronic Arts slashes 1,500 jobs [Corrected, Updated]

Electronic Arts today said it will cut 1,500 jobs by the end of March, or more than 16% of its workforce, the vast majority of them through a restructuring plan aimed at saving the company $100 million a year.

The video game publisher announced the cost cuts even as it proposed to pay as much as $400 million to acquire Playfish, a London-based developer of free-to-play games for social networks such as Facebook and Bebo.

“We are making tough calls to cut costs in targeted areas and investing more in our biggest games and digital businesses,” EA Chief Executive John Riccitiello said in a statement.

Though EA did not release details of where the layoffs would occur, EA Chief Financial Officer Eric Brown said research and development would be hardest hit, since that represents the bulk of the company's employee base. Even studios with established game franchises will be hit. EA's Tiburon Studio in Florida, which makes the Madden NFL games, will see 51 jobs go, or 8.5% of the studio's roughly 600 workers, according to the Orlando Sentinel.

The dual moves, one aimed at trimming expenses and the other at boosting EA's future cash flow, were announced amid a report that its quarterly revenue was up 2% on a non-GAAP basis to $1.1 billion during the second quarter ended Sept. 30. Net income of $19 million was up from $20 million loss a year earlier.

On a GAAP basis, which defers a portion of revenue for games that can be played online, EA's sales fell 13.5% to $788 million. Net loss widened to $391 million, up from $310 million a year ago.

EA's shares, which closed up 53 cents to $19.53, see-sawed in after-hours trading following the earnings release.

Corrected, 1:53 pm: An earlier version of this post incorrectly reported a net income of $20 million in the second quarter of last year. In fact, EA lost $20 million that quarter.

Updated, 5:27 pm: This post has been updated to reflect current stock price and details on layoffs at EA's Tiburon Studio in Florida.

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.

EA buys Playfish for $400 million, jumps into social games

Electronic Arts, looking to jump into the exploding market for games on social networks, this morning said it has agreed to buy Playfish in a deal valued at $400 million.

The transaction calls for $275 million in cash, plus $25 in retention bonuses for executives of the tiny London-based developer of games such as Pet Society and Restaurant City. It also includes up to $100 million in bonus payments should Playfish meet certain, undisclosed financial targets.

Playfish, a privately held company, does not release its financial data, but has said the venture is "substantially profitable," so much so that it has not touched the $21 million in venture money it raised in its last round of funding.

With just 125 employees, Playfish has focused on a lean operation with fewer than a dozen games played on popular social networks such as Facebook, MySpace and Bebo. Though rudimentary, the games have attracted hundreds of millions of players. The fact that they are free to play is part of their appeal, but so is their social nature and the fact that players can pull their friends into the games.

EA, based in Redwood City, Calif., has been expanding its reach into free-to-play online games that make money by charging small amounts for extra features.

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.

Need for Speed sales race past 100 million copies

Screen shot of Need for Speed Shift, released in September. Credit: Electronic Arts.

Need for Speed, Electronic Arts' racing franchise, has raced past the 100 million copies mark, making it one of the top five bestselling video game properties of all time. (The other four franchises in the elite 100-million club are the Sims, Mario, Pokemon and Grand Theft Auto.)

Developed in 1994, Need for Speed has evolved from a game made by a dozen developers to roughly 100 designers, programmers and perfectionists who obsess over cars. EA has cranked out 15 Need for Speed titles, but it wasn't until Need for Speed Underground came out in 2003 that sales got turbocharged. Since then, EA has moved 60 million copies of the game.

Over the years, the franchise has undergone a couple of remodels. The first came with Underground, which shifted the franchise away from "aspirational" Lamborghinis to street-style racers made from customized compacts and souped-up sedans. EA developers knew they had street cred when they began to see body shops build actual parts based on the game's vehicles.

And as computer graphics became ultra-realistic, even car manufacturers got into the act. Nissan, for example, used the game rendering of its 370Z sports car to help unveil the vehicle at last year's Los Angeles Auto Show.

The brand got its second makeover this year. 

"We started to develop different versions for different audiences," said Keith Munro, EA's vice president for global marketing. "We noticed we had fans who liked an authentic simulation experience. But we also had others who wanted an over-the-top arcade style with hyperbolized physics."

The goal: Develop three titles to address different audiences.

The first, Need for Speed: Shift, came out in September, catering to players who wanted an authentic, visceral racing simulation. In November, Need for Speed: Nitro will hit the street offering freewheeling arcade play. Developed for Nintendo's Wii console, Nitro is designed to be easy to pick up and play. And sometime next year, EA plans to open up Need for Speed: World Online, a free-to-play game with Hollywood style chase sequences.

There is fierce competition among racing games -- Gran Turismo, Project Gotham Racing and Forza Motorsport are all formidable franchises with their own ultra-loyal fans. EA is hoping that its three-pronged strategy will help drive sales of Need for Speed's next 100 million copies. On your mark....

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.

Video game sales slip 6th month in a row

Madden NFL 10 tops chart of best-selling games. Credit: Electronic Arts.

Boom! Not even John Madden and his trademark expressions could avert the crash in video game sales in August, which fell 16% from a year ago.

The drop was the industry’s sixth consecutive monthly decline, according to a report released today from market research firm NPD Group Inc.

That means sales of games and game consoles must grow 14% in the last four months to the year in order for 2009 sales to be flat with 2008, said NPD analyst Anita Frazier.

Last month, even sales of Madden NFL 10, a popular football simulation game developed by Electronic Arts Inc., were down from a year ago, prompting EA Chief Executive John Riccitiello to say, “It is discouraging that one of our highest-rated and best-marketed Madden titles in years is facing strong headwinds.”

Here are last month’s top-selling titles:

1. Madden NFL 10 (Xbox 360)
2. Wii Sports Resort (Nintendo Wii)
3. Madden NFL 10 (PlayStation 3)
4. Batman: Arkham Asylum (Xbox 360)
5. Batman: Arkham Asylum (PS3)
6. Madden NFL 10 (PlayStation 2)
7. Dissidia: Final Fantasy (PlayStation Portable)
8. Wii Fit (Wii)
9. Mario Kart (Wii)
10. Fossil Fighters (Nintendo DS)

Source: NPD Group Inc.

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter@AlexPham.

John Madden talks about the virtual gridiron, the Madden Curse and life outside of the broadcasting booth

John Madden in 2002 on the field in Foxborough, Mass. Credit: Ida Mae Astute / Associated Press.

John Madden, the NFL legend and former broadcaster, made his call in April when he announced his retirement. But that didn't mean the 73-year-old was out of plays. Madden still relishes his role as an advisor to the video game franchise that bears his name, Madden NFL.

Although the game, published by Electronic Arts, already shipped last Friday, it is continually updated via downloads on Internet-connected game consoles such as the Xbox 360 and the PlayStation 3. That's a feature Madden fully plans to take advantage of as he analyzes the sport from a custom-built viewing room designed to let him tune in to every live football game.

His analysis of these games will make their way into weekly updates of the game, which can also accommodate changes in the lineup due to injuries other game changers.

Madden spoke to the Times yesterday about how he's tackling his role as the go-to coach of the virtual gridiron with renewed vigor, and whether he believes in the "Madden Curse," coined because athletes appearing on the cover of the video game have been prone to suffer injuries.
To read an edited transcript of the conversation, click continue reading.

EA rushes Michael Vick into Madden NFL 10 in surprise overtime session [Updated]

Michael Vick, No. 7, is back in the game (the video game). Credit: Jim McIsaac / Getty Images.

Where were you last night when the Philadelphia Eagles announced they would sign Michael Vick?

If you were with some senior developers at Electronic Arts Tiburon, you would have been caught halfway through your meal at Buffalo Wild Wings in Orlando, celebrating the launch of one of the year's biggest titles, Madden NFL 10, which began selling at midnight.

Instead of high-fives, though, the development team had to regroup. The announcement meant they had to make one more pass at the game to add Vick into the virtual lineup. 

“I looked at our product manager and said, 'Couldn't he have just given us just one more day?' " recalled EA Tiburon spokesman Rob Semsey, who was part of the group at the restaurant. But it was after 8 p.m., and there was no time for deep philosophical discussions.

The game's art director, Mike Young, immediately abandoned his wings and headed back to the studio. Donny Moore, Madden's designer, who was en route to the restaurant, made a U-turn right back to the studio.

The rest, about eight others, got to work at the restaurant.

"I have an iPhone," Semsey said. "It's disgusting now. It’s got greasy thumbprints all over it from me making calls and texting on it while trying to eat our hot wings."

What's the big deal? some of you might ask. Can't EA just pop in their model from when Vick was in Madden in 2007, before he was banished from the NFL and sentenced to 23 months in federal prison for running a dogfighting ring?

Not so fast, said Semsey. For one thing ...

EA's tale of two earnings

Titles such as The Sims 3 gave EA a boost in its June quarter. Or did it?  Credit: Electronic Arts

For Electronic Arts, it was a tale of two earnings.

One report, based on generally accepted accounting principles, or GAAP, was grim. Sales plunged nearly 20% to $644 million in the first quarter ended June 30 from a year earlier. Losses yawned to $234 million from $95 million last year.

But the other earnings report was full of smiles and sunshine. Revenue grew 34% to $816 million from $609 million in 2008. And losses were a mere $6 million, down from $135 million a year ago.

Hard to believe they came from the same company. But because of the wacky way many game companies book their sales, both reports are considered valid. Here's why. EA books its expenses upfront, which means development and marketing expenses are recorded in "real time." At the same time, the revenue it gets from many of its games are not booked right away, even though the money's already hit the company's bank account. It gets dragged out for six or more months. Why?

Conservative companies such as EA say the costs of supporting those games continue months after they are released and sold. Those costs include the online support that EA and other publishers must devote to their games, including server costs, maintenance and customer support. Here's how Daniel Ernst, an analyst with Hudson Square Research, explained it:

You get $60 from selling your game. But you say you only got $6. The game costs you $30 to build, so you actually made $30 in profit. But by GAAP accounting standards, you have to say you lost $24. GAAP was intended to keep companies from doing funny math. But in this case, it's the GAAP numbers that's funny math. 

As a result, most Wall Street analysts such as Ernst pay attention only to the non-GAAP figures, which include revenue as it is booked. That's probably why EA's shares, which gained 34 cents to close at $21.89, ticked up an additional 6 cents to $21.95 in after-hours trading following the earnings release.

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.

Electronic Arts' Visceral studio loses leaders; unit is making Jack the Ripper game

Mitre Square, London, where one of Jack the Ripper's victims was found. Credit: Whistling in the Dark via Flickr.

The two top game creators at Electronics Arts Inc.'s studio in Redwood Shores, Calif., which was recently named Visceral Games, have bolted to competitor Activision Blizzard Inc.

Glen Schofield, the head of Visceral who also served as creative director on last fall's Dead Space, and Michael Condry, the studio's chief operating officer, will head up a new Northern California studio that Activision is opening in San Mateo, Calif.

An EA spokeswoman confirmed the departure, which was first reported on GameSpot. She added that the team at Visceral, which specializes in third-person action-adventure games, will continue work on upcoming titles Dante's Inferno and Dead Space: Extraction, as well as new unannounced titles.

Although she declined to elaborate, two sources close to EA told The Times that Visceral's next game would be Jack the Ripper, based on the 19th century British serial killer. It's not clear what the game would involve, but it's a natural follow-up of sorts to Dante's Inferno, which is also based on copyright-free historical material.

Dante's Inferno is scheduled to come out in the winter, meaning Jack the Ripper probably won't be released until late 2010 or 2011.

EA needn't worry about the departing developers ripping off Jack the Ripper. An Activision representative told GameSpot that its new studio would be working on a game based on one of the publisher's existing franchises.

-- Ben Fritz

The revolving door at EA: Enter John Schappert, exit John Pleasants

John Schappert returns to EA. Credit: Microsoft.

Electronic Arts Inc. announced it has recruited former EA executive John Schappert back from Microsoft Corp., where he was corporate vice president of interactive entertainment in the company's Xbox business. Schappert will resume his old title as EA's chief operating officer.

At the same time, EA's current chief operating officer, John Pleasants, announced he is leaving to become chief executive of Playdom Inc., a San Francisco developer of casual games played on social networks such as MySpace. Pleasants, who spent the bulk of his career running online properties such as Match.com and Ticketmaster, was hired at EA in March 2008 to help form the game publisher's online strategy. 

For Schappert, the move is a homecoming of sorts. Before he joined Redmond, Wash.-based Microsoft in 2007, he was EA's COO of worldwide studios, managing 5,000 developers. Schappert is best known for founding Tiburon Studios in 1994 at the age of 20. In 1998, EA bought Tiburon, which develops the company's hugely profitable Madden football games.

Jeff Brown, a spokesman for the Redwood City, Calif., company, said EA's decision to bring Schappert back occurred before Pleasants took the Playdom gig.

"We think John Schappert is a superstar, and we're ecstatic to have him back," Brown said.

-- Alex Pham

E3: BattleForge bombed at retail, but booms as online game

BattleForge went from the chopping block to the pedestal in a span of two months. Credit: Phenomic / Electronic Arts.

BattleForge, a real-time strategy game from Electronic Arts, had its own life-or-death struggle this year.

Under EA's financial restructuring, Phenomic, the studio that developed BattleForge, went under a microscope. Acquired in 2006, the German studio had been hard at work for three years on the title. Instead of kicking the game to the curb, as it did with a number of other titles including Tiberium, EA decided to launch the computer game in March in retail stores for 50 euros in Europe and $49.95 in the U.S. It bombed.

"We were very disappointed with the sales," said Frank Gibeau, president of the Redwood City, Calif.-based company's EA Games label. Gibeau said the title sold fewer than 100,000 copies. "We had great respect for the developers, but we had to decide whether we needed to shut down the studio."

The company met with Phenomic in April to break the bad news.

Soon thereafter, other developers at EA noticed that the few people who bought the title were spending a large amount of money online buying virtual cards that EA sold in the game. These Pokemon-like cards conferred game characters with special skills that can be used to play the game.

"The average spending per user was off the charts," Gibeau said. "If you got someone to play the game, they became passionate about it."

Gibeau made a radical call -- he decided to give away BattleForge, or at least a big chunk of it, and reserved some levels and features to sell to players.

What happened next surprised EA. Players of the free game ended up spending "north of 50 euros" for additional content. Some hit as much as 75 euros, Gibeau said, 50% more than what the game was selling for at retail. He declined to reveal how many copies have been downloaded since EA released BattleForge as a free title, but said that sales of virtual cards hit a record for the game last week.

As a result, Phenomic pulled back from the precipice of extinction to become a role model for future game development at EA.

"We have four or five projects underway now" that follow the free-to-play model that BattleForge trail-blazed, Gibeau said. "You'll see more of this throughout EA."

-- Alex Pham