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

The Sims 3 won't have 'overly invasive' copy protections

The Sims 3. Credit: Maxis / Electronic Arts

Stung by the backlash from the copy-protection scheme it had for Spore, Maxis today announced it would not have the same system for its upcoming game, The Sims 3.

Instead of SecuROM, a program that required online authentication to prevent pirated copies from being played, Maxis said it would revert back to the disc-based copy protection it used for The Sims 2. As a result, the anti-piracy measures for The Sims 3, due out June 2, will require users to enter a serial code to play the disc. That means players can use that disc to play the game on any machine as long as they have the code.

Here's what Rod Humble, head of the studio owned by Electronic Arts, said:

We feel like this is a good, time-proven solution that makes it easy for you to play the game without DRM methods that feel overly invasive or leave you concerned about authorization server access in the distant future.

Players last fall rebelled against the SecuROM digital rights management system in Spore, which restricted to three the number of computers on which players could install the game. They punished the company by giving the game low marks in reviews on Amazon.com, driving down the average rating for the game. Two weeks after the game was released, Maxis loosened the locks and raised the limit to five computers.

-- Alex Pham

Nintendo shoots down Duck Hunt iPhone app, but alternatives still fly

Duck Hunt for the Nintendo Entertainment System. (Photo credit: keeping_it_real via Flickr)

Lawl Mart, an independent iPhone application developer, recently learned a valuable lesson in trademark infringement: Turns out you can't replicate a company's game and sell it as your own. Who knew?

The developer released Duck Hunt early last month on the iPhone App Store. The game was a carbon copy of Nintendo's 1980s classic of the same name, in which players shoot at small ducks flying around the screen. The graphics, the sound, the signature taunting dog and even the name were all identical. Ah, nostalgia.

The sole difference was that players used their fingers, instead of the old-school plastic gun, to snipe digital ducks. (Apple just needs to manufacture a white, postmodern-looking plastic pistol, and we're golden.)

Not surprisingly, the game was removed from the App Store last week at Nintendo's request -- after having initially passed Apple's software vetting process, as reported by Macworld.

"Nintendo takes any infringement of its intellectual property very seriously and takes action as appropriate," Denise Kaigler, the company's vice president of corporate affairs, said in an e-mail.

But that's not deterring other developers from putting their own spin on the Nintendo hit. Duck Hunting and Deek's Duck Hunt each take Nintendo's core formula and ...

Electronic Arts posts wider loss, lowers forecast and plans to cut 100 more jobs [UPDATED]

Electronic Arts, the publisher of games such as The Sims and Madden NFL, today posted a deep quarterly loss. It also said it would cut 100 more jobs and close three more facilities than previously announced because holiday sales disappointed.

The Redwood City, Calif., company now plans to slice 1,100 people, or 11% of its workforce, from the payroll this year and shutter a dozen facilities in an effort to save about half a billion dollars a year.

EA lost $641 million, or $2 a share, on sales of $1.65 billion during the crucial Christmas quarter. Much of EA's fiscal third-quarter losses stemmed from two one-time charges: $368 million related to its wireless games business and $244 million for deferred taxes.

In the earnings release, EA CEO John Riccitiello (pictured at right) said:

Our holiday quarter came in below our expectations, and we have significantly reduced our financial outlook for fiscal 2009, a clear disappointment. We delivered on game quality and innovation in calendar 2008, with 13 titles rated 80 or above -- more than any third-party publisher. We expect to build on this great quality record in the year ahead while delivering more profitability.

EA said it expected to pull in $4.2 billion to $4.25 billion in sales during its current fiscal year ending March 31. It also projected a per-share loss of $3.29 to $3.56.

EA shares gained 64 cents to close at $15.50 before the earnings release but rose more than 4% in after-hours trading.

Updated, 5:15 pm: In an interview, EA Chief Financial Officer Eric Brown clarified the projected savings from the company's cost cuts. The $500 million in reduced annual spending for EA's fiscal 2010 would come from the $2.6 billion that the company had previously budgeted. Compared with this fiscal year's operating budget of $2.25 billion, however, EA would trim $150 million in expenses.

EA said every expense category would be cut back except marketing and advertising, which is expected to increase. To better promote the company's key franchises, Riccitiello told analysts during a conference call that EA would delay releasing The Sims 3, Godfather 2 and Dragon Age. Instead of coming out in this this fiscal year, which ends March 31, they'll hit stores in the next.

-- Alex Pham

Photo credit: Electronic Arts

Electronic Arts outlines plan to cut 1,000 jobs, close at least 9 facilities

Electronic Arts on Friday said it would cut more jobs and close at least nine facilities amid a weakening economy and disappointing sales in North America and Europe.

The publisher of the Madden NFL football franchise, the Sims and other video game titles said it would cut 1,000 jobs, or about 10% of its workforce, and shutter at least nine out of 50 facilities, including a development studio in Vancouver, Canada. The cost-cutting measures are expected to save $120 million a year.

EA would not identify the facilities intends to close, other than the Black Box Studio in Vancouver, which created the Need for Speed and Skate titles. It is unclear how the company’s California operations, with offices in Redwood City, Playa Vista, Westwood and Emeryville, would be affected by the cuts.

“It is going to impact every division of the company in every part of the world,” said EA spokesman Jeff Brown, adding that further details may be disclosed in the first week of February, when the company reports its third quarter results.

The world’s largest game publisher earlier this month said it would be forced to trim costs, cancel some game projects and make deeper cuts than the 6% workforce reduction it announced in October. EA said it would take a charge of $55 million to $65 million over several quarters to pay for the job cuts and facility closures.

“EA, and indeed the entire industry, needs to rationalize their product lineups,” Todd Mitchell, a New York-based analyst with Kaufman Bros., told the Associated Press. “There are just too many games. Not every publisher needs to be in every genre.”

Investors reacted positively to the news. EA’s shares climbed 63 cents Friday to close at $17.39.
The video game industry has long been considered immune to economic downturns, because games are perceived as delivering hours of entertainment. But as the economy slows, retailers have grown more cautious about the number of titles they stock, concentrating on top sellers. That’s impacting even major game publishers like EA.

EA had only a single title among the top 10 games for November, Left 4 Dead, according to market researcher NPD Group. The season’s sales were dominated by games developed by Nintendo for its Wii video game console, and two popular combat games, Microsoft’s Gears of War 2 and Activision’s Call of Duty: World at War.

-- Dawn Chmielewski and Alex Pham

Photo: A screen from Madden NFL 09. Credit: Electronic Arts

EA should cancel one-third of its games and cut 20% of its developers, analyst says

Jeetil Patel, a game industry analyst with Deutsche Bank Securities, is not known to be particularly kind in his assessments of Electronic Arts Inc. He gives the video game publisher's stock a "sell" rating, as in, "get out while you still can."

His report this morning on the Redwood City game company's announcement that it would miss financial targets for fiscal 2009 because of surprisingly slow holiday sales was characteristically scathing:

The company needs to narrow its product lineup and development staff to drive operating profit dollar improvements. ... We think that EA may need to cut up to one-third of its titles and 20% of development staff to right-size the business, clearly indicating that the wrong product strategy has been employed.

In response, the game company's spokesman, Jeff Brown said, "EA is still committed to developing high-quality games and taking creative risks. We've got a solid process for the cost-cutting exercise and will do what's best for our shareholders, employees and consumers."

Patel said in an e-mail to subscribers that EA was hit by a combination of lower sales for its older titles, smaller orders from skittish retailers and a reluctance among cautious consumers to buy games that were not among the top five bestsellers. He summed up EA's troubles by saying, "Too many titles and not enough productivity per title."

As a result, he lowered his estimates of EA's sales more than 20% to $4 billion, and profit 54% to 66 cents a share. He also dropped his price target for EA's stock 31% to $13.

The company's stock got closer to that target price today: It dropped $2.35, or 12%, to $17, as investors digested the warning of a shortfall.

-- Alex Pham

Photo: Screenshot of the game Facebreaker. Credit: Electronic Arts