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from the L.A. Times

Category: Electronic Arts

EA projects grim game sales after weak start to holidays

Madden NFL 08

Once considered impervious to a stormy economy, the video game sector is starting to show signs of strain. Electronic Arts, publisher of the Sims and the world's largest video game company, said this afternoon that it would probably miss sales and profit targets for its fiscal year ending March 2009 because of disappointing sales of several key titles.

"While we saw significant improvement in the overall quality of our key products this year, we are disappointed that our holiday slate is not meeting our sales expectations," EA Chief Executive John Riccitiello said in a statement.

As a result, the Redwood City, Calif., company will be cutting an undetermined number of jobs and canceling a number of games in its pipeline. The news follows an announcement EA made Oct. 30 to cut 6% of its workforce, which at the time was about 9,500.

"We are going to make some changes in our publishing strategy to publish fewer games but making bigger bets on them," EA spokesman Jeff Brown said today.

Brown said the company was taking this approach because sales have been concentrated in the top five titles, when in the past consumers have spread their spending more evenly among the top 10 or 20 games. Analysts agree, but they said overall game sales were still poised to grow by double digits this holiday.

"November software sales are still going to be positive in the 10% to 15% range," said John Taylor, an analyst at Arcadia Investment in Portland, Ore. "Unfortunately, other people have better seats at the table than EA. Activision is doing really well with Call of Duty. Microsoft is doing phenomenally well with Gears of War 2. And Nintendo is doing well with Wii Fit and Mario Kart. EA’s titles, on the other hand, have done somewhere between OK and a little disappointing. None of them have outperformed."   

EA's shares fell $2.52, or 11.5%, to $19.35 before the announcement and an additional 9.5% in after-hours trading.

-- Alex Pham

Image from Madden NFL 08 by Electronic Arts

Kathy Vrabeck steps down as president of EA's casual games unit

Kathy Vrabeck Video game powerhouse Electronic Arts confirmed this afternoon that Kathy Vrabeck, president of the company's Casual Entertainment Label, had resigned "for personal reasons."

Vrabeck, one of the highest-ranking female executives in an industry dominated by men, was previously president of publishing for Activision, EA's Santa Monica-based rival. EA President John Riccitiello handpicked Vrabeck in June 2007, shortly after he took the company's helm, to help him reinvigorate the stalwart game publisher.

EA did not disclose further reasons for her departure, which was announced internally at the company Wednesday. Vrabeck, a 45-year-old Newport Coast resident, could not be reached for comment.

EA spokeswoman Trudy Muller also confirmed that the Redwood City, Calif., publisher planned to consolidate the casual games label with its Sims label as a result of Vrabeck's departure. Rod Humble, who heads the Sims Studio, has been appointed president of both divisions, effective immediately.

"Her departure provided us with the opportunity to take what we’ve learned over the past 18 months about casual games and apply it to a stronger, more efficient and more creative structure," Muller said. "We learned that there are a lot of similarities between the two labels in terms of marketing, product design and user demographics. They naturally complement each other."

Under Vrabeck, the casual games division included the company's mobile titles, online sites such as Pogo and games produced under its licenses with Hasbro and others, including the Harry Potter brand. Not all of those businesses will fall under the new Sims Casual Label. "At this time, we are evaluating the right place within EA for growth initiatives such as Pogo, Casual Online and EA Mobile," Muller said.

Vrabeck's resignation comes on the heels of an announcement last week that the publisher would cut 500 to 600 jobs, or about 6% of its workforce, to save $50 million a year.   

-- Alex Pham

Photo: Kathy Vrabeck. Credit: Electronic Arts

Game giant Electronic Arts posts loss, plans job cuts

Facebreaker

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

Beatles jam-session video game due next year*

The BeatlesAfter many hard days' nights of negotiations, the first video game that lets you perform Beatles music is on its way to consoles next year.

The Beatles' record label, Apple Corps, today announced a deal with MTV Networks and Harmonix, publishers of the Rock Band franchise, to bring the legendary band's songs to an interactive music game. The Beatles game won't be part of the Rock Band franchise, but the creators said that it would be compatible with the Rock Band microphone, guitar controller and drum kit and that they expected it in stores by the 2009 holiday season.

"The project is a fun idea which broadens the appeal of the Beatles and their music," former Beatles singer and guitarist Paul McCartney said in a statement. "I like people having the opportunity to get to know the music from the inside out."

Until now, the Beatles, who broke up in the 1970s, have largely skipped the digital music revolution, refusing to sell their extensive song catalog through iTunes and other download stores. But Rock Band and rival Guitar Hero, which let players sing and jam along with hit songs, have been huge sellers for video game publishers. The games also have given a sales boost to many of the bands and musicians featured.

Our colleague Randy Lewis at The Times' Pop & Hiss blog reports on a press conference the companies held this morning:

Participants in the press conference, which included MTV executives Judy McGrath and Van Toffler and Alex Rigopulos, CEO and co-founder of Harmonix, which created Rock Band and is a division of MTV Networks, said the game would take players on a journey through the Beatles’ music and story through imagery and songs spanning the band’s career.

There had long been speculation about the use of Beatles music in a video game format, and earlier this year, Martin Bandier, chief executive of Sony ATV Publishing, which owns most of the Beatles copyrights, told The Times that he “liked the idea of a dedicated Beatles edition of Guitar Hero.” In aligning instead with the rival Rock Band team, Jones said that MTV and Harmonix was clearly the innovator in this category of games; they had the first platform to offer a full band experience. Apple also was impressed with their creative approach.

Executives from MTV and Apple Corps today declined to say whether the agreement would bring Beatles music to Rock Band. According to MTV.com:

It's been reported that MTV and Activision have both been courting the Beatles, arguably the biggest band that has yet to lend their music to either the Guitar Hero or Rock Band franchises. But MTV won out, with Senior Vice President of Games Paul DeGooyer saying that the announcement is the culmination of a conversation between MTV and Apple Corps that had been going on for 17 months.

Apple Corps, MTV and Harmonix said the game was "creatively conceived with input from" McCartney and fellow Beatles founder Ringo Starr, and it received the blessing of Beatles widows Yoko Ono Lennon and Olivia Harrison.

"The Beatles continue to evolve with the passing of time, and how wonderful that the Beatles' legacy will find its natural progression into the 21st century through the computerized world we live in," Starr said in a statement. "Let the games commence."

Rock Band is published by Electronic Arts, of Redwood City, Calif. Lazard Capital Markets said in a research note this morning that the Beatles game could provide a "significant boost" to the franchise, which the investment bank said had lost momentum this year to Guitar Hero, which is published by Santa Monica-based Activision Blizzard. Lazard analyst Colin Sebastian said Beatles releases had sold more than 600 million records, tapes and CDs.

-- Chris Gaither

Photo: The Beatles perform on the "Ed Sullivan Show" in 1964. Credit: Associated Press

* This post was updated with additional material from the Pop & Hiss blog.

Take-Two staying solo, stock takes hit*

Grand Theft Auto IV This post has been updated with today's closing stock price.

--

After dismissing Electronic Arts' takeover attempts, Take-Two Interactive Software, publisher of the Grand Theft Auto video game series, said this morning that it had decided to remain an independent company.

The decision concludes a "strategic review" the New York-based game publisher initiated following the unsolicited $2-billion offer from EA. After being repeatedly rebuffed, EA walked last month.

Since stepping away from the table, Take-Two's stock has fallen by nearly a third from its highs earlier this year. Its shares spiked from $17.36 to $26.89 on Feb. 25, the day after EA announced its bid, and topped out at $27.65 on June 5. The stock today dropped $1.07, or 6.7%, to $14.86.

Take-Two said in a statement that it had engaged in "detailed discussions with various interested parties," but decided against a merger. Chief Executive Ben Feder noted that the company was in good financial shape with no debt and an undrawn credit facility of $140 million. It also had $338.7 million in cash and cash equivalents at the end of July, up from $77.8 million at the end of October 2007. The lion's share of the uptick came from the blockbuster launch of Grand Theft Auto IV in April.

-- Alex Pham

Image by Take-Two Interactive Software

Electronics Arts' cellphone librarian

Jackie Lin Meet Jackie Lin, the cellphone librarian at Electronic Arts in Playa Vista.

His full-time job: Keep track of the 15,000 handsets the video-game publisher uses to develop and test mobile games. He works out of an office that employees call "the cage," a room lined floor to ceiling with color-coded plastic bins overflowing with cellphones. There's also an entire cabinet chock-full of chargers for every device.

Each handset has two tags -- a barcode used to scan the device when it's checked out and a sticker identifying the cellphone model and its operating system.

From 8 a.m. to 8 p.m. each weekday, dozens of EA employees line up outside Lin's office to check out the gadgets. The library circulates from 300 to 400 a day. Many get lost. Some are returned broken. It's Lin's responsibility to make sure the company has enough working units on hand to develop and test the games EA sells on more than 200 types of phones, across multiple carriers.

Lin is among more than 1,000 workers employed by EA's mobile-games division. Most are engaged in tweaking and testing games for the plethora of handset types in the marketplace. For example, a single title such as Need for Speed Undercover can have dozens of variations.

The 34-year-old is among the first to see snazzy new cellphones, often weeks before the devices hit the market. That's because manufacturers supply developers such as EA with early models to build and test software.

"It's a cool job," said Lin, who has the helpful, easygoing air of a librarian but whose official title is handset processing coordinator. Among the perks of Lin's job: free calls and perfect cellphone reception in his office.

-- Alex Pham

Photos: Jackie Lin in "the cage." Credit: Alex Pham / Los Angeles Times

Electronic Arts pulls plug on Tiberium game*

Tiberium

Electronic Arts Inc. today canceled Tiberium, a spinoff of its popular Command & Conquer franchise of shooter games, and said it would lay off an unspecified number of employees at its Playa Vista office.

"The game was not on track to meet the high quality standards set by the team and by the EA Games Label," said EA spokeswoman Mariam Sughayer.

EA declined to say how many workers would be lose their jobs or how many employees had worked on the project. Sughayer said the Redwood City, Calif., developer would strive to place most of the affected workers into other EA projects. "This is not about cutting back financially," she said. "We still have tons of positions open, and we're hiring throughout the company."

Earlier this year, EA pushed back the launch of Tiberium to 2009. After spending more than a year developing the game, EA said it decided to cut its losses rather than put out a mediocre product that could mar the company's recent efforts to revitalize its reputation for producing high-quality titles in an increasingly crowded market for video games.

"There were fundamental problems with the design of the game, which the team struggled to correct," Sughayer said. "In the end, we didn't feel we can reach a higher level of quality with the time and resources left."

EA's shares gained 99 cents to $36.99 today after slipping $3.22, or 9%, on Monday amid the general stock market avalanche, especially among tech companies.

"The Command & Conquer brand has gotten stale over the years," said Jesse Divnich, director of analytical services at Electronic Entertainment Design and Research in San Diego, who said sales of the series had been dwindling.

Michael Pachter, an analyst with Wedbush Morgan Securities, said the decision to cancel a major title was a departure from previous practice at EA. "The old EA would have shoveled it out anyway," he said. "They're showing that they have the discipline to not throw good money after bad."

-- Alex Pham

Tiberium image by Electronic Arts

* Updated with comments from analysts.

'Watchmen' director Zack Snyder signs 3-game deal with Electronic Arts

Zack Snyder

Zack Snyder, the director of "300," "Dawn of the Dead" and the upcoming "Watchmen" films, has agreed to help develop three games for Electronic Arts. The deal, to be announced this morning, includes the option to turn original game franchises created during the collaboration into movies that would be controlled by Snyder's production company, Cruel & Unusual Films.

Snyder is the second Hollywood director to sign on with EA to make games. Steven Spielberg also agreed to a three-game contract. The first fruit of that partnership, "Boom Blox," was released in May and sold more than 450,000 units.

At 42, Snyder is among a new generation of Hollywood elite who grew up with video games. So it's inevitable that some see creative cross-fertilization between the two art forms. Another director, Gore Verbinski, said earlier this year that he was exploring an undisclosed game project. In the meantime, the "Pirates of the Caribbean" director has agreed to direct the movie adaptation of the sci-fi shooter game "BioShock."

"I think video games are cool because they offer an opportunity to tell a story in an entirely unique way," Snyder said in a statement.

-- Alex Pham

Photo: Zack Snyder. Credit: Ricardo DeAratanha / Los Angeles Times

Spore SecuROM copy protection system draws lawsuit

DRM spore Despite Electronic Arts' good-faith effort last week to relax copyright restrictions in Spore, gamers aren't buying it — the digital constraint tactic, that is. The game, on the other hand, is selling faster than you can evolve a virtual amoeba.

Spore has already sold a million copies since hitting stores earlier this month, but critics of the game's digital rights management have been vehement, bringing their protests to Amazon.com reviews, message boards, blogs and now federal court.

On Monday, just three days after EA apologized for the DRM controversy and increased the number of computers each game could be activated on (from three to five), a lawsuit seeking class-action status was brought against the company in the U.S. District Court for Northern California.

The case targets SecuROM, a DRM technology meant to prevent PC game piracy. Spore installs the program on users' computers without their explicit knowledge and cannot be easily removed, according to the 36-page document (PDF download) filed by Melissa Thomas and law firm KamberEdelson. In trying to protect its own intellectual property, EA compromises the consumer's own property — their computers, said Scott Kamber, the firm's managing member. EA says it doesn't comment on matters of pending litigation.

Similarities will no doubt be drawn between this and the Sony BMG rootkit case, in which the Federal Trade Commission ruled last year that the company couldn't install hidden software on users' computers without their permission. KamberEdelson, which commonly covers class-action technology cases, is the same firm that led the rootkit suit. And perhaps more ironically, the SecuROM software that EA uses with Spore was developed by Sony.

KamberEdelson also won a 2006 suit against game developer UbiSoft for its invasive StarForce PC copy-protection program. "These corporate executives don't see anything wrong with putting this uninstallable program on people's computers," Kamber said.

-- Mark Milian

Spore image by Electronic Arts

EA to Spore players: We're sorry for DRM

Spore The consumer is always right. Electronic Arts, stung by a siege of criticism from gamers who took issue with the copyright restrictions the company placed on its Spore game, this morning issued an apology and said it would loosen the electronic locks on the game.

Spore, one of the most hotly anticipated computer games of the decade, was released two weeks ago after more than six years of development.

"We've received complaints from a lot of customers who we recognize and respect," said Frank Gibeau, president of EA's Games Label, the division responsible for Spore. "We need to adapt our policy to accommodate our legitimate consumers."

Trying to avoid widespread unauthorized copying of Spore, EA had restricted, to three, the number of computers on which players could install the game. But buyers chafed at the limit imposed by the digital rights management policy. They complained that the Redwood City, Calif., company didn't adequately disclose the policy and that it treated them all like software pirates. Some customers also said the policy failed to recognize that players often upgrade their computers and need to migrate their software to new machines.

The customer anger erupted largely on video game message boards and in user reviews on Amazon.com's Spore page. The game's ratings have been hammered by critics of the installation restriction, with nearly 2,500 of the 2,900 Amazon reviewers giving Spore only one star.

EA officials said the controversy caught them off guard.

The company said today that it would boost the limit to five computers. It also will allow players to transfer the game an unlimited number of times so long as each copy is installed on no more than five computers at the same time. EA also said it would sometimes let players go beyond that limit, depending on the circumstances.

"We assumed that consumers understand piracy is a huge problem," Gibeau said. "We have found that 75% of our consumers install and play any particular game on only one machine, and less than 1% ever try to play on more than three different machines."

The firestorm in which players flooded forums with negative reviews of the game marred one of the company's most important game launches this year. Developed by Will Wright, who also created the Sims franchise, the game lets players build creatures that evolve into civilizations and eventually take over distant galaxies.

Analysts said EA took the right approach.

"The key to making copyright restrictions work is to offer value," said Billy Pidgeon, analyst with IDC. "In the end, this will blow over because Spore is a fun game, and people will want to try it."

-- Alex Pham

Spore image by Electronic Arts

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