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