EA Cost-Reduction Layoffs and Closures a Signal to the Videogame Industry

It's been a tumultuous day for videogame publishing giant Electronic Arts. This morning we reported on their acquisition of social game developer Playfish in a $300 million deal that could climb to $400 million. This afternoon word comes in their fiscal second quarter results of a $100 million cost-reduction plan that the press release says, "will result in the closure of several facilities and a headcount reduction of approximately 1,500 positions, of which 1,300 are included in a restructuring plan."

More than just an ironic combination, these two moves point directly to the ongoing shift at the publisher to match the modern videogame market. The press release in fact says as much in its comments on the Playfish acquisition immediately above the section on cost-reduction: "The acquisition accelerates EA's growth in social entertainment and strengthens its focus on the transition to digital and social gaming."

Looking at the numbers it's hard to take issue with their approach from a financial standpoint. In the earnings call EA CEO John Riccitiello noted, "Industry packaged goods software sales [e.g., the usual $60 retail game] are down approximately 12% year-to-date." This comes despite their enjoying a slight 4% increase in share for the same in North America and Europe. At the same time EA sees the digital market, in which they include mobile, micro-transactions, subscriptions, and advertising, growing at a rate of 20% or better for the next several years.

Long seen as a bastion of the traditional videogame development business, these moves show how strongly Electronic Arts feels their best competitive option in today's market lies in a new direction. Their substantial investment in Playfish at the same time they're making deep internal changes points to the increasing role social and casual games play in that mix.

While their strong portfolio of franchises ensures a continuing place for the familiar disc-based game, their handling will continue to change. COO John Schappert said, "The digital business is very complementary to our packaged goods business. Digital downloads allow us to sell additional content to players and keep our titles fresh at retail." Coupled with a reduction in titles as part of the cost-reduction plan, this concentration of resources around bigger hits makes a continuation in the trend to powerhouse sequels all but inevitable. That leaves little room for developers pitching new games but an EA spokesperson told Shacknews that new IP remains important as well and will continue to be part of their plans.

As the dust settles this marks one of the most dramatic signs of the times for the videogame industry.