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EA Cost-Reduction Layoffs and Closures a Signal to the Videogame Industry
by Garnett Lee, Nov 09, 2009 6:17pm PSTIt'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.
Comments
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I don't use Facebook or MySpace so I had no idea what Playfish actually did, but at the very least wikipedia says it's a developer of free casual games.
So just a single thought comes to mind: even if there are "over 60 million active players with over a billion play sessions per month between its ten games", what could EA possibly do that would generate enough money from this to cover their $400M acquisition?
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The gaming industry's (and media industry in general) failure to realize that what really needs to be done is a complete shakedown and overhaul of the economics involved is pretty sad.
But natural given that the decisions are made by those with a lot of resources (aka well paid).
The only reason that 'social' gaming seems to grow is the inevitable gap between perceived 'value for money' that exists. Even though I'm quite well paid, have a house and a few cars etc. I still think paying $50-60 is way way to much for a game, even for a triple A title. Some, the really good ones, I think are actually worth around $40, most less than $10 (even when new). The thing is that the current pricing policy does not cater for this variation between (relative) quality OR does not allow this gap to exist.
Go look a gaming shelf in a shop today, complete and utter crap titles are standing there, priced at $60 next to AAA games with massive budgets priced at $50-60. It makes absolutely no sense.
Then comes the mum, buying a game to their kid, looking at all the glossy covers and takes one that looks familiar (most often a tie in title), brings it home to the despair of their kid.
They have dug them self into a hole.
TLDR:
Pricing needs to change, variation must exists, prices are generally to high. 'Social' gaming taps into this uncatered need for cheaper games with multiplayer mechanics (in a way also LIVE does this, but not nearly enough).
IMHO what needs to be done to take gaming to a really wide audience, it get games down to the $10-20 price level. At this point you don't really need much motivation to put up the money.
Yeah I know unicorns, clouds etc, I'm living with them.
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Perhaps if, say, Halo sold for $45 upon release, then a year later continued to sell at $30, before settling in at $15, and MS made money on each transaction, it would be different. Instead, they sell it at $60, because they know that by the time their model would let them cut it down to $30, Gamestop will be selling the game with a dog-eared manual for $20.
They gotta make their money right off the bat. There's no longevity in their profit. The answer, of course, is to destroy disks and go to a medium more like Steam, where ownership is established by a cloud-computing type right to download the product and use it on your account, and yours only.
I think you might actually see prices go down, by way of competition, if something like that happened. And yes, before the anti-EA, anti-corporate replies come in, of course if EA could charge $1,000 a game, they would. However, the model would make for profitability at a lower price point than what they have now, and competition from other companies who now did not need storefronts for delivery would flourish.
What does this mean, in short? Gamestop and the rest are actually bad for the industry, even if we like buying old games on the cheap once in a while. Would we miss it? I dunno. Steam and Good Old Games pump out all kinds of deals, and most of them smoke the deals I get at Gamestop. I don't think we'd miss it one bit.
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Yeah, at the very bottom of their plans, as the next thing to be cut when the next RIF comes.
In the meantime, enjoy Madden SimConquer Band.
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Why should EA NOT feel the downtown ?
digital move and the release of staff on the same day is no fluke - its a clever message about strong management and direction - Sorry to all those out of a role, I really am but understand
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http://www.youtube.com/watch?v=617lGZjYyNo&feature=player_embedded
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I tried to get into social games, but they just aren't fun. The only reason they are successful is they prey on human's propensity to pick up just one more gold coin, get one more level, upgrade just one more thing. They build the greener grass around every corner, and our little lizard brains compel us to get to the other side.
To build a game is to take a slice of fun that would otherwise sustain itself for fifteen minutes and wrap whatever you can around it compel people to keep playing. Whether your tapping into competition or guilting people into playing due to social pressure, the things that make people spend money on games are separate from the things that make people have fun playing them.
Even a very pure fun game like quake compels you to play for reasons other than running around and shooting are fun. That is true, but the main reason I've played for a decade is due to the competitive need to feel like I'm getting better in the game (as opposed to getting better in real life) and the social obligations of clans, online friends, etc.
Look at every game you play, and ask yourself why you play it and why you put money into it. Maybe here on a hardcore site we have good tastes, but in general, the mechanics that compel you to play aren't the pure fun of jumping like mario or swinging a sword or firing a pistol, rather it's the next coin, the power-up, beating the boss, improving your score, getting gamerpoints, achievements, a silly hat. These things are worthless and we know it, but we are still compelled to continue playing beyond the point of fun because of them.
*endrant
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this company can't die fast enough .
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