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

By Garnett Lee, Nov 09, 2009 6:17pm PST 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.

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16 Threads | 75 Comments

  • Seriously speaking look at how badly mismanged this company is for the projects it does. Brutal Legend which they sunk a ton of money into advertising for probably wont break a million combined copies sold. A lot of their IPs have been badly mismanaged and killed off, for example Medal Of Honor shipping with a broken PC version effectively killing off it's formerly strong MP community. To mismanaged and poorly supported duds like Warhammer Online which has continued to lose subscribers because of it's lack of proper updates. Spore having the insane budget and development cycle it did (I heard it cost nearly 100 million dollars to make). Need For Speed not having a clear development direction between that bad half sim feel of shift to how god awful the previous few have been, to splitting it even more by making the next main title an arcade focused one, further adding to buyer confusion. Nevermind how they haven't really capitalized on any of their old IPs like Wing Commander or System Shock. Then you have their drive to build up new IPs by throwing a lot of money in the path of hacks at a former drone studio. Dead Space for example is a competently developed but creatively bankrupt game. It doesn't do anything original really with it's setting or gameplay. Nevermind the new titles they've been pushing out from that dreadful looking Dante's Inferno to the IN YOUR FACE ACTION jack the ripper game. It's almost like they're trying to do what Alan Moore did by looking to history and public domain and creating something original out of it, but sucking very hard with it.

  • This is terrible news, and a lot of people are going to lose their jobs. But it goes to show you that the games industry is still as much about "one more quarter" game mechanics and business practices than it is about making truly great entertainment. I don't know if you guys saw the articles on Zynga, but TechCrunch has been ripping them to shit how they make money by being evil.

    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.