EA lowers outlook, confirms cutbacks

By Tom Magrino, GameSpotPosted Dec 9, 2008 1:41 pm PT

[UPDATE] Publisher slashes outlook following lower-than-expected holiday retails sales; indicates more layoffs, studio consolidation, SKU reductions.

Yesterday, prolific Wedbush Morgan Securities analyst Michael Pachter warned of imminent financial turmoil at megapublisher Electronic Arts. Citing the poor performance of Mirror's Edge, Rock Band 2, and Need for Speed Undercover, the analyst projected that EA would see a 16 percent decline in fiscal-year revenues.

It didn't take long for present events to catch up to Pachter's predictions.

EA announced today that it has lowered its net revenue and earnings-per-share guidance for its fiscal year 2009, which runs through March 31. No specific figures were revealed as part of today's announcement, with EA saying only that it would provide updated fiscal guidance as part of its third-quarter report, which is expected in early February.

The publisher attributed the revised outlook to lower-than-expected retail sales in North America and Europe. It also said that it expects to trim its product portfolio--that is, game releases--for fiscal year 2010 and, as a result, plans to make further staff cuts and facility consolidations.

"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 CEO John Riccitiello said in a statement. "Given this performance and the uncertain economic environment, we are taking steps to reduce our cost structure and improve the profitability of our business."

Riccitiello further noted that despite the cost-cutting measures, his company plans to proceed with previously stated initiatives to amp up EA's overall game quality, as well as continue investing in new properties and direct-to-consumer operations. The executive also stated that EA plans to launch "several new titles and online games in fiscal 2010," a period that runs from April 1, 2009, through March 31, 2010.

Today's news is the latest in EA's ongoing financial struggles. In October, the publisher announced a greater-than-expected $310 million loss, or 97 cents per share, for its fiscal second quarter. That loss comes despite net revenues spiking 40 percent to $894 million during the July-September reporting period. At that time, EA also revealed that it would be cutting 6 percent of its workforce--or roughly 600 jobs--across a variety of divisions within the company.

[UPDATE] Following EA's earnings revision, the publisher held a conference call with analysts to provide further color on today's development. As part of the call, Riccitiello noted that a primary factor contributing to the publisher's lower guidance was the decision by many retailers to end the year with lower inventory. The executive also noted that while this decision won't necessarily be felt by consumers, it will have a dramatic effect on product sell-in to retailers.

Riccitiello also further expounded on EA's plans to trim its upcoming product portfolio. He said that sports games won't be affected by these cuts, with the reductions divided evenly between core and casual games. The EA executive also said that these reductions will primarily be made to product SKUs that have exhibited a lower profitability margin and that the publisher plans to ramp up advertising on games that have the biggest "hit potential."

Riccitiello declined to provide specific figures on any given game's performance. He did express satisfaction over the new franchises Dead Space and Warhammer Online, saying of the latter that "we expect [it] to continue to perform very, very well." Riccitiello also addressed DICE's first-person action adventure game Mirror's Edge, saying that while the overall quality met expectations, the publisher plans to "take a look" at its franchise potential.

135 Comments

  • orcane3643

    Posted Jan 20, 2009 8:54 pm PT

    hmm, why all the hate for EA?? If they come out with bad games, dont play them. If they come out with good ones, buy them and play them to ur hearts content. Who cares about DRM? if you are not happy that u get a limited amount of activations, all you have to do is email EA and ask for more and they give you more. EA has released countless memorable titles and has entertained me for hours on end. Just because a game company is trying to do something to prevent piracy and comes out with many sub-par games but still with some very good games is no reason to boycott it and hate it.

  • shazam_lp

    Posted Jan 3, 2009 10:42 pm PT

    They deserve it, I'm one of many that have boycotted EA which I was once a big fan of. They've become a giant monster that not just eats smaller game studios and ending whatever creativity spark they've had but 90% of their latest titles have had a complete lack of quality.

  • hurricaner

    Posted Dec 26, 2008 11:50 am PT

    let the boycott continue for years to come im still pissed at what they did with spore

  • hurricaner

    Posted Dec 26, 2008 11:46 am PT

    electrovit they cant make another good game because they are the worst,worst as in dissapointing there fans all the time

  • electrovir

    Posted Dec 19, 2008 10:06 am PT

    Maybe this wouldn't be happening if stupid EA would just make their new games GOOD!! It's their own fricken fault! I'm a big fan of NFS. Apparently this one SUCKS so i'm not going to buy it. What happened guys? Most Wanted was amazing, why can't they make another good game???

  • fluffebunnie

    Posted Dec 13, 2008 9:14 am PT

    The government needs to take EAs remaining money and bailout other game companies

  • punkdsk8erdude

    Posted Dec 11, 2008 5:01 pm PT

    well EAs got some huge franchises.
    need for speed, all the sports, etc. in addition to all of the one or two game series'.
    i love EA games, the company often doesnt pull through as much as i would like but i love need for speed, skate, etc.
    if they drop support for ps3, honestly, the ps3 is done. the 360 will have so much more to offer its ridiculous. ps3 will lose this console war terribly, which would suck because hard competition from sony will only make the next gen systems that much better, but if 360 crushes ps3 in this console war than sony may very well consider not to create a ps4 and microsoft may create a half-a** system knowing they have no competition.
    and im exaggerating a little, but imagine if one more big company follows EAs lead. honestly, it could really crush one system or the other.
    And as far as their sports games being released every year, they aren't making sales nearly as much as they would if they were more reasonable.
    how about this: every year, put out all the new rosters for teams, and maybe one additional feature, for DLC. maybe priced at 10 bucks. you buy 1 disc, then every year pay 10 bucks to keep it current. that would be awesome. if they want to completely revamp controls, then put out a new disc. otherwise, don't bother.
    new stadium or something comes out? ok. DLC that stuff, dlc always has new levels for games...
    want to upgrade graphics? then wait till they have a s***load of new features, revamped controls or something, and much better graphics, then release a new disc.
    becaus otherwise its never ever worht buying a new disc for 60 bucks everyyear. a slightly diff roster and barely better graphics are dumb reasons to waste 60 bucks. and these days, everyone is holding onto every penny they got. EA wud prob make just as much money sellin the DLC b/c so many more people would buy it...then a lot more people would be happy with EA and im sure they would see sales actually increase.
    idk much about businesses, i know a little about economics but not a lot, its just an idea...

  • Triton

    Posted Dec 11, 2008 3:55 pm PT

    Maybe they will all get PS3's as parting gifts. - It would help the holiday sales numbers...

    Serious, we are hardly quoting any new any new jobs / construction going on in our area. 2009 is gonna be very interesting to say the least. As my old American government teacher my Senior year in H.S. would say, "Kids...life's tough!"

  • lamprey263

    Posted Dec 11, 2008 12:53 pm PT

    it'd be interesting to know how their latest games have sold, just this year they had some really good games like Army of Two, Battlefield Bad Company, Dead Space and Mirror's Edge, just those games alone are some of my favorite this year

  • GhostStalkerX1

    Posted Dec 11, 2008 10:36 am PT

    Heh I agree with you Durio, even if I am American. But its our government not our people. So long as they try to police the world, history may repeat it self. Hope this finacial crisis comes to an end soon.

  • Inconnux

    Posted Dec 10, 2008 10:12 pm PT

    Couldn't care less how good their games are now. ever since EA included idiotic DRM on their pc software I have boycotted anything they have released.

  • durio

    Posted Dec 10, 2008 4:10 pm PT

    Damn this financial crisis. I hope everyone will get out of it. But Americans you screwed yourselves up when you entered Iraq. Dunno what'll happen, I doubt (respectfully) that US will pull themselves out of this.

  • MarcJL31

    Posted Dec 10, 2008 2:47 pm PT

    Maybe if EA saved all the money the put into buying exclusive rights for sports games, they could save some money or do what many other companies do, put it towards the quality of the games. Competition helps the gaming industry because it forces companies to put effort into their games. If EA keeps up their current practice, they are either going to waste money on buying out rights for games that sucks, or putting out games that no one wants to buy. Either way, EA is losing funds.

  • crazymoose99

    Posted Dec 10, 2008 2:05 pm PT

    Nooooo, i was just starting to get into Warhammer online... I am gonna be so pissed if it goes offline like Tabula Rasa. But chances are it wont.

  • chikahiro94

    Posted Dec 10, 2008 2:04 pm PT

    @SalarianChemist
    EA never supported the Dreamcast, period. And now? Dropping support for a core platform means that title will sell half as much as it should have. Ubisoft claimed they can make a game cross-platform for 10% more - EA should be about the same.

    Pay 10% more or cut sales in half. Not a hard decision.

  • DarthVillainous

    Posted Dec 10, 2008 1:34 pm PT

    @Salarian Chemist

    I think dropping support for any of the 3 systems would be a foolish business decision for any company, unless they are getting paid significantly by one of the big 3 to do so.

  • enoslives7

    Posted Dec 10, 2008 1:29 pm PT

    keep up the boycott on EA.....it's working !!!

  • tomasz73

    Posted Dec 10, 2008 12:49 pm PT

    boobush EA made The Orange Box ? are You crazy ??????? It's Valve games - not EA...

  • SalarianChemist

    Posted Dec 10, 2008 12:03 pm PT

    EA needs to drop their support for the Playstation 3 in the same way that they dropped support for the Dreamcast.

    Focusing exclusively on the Xbox 360 would allow the quality of the software to increase, and it would actually lower the development costs. The Wii versions of the EA sports games have completely different development teams, and they sell well with little development cost.

    EA needs to focus on the Wii and Xbox 360 because the benefits will pay off. Drop support for the PS3 as soon as possible and development operating costs will decrease, and the revenues will increase because the higher quality software on Xbox 360 will result in increasing sales.

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