Business, Entertainment, Software Programs

The future of Electronic Arts in doubt?


Could it be that Electronic Arts is losing its creative juices? The interactive software entertainment company based in California has landed on hard times. Instead of utilizing the talents of its own staff to develop new titles, the company is acquiring a social games producer, while laying off 1,500 more of its own employees.

The numbers go like this: the acquisition is costing $275 million; the layoffs are estimated to save $100 million; net savings? None. So the acquisition of Playfish needs to generate $175 million just to break even. You’d think with 31 titles selling over a million copies each, Electronic Arts would be playing the stock market with ease. However, sustaining profitability in a fickle, creative industry is proving difficult for a company that?s been around for nearly 30 years.

Electronic Arts? financial statements pumped up recent earnings by reporting deferred sales [sales made earlier but reported over a period of time]. In reality, EA reported a loss of $391 million, more than their $310 million loss from the same period last year. Expenses reduce your bottom line, and EA is trying to control operating expenses with layoffs, but net sales also dropped 12 percent from last year.

Losses have been the trend at EA for the last 11 quarters – yes, the same 11 quarter run as the one currently chasing AMD. The question now becomes: how to buck up sales in an industry where retail sales in the US dropped 13 percent between January and October, 2009? If investment is your game, Ockham Research offers: "Management did say that they expect to be profitable in the next two quarters, so if you believe that the industry has hit rock bottom it could be a chance to grab this stock for a song."

Crazy planets... and EA is definitely living in one
Crazy planets… is EA living in one?

Playfish, which EA acquired, has a short, two year history, but a successful track record. It claims 10 titles, including Crazy Planets, Country Story, and Pet Society, which now benefits the World Wildlife Fund. The games attract over 60 million active players each month. The acquisition should play out well under EA Interactive, the division of Electronic Arts which focuses on web and wireless, as the company transitions into digital and social gaming. Business Wire provides insight into the thinking behind the acquisition. Barry Cottle, Senior Vice President and General Manager of EA Interactive says: "We?re moving ahead aggressively in our plans to lead in the category of cross-platform social entertainment." The blending of the two cultures, EA and Playfish looks positive according to Kristian Segerstrale, CEO and Co-founder of Playfish. She says, "EAi?s vision and entrepreneurial culture are consistent with our own."

Brett Rogers - can he fight his way from the current turmoil?
Brett Rogers – can he fight his way from the current turmoil?

EA isn?t sitting still, which may account for its up/down stock pricing. Last week, EA announced that the EA SPORTS MMA video game will include STRIKEFORCE, a mixed martial arts fight promotion, with heavy weight Brett Rogers and middle weight Jake Shields. "Big John" McCarthy will add his knowledge of the sport to the venue.

With its fingers in several arenas, Electronic Arts, despite recent financial woes, seems poised to continue being on top of its game. Then again, the company has to wake up and see how the successful competitors are filling their coffers while EA is bleeding money. At the end of the day – if you don’t look at the market, you will lose. The case of AMD and missed netbook opportunity with Tomcat and Twincat, but the history is written by winners [Intel Atom]. The question for EA is – when will the company make a real push into casual games, handheld games and massive multiplayer titles?