EA Lowers Outlook, Officially Announces Plans to Cut Staff and Product Slate

Just yesterday, Lazard Capital Markets predicted that publisher Electronic Arts would have to cut staff and reduce its product offerings going forward. As it turns out, the analysts were right. EA today said it's expecting its net revenue and earnings per share for the full 2009 fiscal year to end up below the company's previously issued guidance.

EA put the blame mostly on "lower than expected sales across North America and Europe" and acknowledged disappointment in its holiday performance so far, but the publisher did not single out any specific games as underperformers. The company noted that it will "pursue cost saving initiatives including a reduction of its product portfolio for fiscal year 2010 with additional associated headcount reductions and facility consolidations" – meaning that layoffs and studio closures are likely. Some consolidation has already begun; the EA Casual group was recently merged into The Sims label. 

"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," said John Riccitiello, EA's Chief Executive Officer. "Given this performance and the uncertain economic environment, we are taking steps to reduce our cost structure and improve the profitability of our business."

He added, "While we are cutting costs, we remain committed to investing in great game quality, in new properties and in our direct-to-consumer initiatives. We will be launching several new titles and online games in fiscal 2010."

EA recently cut around 600 employees this October as part of a "cost reduction plan," but apparently that plan was not enough.

Update: Following the announcement, EA held a conference call with investors to further discuss its plans and why the publisher thought sales for certain games failed to meet expectations. EA boss John Riccitiello commented, "Many times, what happens with new IP is the first edition doesn't generate the units that subsequent editions could generate. In this particular year, the consumer might have been more reticent to take risks than they might otherwise be, and it was a very crowded holiday."

Talking more specifically about the titles, he said, "We're very pleased with a lot of our new franchises this year. Spore... [looks like an] ongoing franchise, Dead Space looks like a long-term big winner for us... Warhammer will continue to perform very well. Mirror's Edge was very strongly reviewed... we'll be looking at some issues around the design to make sure that strong IP is married with strong business."

Riccitiello also pointed to retailer reorder habits, which have changed recently to fewer, more frequent orders. He said that these smaller inventory orders will "sharply reduce our December revenue."

It also seems like a number of gaming companies, including EA, are still coming to grips with the fact that the industry is now dominated by the Wii – a platform that is largely driven by first-party games, leaving less wiggle room for third parties. "We have a number of titles that are performing well on the Wii," Riccitiello said, citing MySims, Boom Blox and FIFA 09, "but there's no question that having the lead platform be a platform with two thirds of the unit sales occurring to the first-party owner is a really unusual thing. We haven't seen that since prior to the PlayStation 1. For those who sell... console games, that's a challenge and something we have to contend with."

Thanks to Gamasutra