EA: Virtual people delayed, real people laid off

After an earnings spanking in its 2009 Q3, games publisher Electronic Arts announced plans to go Wii-Wii-Wii all the way home, refocusing much of its development effort to build for the console on which they're currently the #3 developer.

If anyone still doubted that the Wii is the pre-eminent console on the market, EA's clearly refurbished attitude to the former Nintendo Revolution should set her straight. In the wider marketplace, Nintendo outsold the competitive consoles from Sony and Microsoft, and EA now finds itself hustling to make headway on a platform where it holds about 5% of market share.

It'll have less to hustle with: The company says they'll lay off 1,100 and delay several games, including the next edition of The Sims.

Sales during the Q3 holiday season ("We were disappointed") doubtless helped to focus EA's thinking. Net GAAP revenue for the quarter was $1.65 million, up 10%; Non-GAAP net revenue was $1.74 billion, shy of analysts' expectation of $1.9 billion. Net loss, however, was up as well -- $641 million ($2/share) compared to $33 million (10 cents/share) year-to-year. Non-GAAP net revenue would have been 56 cents/share); analysts were excepting 88 cents/share.

For 2009, the company predicts non-GAAP revenue of $4.3 billion and a 35 cents/share loss. 2010 looks a bit better, with predicted revenues of $4.3 billion ($1/share). Executives declined to offer pricing guidance for the games themselves.

That sort of thing needs attention, and EA on Tuesday announced cost-reduction plans that include laying off about 1,100 employees and shifting more development to "low-cost locations." The company will close 12 facilities, up from an expected 9. The effort will cost them between $65 and $75 million over the next 12 months, though the job cuts will mainly be accomplished this quarter.

The company will also refocus how it goes about marketing its titles. Some internal soul-searching, said execs, has led to an increased appreciation for marketing buzz, and pre-release efforts for many EA games will be retooled accordingly.

The future's in the big titles, too. The company says that the lion's share of effort going forward will be on the biggest titles in EA's stable of properties. Asked which upcoming titles the company expects to lead the EA pack over the next year, CEO John Ricitiello named The Sims 3, Need for Speed Shift, and Harry Potter and the Half-Blood Prince, along with the inevitable Madden and FIFA offerings.

So which titles are falling by the wayside? Oh, says EA, don't let's dwell on the past; for "purposes of sensitivity," execs said. "We've decided not to focus on those [discontinued] titles on this call."

(Fans of Need for Speed, by the way, should be advised that though their racing title isn't in danger, its development process has been torn up and will be totally reworked after "not performing to expectations." Need for Speed Shift and Need for Speed Nitro are expected in Q3 and Q2, respectively.)

Launches on three major titles will be delayed until later -- sometimes much later. The Sims 3, which Riccitiello described as "one of the most important launches in [EA] history," was due to launch this quarter but is now slated for June 2. The Godfather 2, also planned for this quarter, moves to Q1 of 2010 (that is, early summer). And the PC version of Dragon Age: Origins, a new title from the BioWare division, pushes to Q2 (early fall) to align with the console-version release.

What's the holdup? The company says that all three titles are more or less ready to go, and each will cool its heels for a different reason. The Sims ran into The Marketing as described above, and EA wants more time to build the necessary buzz. The Godfather 2 is dodging a crowded near-term release schedule.

And Dragon Age, on which EA is pinning dynastic hopes? According to Riccitiello, "Too much quality can make you reassess your options," and apparently EA feels the game's so darned good it ought to roll out in one mighty wave. Clearly it's taking its new belief in pre-release buzz to heart -- at least as a way to enliven a dreary earnings call.