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Analyst: More Cuts Likely For EA As Mirror's Edge, Need For Speed Underperform
by Leigh Alexander
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December 8, 2008
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Electronic Arts is likely to cut franchise titles -- and possibly even further staff -- as part of ongoing cost-cutting measures, says Lazard Capital Markets analyst Colin Sebastian, who believes the publisher's titles are not meeting estimates.
"Specifically, we believe several EA titles are tracking below plan at retail this holiday, including Need for Speed Undercover (with disappointing reviews), new franchise Mirror's Edge, and Rock Band 2," said Sebastian, as he lowered his estimates for the company's third fiscal quarter revenue slightly from $2.14 billion to $2.07 billion.
Still, the analyst says, "solid sales" of Dead Space, FIFA 09 and Valve's Left 4 Dead are helping to offset the weaknesses in EA's portfolio.
Sebastian sees "greater uncertainty" in the company's product slate for next year, including the Rock Band franchise and the publisher's EA Casual revenue. Though EA has announced new projects in collaborations with developers like Grasshopper and id Software, Sebastian suggests these could be "lower margin" revenue generators.
EA recently laid off approximately 6 percent, or 600 employees, of its global staff, and as losses widened even among ramping revenue in October, the publisher expressed caution at weakening retail, citing an "ongoing imperative to manage our cost structure."
"We believe further cost and franchise reductions are likely," said Sebastian. "Importantly, we believe EA is continuing to review its cost structure and franchise base, and it is possible that management will announce further cuts in headcount and the development pipeline (including existing franchises) over the coming quarters."
Sebastian's prediction is consistent not only with EA's own admitted cost management plans, but with CEO John Riccitiello's assertion that killing underperforming projects in development is essential to overall portfolio quality. He recently told Gamasutra that "EA will kill a game or two a year. Forever," as he discussed the recent cancellation of Tiberium.
Long term, though, uncertainty in the industry landscape "could ultimately benefit EA," says the analyst. EA's John Riccitiello recently spoke about sacrificing short-term profitability in favor of longer-term investments like digital distribution, and Sebastian seems to support the strategy.
"While product execution and sell-through trends continue to be a challenge for EA midway through the current console cycle, we believe the company will be able to leverage longer-term its early investments in online distribution, emerging business models (e.g., free-to-play), and geographical diversity," he says.
"In addition, ongoing M&A opportunities and strength in the partners/distribution business should help to generate ongoing year-over-year revenue growth."
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Publishers need to learn to spread their games out throughout the year. This helps with their titles standing out much more to the consumer and not going against 10 other blockbuster titles launching on the same day.
I think it was one of the most original and innovative title of recent years, and also think it has quality and potential. It just need better marketing strategy and schedule...
If it came out mid-year '09, I think it could've stood up for itself better.
In regards to Need For Speed, I had once worked on the franchise for many years and have some insight. Like Rebecca has said, it needs a sabbatical. Give the development team (BlackBox ) time to rebuild the technology and infrastructure. Remove the people that are just sticking around to collect the big bonuses, remove the you are my buddy and I will promote you boys club. Bring in fresh faces that want to work on the game, who are passionate about need for speed and not from Hollywood just hoping to cash in on the great EA salaries. Also give time for all areas of the game so they aren’t rushed. Maybe Integrate the technology from the burnout franchise, heck even give it to them and let them rejuvenate it and do their take. I think the general public needs time to want a comeback as well.
In terms of the games design , I think they should take it back to its roots with diverse environments like tropical and desert themes, reduce the amount of open road so you remember the cool shortcuts and drive experience. Keep the Cops and Expand the Car roster. Integrate a story that doesn’t make you feel like you are watching a movie for the entirety of the game. The list goes on.. at the end of the day, changes need to be made at the top and I wouldn’t be surprised if JR makes some bold moves. He has done it before and will do it again.
The major issue has definitely been with the story mode. Simply put, it shouldn't be there. The story itself is shallow, and it is interesting to see most everyone express frustration at having to repeat difficult sections, yet wholeheartedly endorse the ultra repetitive nature of the time trials. DICE'S announced DLC clearly abandons the story to provide abstract levels.
I can't understand the decision to include a story where it is neither needed nor appreciated, let alone include a poorly fleshed out one. It will be a major disappointment if this IP is dropped and other developers are warded off from creating a similar game due to its poor sales.
As for Mirrors Edge the only major problem with the game is that everybody has their problems with it. Some people hate the controls, some the design, others the graphics, and apparently some even hate the story.
As for Rock Band it's sad to see it's hit the hardest by all the commotion. It's not just one thing it's everything. The ecconomy, the over saturated "quality" game market, and the competition (guitar hero) all affect Rock Band much more than "normal" titles.
As for EA I'd expect for them to close down smaller studios, and axe projects they don't feel will have cross market appeal. I hope they learn not release games so close together anymore, and risk competing against their own product like they are right now.