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EA's Riccitiello: Cuts Necessary To 'Transform Our Company'
by Chris Remo
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November 9, 2009
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"We have lots of compassion for those affected," Electronic Arts CEO John Riccitiello said today of the publisher's 1,500 planned layoffs, but he added that "these cuts are essential to transforming our company."
Riccitiello commented on the matter in a conference call following EA's latest quarterly earnings, which saw the company's net loss widen to $391 million.
Although the company said it expects to see profitability in its upcoming third and fourth fiscal quarters, the CEO warned that the back half of 2009 might not be as strong for the industry as some expect.
"Retailers remain cautious and report that foot traffic remains slow," he said. "The consumer is not showing up at retail as consistently as we would like."
Recent console price cuts will continue to help to some extent, but "the improvement is not enough to get the industry back to flat software sales for the year," Riccitiello warned. Still, he said, "We do not believe that calendar '09 packaged goods weakness is a permanent condition."
In particular, the CEO looks forward to further console price cuts that will bring the accessibility of the current generation of machines in line with that of the previous generation late in its lifespan. And "the console add-ons coming in 2010 will drive new consumers to the market," Riccitiello added, referring to new motion controllers from Microsoft and Sony.
Another area that EA believes is likely to soften the blow to packaged goods is the digital distribution and online space. As recently as five years go, Riccitiello said, the company estimated the value of the digital segment to be less than 10 percent of the industry; now it's more than 35 percent, and the company sees the digital space growing by 20 percent on an annual basis for the next five years.
In fact, when taking into account online revenues as well as retail revenues, the publisher actually expects the industry to see positive growth in 2009 -- and with its Playfish acquisition, the company clearly plans to bolster its digital position.
"EA continues to transform itself from being almost totally packaged goods-dependent," Riccitiello said, to being "a leading figure" in the digital sphere.
"Downloads extend the life and profitability of our disc-based games," said COO Eric Brown. Dragon Age: Origins, which has strong integration with both free and paid online and downloadable features, was said to have seen strong early performance.
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I thought everybody forecasted digital as the future in '06?
But I think what REALLY grates on me is the nauseating "lots of compassion". If there was truly lots of it, they would be finding ways to use an apparently available $300m to create organic growth, rather than spending it on acquisitions.
As far as I can tell, EA's Grand Plan relies on price cuts on the console and not a lot else. And on "slow foot traffic" - I hate to tell him, but our retail sales are growing, not slowing.
Ah well. Clearly I don't understand the vagaries of Big Business. The most people I ever had working for me was only a few thousand. But if there are any environmental artists and/or level designers being laid off in this set, with UE3 skills, who want to move to Atlanta - get in touch, because we're recruiting. Again.
the game industry is weird.
From my perspective the market isn't large enough to support all of these game releases, especially when they cost so much to make.
I believe Riccitiello when he says this was done to "transform" EA. Maybe he too sees that it doesn't make sense making all of these games for "one" platform (in other words the PS360 platform aka "next gen" platforms) and that other platforms like the PC (in terms of social networking websites and more), and cellphones (the iPhone is a success, and Android enabled phones are starting to catch on rapidly, which could mean two healthy digital distribution channels).
When a publisher starts getting big they need to grow in that sort of manner...in the past most of EA's growth meant more and more products for the same market and it seems like they finally woke up and realized that it didn't make sense.
At the same time it's very sad to see all those people lose their jobs, especially at this time before the holidays. I wish them the best. While the industry is in rough shape it does look like there are new opportunities that weren't there years ago...such opportunities being ripe for talented and experienced people.
I think this whole thing sucks as a consumer.
2- He followed up his incredibly brief "we sympathize with those let go" comment with a "hey! look over here! we bought Playfish". He's obviously very sorry.
3- Desperate? Absolutely. Necessary? No. There were plenty of places to make smaller cuts, rather than gutting the workforce. They gutted employees who, in recent months, weren't allowed pay raises or back filling of positions while the execs lined their pockets with million$.
4- There are no recruiters helping place employees. It's a contracted company offering a resume workshop nowhere near any of the EA offices.
Thanks EA *golf claps*
As an independent developer and publisher of free-to-play, online sports games (just as disclosure!), we don't directly compete with EA, although many people want to compare us to them. That being said, it will be very interesting to see how EA handles working with a new PC studio like Playfish, having closed so many in the past few years. Presumably they will roll this up into Pogo, but regardless, it was the only way for EA to get into the social gaming space. The gaming giants don’t have the nimble nature or social network experience to penetrate this market without buying companies like Playfish who already have serious momentum.
I’m just not sure that Facebook is the right place for big publishers, but clearly EA thinks this is the direction they need to head -- even if it means letting 1500 people go to spend $400M on new employees.
We can get a job-lot on this and Midway, perhaps :) ?