That is a rather perplexing headline, given the actual content of the article. I think a more honest appraisal of the news can be seen in the investor class's reaction: EA's stock price is down over 8% in today's after hours trading.

Part of EA's problem is its lack of focus.

As the world’s largest game publisher, it has tried to manage too many titles in too many categories. This reflects the outdated strategy of company founder William M. Hawkins, who believed that EA should not rely too heavily on a few popular games. That made sense when the market was smaller and development costs were lower. It also ensured that the company could respond more quickly to changing tastes. However, as development costs rise, EA’s large assortment of games are becoming unwieldy. Also, unlike banks, energy companies, and automotive manufacturers, game publishers can rarely benefit from economies of scale because of the high variable cost. Therefore, claiming a "number one position" could be seen to be more of a liability than an asset.

@Walter
Stock performance usually depends on a company's ability to meet forecast expectations. In this case, EA is predicting 50 to 70 cents per share earnings for the coming year, which is down (particularly at the lower end) from analyst predictions of close to 75 cents per share.

EA's historic strategy has been growth by acquisition: http://en.wikipedia.org/wiki/List_of_acquisitions_by_Electronic_Arts

If EA has a problem, it's extracting value out of those companies it acquired. JAMDAT worked (EA is by far the biggest mobile publisher), Bioware/Pandemic is a bomb and no where near the ROI to justify the deal (great developer talent wasted, RIP Pandemic), and it remains to be seen if Playfish pans out (300M for social games developer might be a bargain). Would be interesting to see the publisher landscape today if that Take 2 bid had gone through.

@Kevin
It is part of the same issue. One of the ways to achieve the diversification that Hawkins envisioned was through acquisitions. However, most acquisitions do not make sense. As many as 70 percent of acquisitions do not live up to expectations and nearly 50 percent fail outright. Those that succeed often require years of integration effort.

Successful acquisitions need to make strategic sense. A good example is Square’s acquisition of Enix Corporation. Both companies had a focus on role playing and fantasy games and the merged entity proved a good fit, whereas EA's acquisitions have been all over the map.

I am glad to see that cutting down on draconian DRM and the sport franchises has not been all bad news.

Also glad to see the digital distribution trend increasing.

@David

I see the remark that Bioware/Pandemic was not a good deal quite often. It just doesn't fit in my head with the numbers we are seeing from Bioware games like Mass Effect and Dragon Age. I know Pandemic was shut down, but with the probably huge numbers from Mass Effect 2 and the coming Star Wars MMO, how can EA not make their money back on that acquisition?

@ David S,

Bioware's games viewed apart from the acquisition are successful on an individual P&L basis. However factoring in the loss of Pandemic talent and the estimated cost of acquisition at $800M, EA still needs to make that amount back in profit and more in order for shareholders to realize the value of that deal. Those numbers don't include other overhead costs such as developers salaries (800 employees at time of acquisition), costs of goods and platform royalties for Mass Effect 1&2 and Dragon Age Origins. So while it might have improved their portfolio mix, those games by themselves haven't had a multiplier effect in revenue generation for EA. Even if EA is maxing out the contribution to net profit on Bioware games, it is not likely that they have collectively paid for the deal in 2 years.

Did you expect that deal to pay for itself in 2 years?