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Riccitiello: EA Thinks Long-Term With $150 Million For Digital Distro, Online, EAP

Riccitiello: EA Thinks Long-Term With $150 Million For Digital Distro, Online, EAP

October 31, 2008 | By Leigh Alexander

October 31, 2008 | By Leigh Alexander
More: Console/PC

Electronic Arts said it will sacrifice short-term profits in favor of longer term investments -- the company plans to put $150 million into its digital distribution and online game businesses, and in its EA Partners co-publishing and distribution relationships.

On the company's Gamasutra-attended financial results call today, the company also revealed that, as part of its longer-term approach, Pandemic's in-progress titles Lord of the Rings: Conquest and Saboteur will be delayed.

Conquest, previously slated for a Fall release, gets shifted to January 2009; Saboteur is not expected until sometime in EA's fiscal 2010, which begins in March 2009. This makes three shifted EA pipeline titles, after the next Harry Potter game was delayed to Summer 2009 alongside the film.

EA CEO John Riccitiello warned investors that "sharply adverse foreign exchange" will reduce the company's earnings by about 12 cents per share -- and he also admitted that the company's back catalog has seen "continued weakness."

Addressing the overall economy, Riccitiello was still fairly optimistic. "The game industry has been very resilient in past recessions," he noted. "History has shown us that the technology driver of new consumers has outweighed the negative of a recession."

He called the current console market an "unprecedented" condition: "This time, we have three strong, well-differentiated consoles each in growth mode," he said, and also cited the comparative value per dollar of a 60-100 hour game versus a film ticket or live event.

"Game sales have also been good this year... retailers have added space for the game industry," he continued. "Still, we recognize these times are unprecedented, and so far in October there are indicators that consumers and retailers are cautious."

"We expect a few slips and kills," Riccitiello acknowledged, citing Saboteur's delay and the recently-terminated Tiberium.

EA's long-term strategy, however, relies primarily on investments in its EA Partners and digital delivery businesses, and in online games -- both self-published, microtransactions-driven titles in Asia and the major new announcement of BioWare's Star Wars: The Old Republic.

Riccitiello said that further developing direct-to-consumer business models were "crucial to our long-term success... in the future, we see slower growth in packaged goods." He notes that the PlayStation 3 downloadable version of Burnout Paradise had sold 20,000 copies since its late September digital debut.

As a result, Riccitiello says that without the $150 million slated for digital delivery initiatives, online games and EAP relationships, EA's profits would appear much better today -- but "although this would help in the short term, cutting these investments is not the right answer for the long term."

He touched on the recently-revealed global layoffs, which could see as many as 600 employees from across EA's studios eliminated, crediting the decision to "the uncertain economic environment and the ever-present need to drive greater efficiency."

"As we go through [fiscal year 2010], in our planning process, we will focus on cost efficiency and eliminate marginal SKUs," he concluded.

Although it met revenue expectations for the second quarter, EA did lower its profit forecast for the year -- it still expects revenues in the area of $4.9 to $5.15 billion, which would represent growth of 33 to 41 percent.

But its per-share earnings were down to a range of $1 to $1.40 from previous expectations of $1.30 to $1.70. The reduced forecast in particular sent EA shares down about 13 percent to $27.73 in after-hours trades.

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