Wednesday, July 27, 2005

EA: We Suck Again

From the Wall Street Journal Online:
Electronic Arts Inc. posted a loss and said revenue declined in its fiscal first quarter because of a weaker lineup of videogame releases in comparison with a year ago.

The videogame publisher also lowered financial forecasts for the rest of its fiscal year largely because of a delay in the release of an eagerly anticipated game based on "The Godfather" movie.

After regular trading hours, EA, of Redwood City, Calif., reported a loss for the quarter ended June 30 of $58 million, or 19 cents a share, compared with net income of $24 million, or eight cents a share, a year ago. EA's loss was narrower than the 22 cents a share to 28 cents a share the company had forecast and the 24 cents expected on average by analysts surveyed by Thomson First Call.

Revenue declined 16% to $365 million from $432 million. EA said it had a number of strongly performing games during the quarter, including "Battlefield 2" and "Medal of Honor European Assault," each of which sold more than a million copies. However, EA's slate of titles didn't fare as well when compared with the blockbuster titles out in the same quarter last year, including one based on a "Harry Potter" movie.

It's getting a bit surreal to see earnings announcements like this from Electronic Arts. It's a company with an absolutely incredible amount of leverage in the gaming industry, a behemoth of a marketing marchine, and they still aren't making money. Just six months ago they seemed to be dominant. Now, they're seriously struggling, and I don't believe this is a temporary condition.

One theory: instead of trying to make great games, EA seems to be focusing more and more on obtaining exclusive licenses, and those licenses are expensive. The games being produced with those exclusive licenses, though, generally haven't been that good. Combine expensive licensing with less than outstanding sales and it becomes a real problem.

Another theory is that EA is choking on its size. When a game needs to sell over a million copies to be considered "strongly performing," that is a huge, huge burden. They can't afford to release anything fresh (unless Will Wright designs it) because it might blow up in their faces. So a huge portion of their catalog now consists of licensed games and annual rehashes of their sports titles.

Even as I write that, it doesn't sound very interesting. Or fun.

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