By Rip Empson
Electronic Arts' big shift toward treating games as services instead of packaged goods is going to mean restructuring this year.
Chief executive John Riccitiello said in today's earnings call that there will be some layoffs as the company increases production of online, mobile, and social games. While EA beat earnings estimates for the quarter ending in March, its shares fell in after-hours trading by as much as 9.5 percent. The company has slipped nearly 20 percent since its last earnings call in February.
EA said in the statement that the move was being launched "to align the company's cost structure with its ongoing digital transformation." For some quick history: About a month ago, Derek Anderson reported that EA would be laying off 500+ employees, which came on the heels of its big Popcap acquisition, the departure of its CFO, and the ignominious title of being named "the worst company in America," according to The Consumerist.
EA had denied reports of impending layoffs, and then qualified that by saying that the layoffs would only affect a relatively small portion of employees. In its investor conference call this afternoon, EA said that its restructuring would indeed in result layoffs. But the company is also hiring at the same time, so it expects to actually add 500 employees by the end of this fiscal year.
Riccitiello also said that the company will be investing $80 million in fourth-generation console games, and that this kind of next-gen console development would lead to even more investment in research and development.
He also teased the fact that the company plans to release a "big social title" this quarter. EA exec Peter Moore would not say what the game was, although some have speculated that the company is working on a new version of SimCity, possibly to be released on Facebook, as SimCity for PC will be arriving later this year.
The Sims, EA's biggest social game to date, started out with a bang and grabbed the second spot in the most popular social games rankings behind CityVille. But its engagement has been declining of late and it now ranks behind King's Bubble Witch Saga, Zynga Slingo and other games based on daily active usage.
Social gaming continues to be a smaller part of EA's revenues. But EA made it clear on the call that this will be a bigger part of its strategy going forward. "Social is moving to a good place," Riccitiello said.
The CEO also said that he thinks brands like The Sims, SimCity, and Bejeweled have withstood the test of time over the years. He said that the hockey-stick growth many gaming startups see is unsustainable. It may have been a veiled reference to Zynga's recent deal to buy OMGPOP for $180 million in cash.
"We dont need to buy a brand to get whats hot this quarter," Riccitiello said. Overall, this is a period of transition for EA, as it starts thinking about games as services.