EA’s Riccitiello: Layoffs ‘Essential’ To The Company’s Digital Transformation

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The main reason for EA’s second round of mass layoffs within a single calendar year? The company is extremely bullish on digital. “As we said in previous quarters, we’re narrowing our focus to invest in core hits and digital,” said CEO John Riccitiello, during the company’s Q3 (its fiscal 2010 Q2) earnings call. “Laying off people is never pleasant, but these cuts are essential for transforming our company.” He offered up digital stats as proof that EA’s previous layoffs and “refocusing” have worked:

— Net digital revs (non-GAAP) came in at $138 million, up 23 percent year-over-year
— New deals with brands like J&J, Doritos and *Apple* increased incremental ad revs by $7 million; overall in-game ad sales were up 10 percent for the quarter
— EA Mobile’s revs (non-GAAP) came in at $50 million, up 9 percent year-over-year (driven mostly by the iPhone)
— Casual games site Pogo.com saw increases in revs, registrations and subscriptions

Decreased disc sales: Riccitiello said it was the company’s largest quarter ever in terms of digital revenues, but the optimism about the future was tempered by the real financial concerns of consumers right now. “Retailers are cautious, foot traffic remains slow and packaged software sales are down industry-wide,” he said. And while he said he believed that digital growth would “more than offset the temporary weakness” in packaged game sales, EA still lowered the bottom range of its guidance for the final two quarters of its fiscal year.

Layoff details: The company will eliminate 900 developer jobs, as well as 500 on the game publishing side, and 100 corporate positions. COO John Schappert said EA will reinvest the $100 million it expects to save annually in digital — for everything from micro-transaction and subscription-based games, to mobile and social games.

Playfish: Schappert said the environment surrounding the deal was similar to its acquisition of mobile gaming firm Jamdat in 2005. “When you look at social gaming, you see a lot of new IP, but very few established brands,” he said. “Playfish will be able to continue working on their IP, but also capitalize on our existing brands. It’s very reminiscent of Jamdat — their IP forms the backbone of our most popular mobile games, but they were still able to successfully port franchises like Madden and FIFA to mobile as well.”

In terms of the transition, Riccitiello gave the impression that Playfish would have free reign: “Playfish will continue to be Playfish, just with access to EA’s IP and resources.” The company said its fiscal Q3 guidance didn’t reflect an impact from the $400 million deal, but that it expected to reflected a diluted GAAP EPS of around 15-to-25-cents per share in the next calendar year.

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