UBS Media Week: EA’s Riccitiello On The Layoffs, Beating Activision And Tiger Woods

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Credit: Don't Lose Your Day Job

Electronic Arts (NSDQ: ERTS) CEO John Riccitiello was quite quotable during his UBS Media Week presentation — offering specifics on how EA defines its “digital” business, detailed insights into the company’s layoffs and outsourcing strategies, subtle jabs at Activision’s best-seller Call of Duty: Modern Warfare 2, and even joking about whether Tiger Woods’ “transgressions” would make people more apt to play his golf game online. Find some of the most salient points below:

The layoffs: “We were operating too expensively,” Riccitiello (pictured) said. “So we’ve had to take aggressive tactics to bring costs in line with our goals.” Aggressive meaning the shuttering of studios like Pandemic in L.A., to the tune of 1,500 layoffs in this quarter, its fiscal Q2. That’s after laying off 1,100 staff earlier this year.

When asked about whether the cuts would negatively impact EA’s ability to produce “high quality” games — since a return to “making hits” has been part of the company’s focus this year, Riccitiello was all too confident: “Our game quality is going to go up. We made surgical cuts in the areas we could afford to; we cut titles that we didn’t think we needed and staff that supported them,” he said. “We didn’t diminish heads against our core franchises, and if we did, it was to outsource technology or art design to a lower-cost location.”

On outsourcing: “It costs us about $18,000 per month to run an office in L.A., vs. $6,000 in Montreal,” he said. “Scale that out annually and its a real difference. The high cost locations [in terms of employment taxes and laws] have gotten so far out of line, that the best we can do is keep a core design team there, and use support in other places like Montreal or South Korea. And until the system changes, it’s a trend that’s going to continue in our industry.”

On digital: There’s no one “digital” revenue stream, there are multiple: Subscription-based games, downloadable games (like on Pogo.com), downloadable content (DLC) that supplements packaged franchises, mobile games and in-game ads. Riccitiello said “virtually every subsector” of digital overperformed in the first half of this year, helping to offset double-digit declines in packaged goods (disc-based) game sales industry-wide.

Mobile: “It’s a highly-scalable, highly-profitable business,” he said. Proof? EA dominated Apple’s list of the highest-grossing game apps in 2009, with The Sims 3 taking the top spot.

Playfish: “They were running a business model that we looked at and realized it would take two years or more to replicate,” Riccitiello said. “And the revenue opportunity would double in the time it took us to figure it out, so M&A was the right way to go.” He also talked up the management team, Playfish’s roster of games and the “integrity” around their revenue-generation tactics — a not-so-subtle jab at the claims of “scammy” ads that have plagued the social gaming industry.

Playfish also represents an opportunity for synergy across EA’s casual games units: “Playfish could put a Pogo.com banner in one of their games and it will drive tremendous traffic back to the site,” he said.

On Tiger: “The audience playing the game might like it better this week,” he said, when asked about whether the Tiger Woods scandal would impact the health of EA’s PGA-branded franchise. “Jokes aside, it doesn’t affect the game from what I’ve seen.” EA is launching an online-only version of Tiger Woods PGA Tour, one of its first attempts at porting a major console-based franchise to the web; Riccitiello said the opportunity to “see other players on the field in real-time” would be a key attraction.

Bragging rights: He talked up EA’s efforts to revamp core franchises like Need for Speed and Madden, but also about opportunity to “take the first-person shooter back” from rival Activision (NSDQ: ATVI) (which has had tremendous success with COD: MW2): “Battlefield: Bad Company 2 represents our first chance to take that genre back,” he said. “COD started as a million-unit franchise, and Activision built it to more than 10-million — but that’s the point where a title starts to get tired. Battlefield does multi-player online better, there are destructible environments, and you even get to be a driver vs. a passenger.”

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