EA Lays Off 1500 Despite Record Digital Revenues

Within hours of confirmation that EA had acquired social game developer Playfish, the company also confirmed that it would lay off 1500 workers despite announcing record digital revenues of $138 million for Q2 2009 (up 23% year-over-year). Despite digital growth, EA posted a net loss of $391 million for Q2 (up 26% year-over-year). The company announced $788 million in GAAP revenue, a 12% year-over-year decline.  

EA internal studios confirmed affected by the layoffs include EA Redwood Shores, Tiburon, Mythic, and Black Box. Mythic is associated primarily with MMOs, while Black Box is known primarily for the Need for Speed and Skate series of games. Layoffs at these divisions are logical in light of EA's ongoing move away from traditional games publishing models and toward digital revenue streams like virtual goods. 

Mythic may have been one of the hardest-hit studios, with Katherine Pitta claiming the loss of 40% of the developer's staff (about 80 employees). Rumors indicate that about 90% of those employees may have been working on creation of new content for Warhammer Online. If true, this would be a clear sign that EA is looking to reduce support for the troubled subscription MMORPG. 

Layoffs at EA Redwood Shores and Tiburon are more troubling for the virtual goods sector. Tiburon is the primary developer of EA's various sports titles, including Madden NFL, which have all begun supporting microtransactions either as DLC or as part of freemium reinventions of the franchises. EA Redwood Shores is the company's headquarters. All of these franchises had made moves to include virtual goods in their business models, whether as DLC add-ons or online freemium reinventions. 

There is some good news for EA to announce this quarter, aside from the Playfish acquisition. The company's non-GAAP revenue was up 2% to a record high of $1.147 billion. The layoffs are part of a restructuring plan that should save the company $100 million annually by letting it close down some of its internal developers. The restructuring itself will cost EA $130 million, a sign of how difficult it can be for a traditional games company to transition into a newer business model.

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