The Empire Strikes Back

Looks like EA, continuing its string of losing quarters, has made some major moves. First, they've announced they plan to lay off 1500 more employees, which is 17% of their workforce, after suffering another large loss this last quarter (nearly $400 million). Second, they announced the purchase of Playfish, a major publisher of social networking games. These two events are connected, of course.

It's a recognition, in the harsh terms of layoffs, that EA's been continuing too far down the road of expensive packaged games when all the growth in the market has been in digital distribution and very different types of titles. Not only are the audience demographics different; so are the game mechanics, the distribution methods, and the way you make a profit on the games. The whole business model that EA built its empire on is rapidly eroding, as development costs continue to climb while average revenue per title drops. So EA is trying to retool its development resources and expand into the market areas showing growth.

I'm afraid it's going to take more than one quarter to turn the EA Star Destroyer into a new direction. Digital distribution, and the mobile gaming and social gaming markets, have enormous implications for how games are designed, produced, marketed, and profited from. Cost of good no longer drives design... or at least it shouldn't. Years ago, the industry settled on a rough target of 40 hours of gameplay for $50 in a boxed game. Games that didn't meet that target were savaged by critics. It wasn't really cost-effective to create a $20 boxed title, once you factored in all the costs of goods and discounts you had to give up to the retailers, distributors, rack jobbers, and of course the fees paid to the console manufacturers. Digital distribution blows that whole model into little pieces... and, in fact, you can make some serious money selling little pieces for $10 or even $1. Development teams can work for months or weeks instead of years, and you can rapidly shift them to other projects if it's clear their efforts aren't bringing in money.

Marketing becomes more friend-oriented and communication-based... it's about the recommendations and the messages from friends, not ads in magazines or on TV. It's a whole new world out there. I just hope all the people who are laid off can find new places in it as soon as possible.