Outside Forces Weigh On Game Makers' Results
By Mike Musgrove
Washington Post Staff Writer
Friday, May 5, 2006; Page D01
The thing to remember about the video game business is that, no matter how much fun it may be to develop or play a game, success isn't just measured by the number of explosions on the screen. Like all businesses, the video game industry measures success in dollars and cents.
That's why it's tough for a company such as Electronic Arts Inc. -- which introduced gamers to the Sims, Madden NFL and the Need for Speed -- to take a beating from Wall Street, as it did yesterday when shares of its stock dipped by more than 10 percent because of a sluggish quarter.
Popular Electronic Arts games on display at Micro Center Computer Store in Santa Clara, Calif., Tuesday, May 2, 2006. Electronic Arts earnings are released today. (AP Photo/Paul Sakuma) (Paul Sakuma - AP)
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Electronic Arts, the world's largest publisher of video games, posted a loss Wednesday of $16 million for its fiscal fourth quarter, ended March 31, compared with a profit of $8 million for the corresponding period a year earlier, the company said Wednesday. Activision Inc., also one of the top five game publishers, said yesterday that it lost $9.2 million for its fourth quarter, compared with a profit of $3.6 million.
Shares of Electronic Arts closed at $48.55 yesterday, down from $54.50. The decline continued in after-hours trading, as shares slipped to $48.35. Activision shares dropped to $13.09, down more than 4 percent. They recovered to $13.30 in after-hours trading.
This comes as bleak news for an industry that is gearing up for its biggest trade show of the year, the Electronic Entertainment Expo, or E3, which will be held in Los Angeles next week.
But it's also news that's hit this industry before.
The cyclical nature of this industry is part of the game. Outside forces -- such as a distribution problem out of Microsoft's headquarters -- can often outweigh even the most clever game control scheme.
The latest forces: Microsoft's problems in getting the new Xbox 360 game console into stores during the latest holiday season and the mystery surrounding the delayed release of Sony's PlayStation 3.
"This transition is more than a console upgrade," Larry Probst, chairman and chief executive of Electronic Arts, said in a statement.
The companies are also having to look beyond the Xbox and PlayStation. Games also are played on -- and have to be developed for -- personal computers, mobile phones and personal digital assistants such as the Palm handheld computer.
"In addition to creating games for the PlayStation 3, Xbox 360 and Nintendo Wii, EA is positioning for global leadership in online, handhelds and mobile phones," Probst said.
With these new consoles come new technologies for the developers to work with: The Xbox 360, for example, has three processors under the hood, and the PS3 could be even more complex. On top of that, programming for the systems has little in common, developers say.
Because the number of people who own an Xbox 360 is only a small fraction of the gaming population, games have a limited potential audience. And with others awaiting the arrival of the Sony system, few are interested in purchasing new games -- which can cost as much as $50 -- for a system that's on its way out.
And if Sony has the same challenges in keeping store shelves stocked with its new consoles later this year as Microsoft did last year, companies such as Electronic Arts and Activision could take another big financial hit.
To diversify its ventures, EA has started making moves designed to beef up its presence in games played online and on mobile phones. The company recently made its biggest purchase ever, of mobile game company Jamdat Mobile Inc., a deal worth nearly $700 million.
Like other publishers, EA puts out fewer, but ever more ambitious, titles every year.
Its recent best-selling game, based on "The Godfather," featured voice acting from Marlon Brando -- an attempt to create buzz around the game, much the kind that Grand Theft Auto got from gamers.
While the game is selling well, it's still struggling to find Grand Theft Auto-like success. |
