Once upon a time, John Riccitiello could do no wrong as CEO of Electronic Arts. All things must change. Now, Mr. Riccitiello can do no right. With high development costs and lower margins, plus no shortage of missed forecasts, Electronic Arts is suffering. Worse, EA just lowered their forecast for 2010. This represents the second straight year that EA has slashed its forecasts and this is making investors considerably unhappy…and when investors are unhappy, CEO’s are typically out of a job.
Despite the slashed forecast, analysts say EA has a solid roster of potential hit games due this year, and that its efforts toward online games and software for mobile devices like Apple Inc’s iPhone may pay off in the long run.
But they were far less forgiving of EA’s leadership under Riccitiello — the stock has declined about 70 percent during his tenure. Investors have expressed concerns that EA overpaid for social gaming concern Playfish last year and remember its failed hostile bid in 2008 for Take-Two.
Wedbush Morgan analyst Michael Pachter said the EA management team has “zero credibility” with investors, who he said have felt disregarded as EA has continued to miss its sales and earnings targets.
“Investors feel betrayed, and the comment I got most from investors today is ‘They don’t seem to care about investors.’ This management team is running out of room to underperform. I think investor tolerance is gone … they don’t get another year to turn around,” Pachter said.
Arvind Bhatia of Sterne, Agee & Leach added that the company has “consistently been underperforming,” and that there is going to be need for “some drastic action” at EA, whose high operating costs leave it with margins of 7 percent or less.
“For a $4 billion-plus company, that just isn’t acceptable,” he said. “Something is going to happen here — drastic costs cuts or them buying someone or getting sold — something has got to give in the next 12 to 18 months.”
Michael Pachter, an analyst at Wedbush Morgan who is no doubt paid an enormous sum of money to get just about everything wrong, is actually copping to a few mistakes in his predictions for 2009.
Mr. Pachter predicted a 7% rise in sales during November.
Reality: 8% decline.
“…It should have been evident that a slowdown was coming, but many observers (including us) were lulled into the belief that the video game software business was recession-proof. Compounding our error was the belief that Wii sales would never slow, and that the music genre could continue to grow.”
“Wii hardware unit sales are down a staggering 28% through November. Even though combined PS3 and Xbox 360 sales are actually UP 5% this year, in absolute terms, the three consoles have sold almost 14% fewer units than in the prior year.”
Remember when the Playstation 3 launched and Sony execs tripped all over themselves to say things like consumers were confused over all the SKUs of Xbox 360s, only to introduce a fleet of new PS3 SKUs? Remember when Sony execs criticized Microsoft for having two different models for Xbox Live in Silver and Gold? Funny how things change.
Kaz Hirai of Sony has officially confirmed that 2010 will bring a paid subscription to the Playstation 3.
During the presentation, which emphasized Sony’s plans to make its game business profitable in the next fiscal year, Sony Computer Entertainment CEO Kaz Hirai confirmed the plans. “We will be building upon our current free [PSN] service offering with premium content and services to start the subscription model,” he told attendees.
Perhaps to assuage PS3 owners’ fears that they would soon have to pay to play online, Hirai issued a subsequent statement indicating the present level of service would remain gratis.
“SCE will further increase sales by offering users new entertainment through the combination of hardware, software, peripheral, and PlayStation Network,” Hirai said in a statement given to British outlets, such as CVG. “Especially in the online area, we are studying the possibility of introducing a subscription model, offering premium content and services, in addition to the current free services.” (Emphasis added.)
As of press time, US Sony reps had not offered Hirai’s statement or further clarification about its subscription plans for the PlayStation Network. Luckily, though, the “current free services” currently offered on PSN include online play, Facebook integration, and Netflix video streaming. On Xbox Live, both of those features are only accessible at the Gold membership level, which costs at least $50 per year.
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