Riccitiello: Retailers ordered fewer games during the holidays.

DEC. 10, 2008 • Electronic Arts chief executive John Riccitiello explained in a conference call that changes in retailer ordering was resulting in disappointing holiday sales for the publisher. Rather than stocking up on inventory going into the holidays, retailers were instead placing smaller inventory orders more frequently. One result of the curtailed revenue is that EA will publish fewer SKUs in 2009, with an ongoing emphasis on future titles more likely to be hits – very similar to the Activision Blizzard model.  Riccitiello noted consumers are shifting to a greater emphasis on buying Top 5 titles, and that there is a real shift to online game monetization globally, not only in Asia. On Dec 19, EA announced a restructuring plan to cut $120 million in costs by cutting 10 percent (1,000 employees) of its work force worldwide by March 31. The publisher also laid out plans to close or consolidate nine of its studios, and canceled plans to open a new facility in Vancouver, British Columbia.

Impact: Electronic Arts saw its stock nose-dive in 2008. The company had actually been experiencing the first significant revenue growth in years, but it was coming at the cost of serious bloating. The other major issue is that EA has been heavily dependent on “annuity franchises,” games that people buy every year.  In tough economic times, consumers may be more reluctant to buy the latest version of Madden or Rock Band automatically every year.