Video Games no Longer "Recession-Proof"


And not just because there's no such thing. From Wired's Game Life blog comes news that Electronic Arts (EA), the maker of enthralling life-suckers such as Medal of Honor, Command and Conquer, and the Madden series, just trimmed its staff:

Electronic Arts is cautious on its short-term business prospects and plans to let go of 6 percent of its workforce as a result of dismal economic and retail outlook --and despite a 40 percent increase in second-quarter sales.

The company lost $310 million, or 97 cents per share, in the second quarter, which widened from $195 million, or 62 cents per share last year.

"Considering the slow down at retail we've seen in October, we are cautious in the short term," said John Riccitiello, Chief Executive Officer, in a prepared statement. "Longer term, we are very bullish on the game sector overall and on EA in particular."

The layoffs are expected to save the company $50 million annually, but will result in $37 million in restructuring charges in 2009.

I doubt game makers will vie for a slice of bailout pie, but their economic woes may lead them to revive arguments that Andrew Eades (of PlayStation design firm Relentless Software) made in late September, when he essentially argued for regulation of the pre-owned market:

"I feel that game retailers have absolutely a good role to play but they have to realise that when platform holders, developers, and publishers are saying 'we're not really happy with the way you are treating our games in the pre-owned market' it would be preferable if they listened a little bit harder - because we are saying it loud and clear and we do have another option which is digital distribution which does cut them out of the chain at some point."

EA didn't point fingers in its press release, but it's fathomable that they'd jump on board with Eades and others like him. EA, Relentless Software, and other makers of games for XBox, PlayStation, and the Wii—all of them "console" platforms—face more competition than makers of PC games from the pre-owned market, as console games are more expensive: the average PlayStation 3 game runs about $55 versus $20 for most PC games. A lot of that cost is eaten up by R&D, but part of it is the physical product, so I find it fascinating that makers of console games see moving to digital sales as a last resort; especially since PC companies like Blizzard Entertainment, the maker of World of Warcraft, conduct all their business digitally and make a killing doing it (WoW has 11 million subscribers who pay around $15 a month to play Online).

Adopting a digital product platform—especially in an age where most console gamers play Online—is a great way to cut costs. Incidentally, using digitalization as leverage to call for regulation of the gaming market could lead to the kind of unwanted government intrusions against which the industry is constantly fighting.

Kerry Howley wrote about the correlation between video games and violence here. Daniel Koffler wrote about the government response to Grand Theft Auto here.