EA and THQ Post Losses, Announce Layoffs

Electronic Arts and THQ are the latest video game publishers to punctuate holiday quarter losses with impending layoffs. EA indicated they would lay off 11% of their workforce, including employees on all levels. THQ plans to reduce their own workforce by 24%. EA suffered a loss of $641 million while THQ suffered a loss of $191.8 million.

EA CEO John Riccitiello identified the holiday quarter as “a clear disappointment.” His counterpart at THQ, Brian Farrell, said that his company delivered high quality games but “fell short of revenue and profit targets in this challenging environment.”

Though EA and THQ’s fiscal outlooks were equally disappointing, the way each got into such dire situations differed. EA arrived at their financial predicament in part because the economic recession severely impacted their pre-order sales to retailers. According to Gamedaily and Reuters, EA normally would have benefited from massive pre-order numbers, but the economic recession compelled retailers to cut back on these orders. In the past such pre-orders might have totaled in the millions range but were now in the hundred-thousands. EA’s sales numbers actually increased from $1.5 billion to $1.65 billion, but it wasn’t enough to account for losses due to the lack of retailer pre-orders.

THQ was more tight-lipped about the reasons for their poor performance, but unlike EA their net sales’ dropped from $509.6 million to $357.3 million. Both companies announced plans to reduce their cost structure for 2010. EA CFO Eric Brown said the company was reducing approximately $500 million in operating expenses for 2010 and forecasted a loss for the 2009 fiscal year. THQ warned only that they were lowering expectations.

THQ is optimistic that anticipated titles such as Warhammer: Dawn of War II may stem the tide, but this doesn't seem likely.

THQ CEO Brian Farrell did exude some optimism, pointing out that the coming months for THQ would bring promising titles such as Warhammer: Dawn of War II and Legends of Wrestlemania. EA has already delayed several titles including The Sims 3, a possible explanation for why EA already projects a loss while THQ delays announcing what may be inevitable.

With publishers large and small already forecasting losses, the video game industry continues to smart from the economic recession. While the quality of video games may remain the same, the volume could go down due to delays and cancellations. It’s our hope at Gotgame that the economy turns around soon and that those affected by the layoffs can return to doing what they love soon, but if the fiscal projections of EA and THQ are accurate, that isn’t likely.