Yesterday was a landmark day for games publishing giant EA. Speculation had run wild regarding EA’s interest in acquiring social gaming company Playfish, and yesterday they made the official announcement. Congrats EA. However, within hours of the announcement, the hammer dropped, and EA then announced that it would be laying off 1500 employees.
The Acquisition
Electronic Arts Inc. made the official announcement on November 9 that they had in fact acquired social games maker Playfish for a cash payment of $275 million. EA even went one step further to sweeten the deal but offering an additional $100 million if certain performance benchmarks were met by years end. And….EA threw another $25 million at the deal in equity based agreements with Playfish employees in order to boost company retention. A quick look at the math puts the acquisition at $400 million. $100 million short of half a billion. That’s a lot of virtual goods valuations.
Admittedly, both EA and Playfish have been quite open about the deal, and Playfish is slated to find a new home under the EA interactive umbrella – EA’s branch focused primarily on web and mobile p[rojects.
“Social gaming, with its emphasis on friends and community, is seeing tremendous growth and this is the right time to invest to strengthen our participation in this space,” Barry Cottle, Senior Vice President and General Manager of EA Interactive said. Likewise, Playfish CEO and Co-Founder Kristian Segerstrale sees the deal as a win-win situation, “EA is the ideal opportunity for us to push forward our goals to lead in the social entertainment evolution on a faster and much larger scale.”
And in related news…..the layoffs
The phrase, “Strike the hammer, while the iron is hot” would certainly come to mind in this situation. Only hours after the announcement that EA had acquired Playfish, 1500 EA employees got the pink slip.
While EA posted record digital revenues of $138 million for Q2 2009 (a 23 percent increase, year-over-year), they’ve decided to batten down the hatches and consolidate their operations – as on the whole the company saw a net loss of $391 million in Q2 2009.
They layoffs will effect EA Redwood Shores (the company’s headquarters), Tiburon, Mythic, and Black Box. Black Box is the home of the Need for Speed development (one that just had great success with Need for Speed:Shift), and Skate titles.
MMO studio (Warhammer Online) Mythic is likely to be hardest hit by the cuts. In a tweet posted by Katherine Pitta, the studio has cut 80 employees, or 40 percent of their workforce.
Tiburon, also effected by the cuts, is primarily responsible for EA’s sports based titles, including Madden NFL.
In light of EA’s announcement of acquiring Playfish, as well as their recent launch of a Facebook version of Spore, it’s safe to say that EA has seriously taken the plunge into social gaming. Scaling back on Racing and Skate games almost makes sense (although I’m surprised EA’s not willing to take a look at the fourth best selling game of all time and taking a social gaming whack at it).
Similarly, Mythic is primarily responsible for the subscription based MMO Warhammer Online, one that’s had it’s own ups and downs over the years. With the current gaming climate making the migration to non-subscription based fees, it’s possible to see the EA logic in this one.
And now for the sports. This one is a bit of a head scratcher. Like them or not, microtransactions within EA’s popular sporting titles have been a success for the company. With Madden NFL continuing to have a fanatical following, and the Tiger Woods golf series expanding it’s catalogue of virtual goods sales, it’s a bit surprising to see a scaling back in this venue.
“EA is performing well, with quality, sales and segment share up so far this year,” said CEO John Riccitiello. “We are making tough calls to cut cost in targeted areas and investing more in our biggest games and digital businesses.”
Tags: EA, john riccitiello, Kristian Segerstrale, PlayFish, social games, social gaming
