EA to cut boxed game releases 40 pct, refocus on digital and mobile

Electronic Arts is making big changes to its business. The game publisher will release 40 percent fewer traditional games next year. To fill the gap, it plans to invest heavily in Internet-based games and mobile. Lagging boxed game sales and the massive success of social game companies like Zynga, which built its business around Facebook, contributed to the change in direction.

EA plans to release about 35 traditional games this year, down from about 50 in 2009, and that number will drop again, CEO John Riccitiello told Reuters. “I don’t think it goes to 10 or 15 or even less than 20, but there’s some number probably between the low 20s and the high 20s that’s right,” he said.

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Though 75 percent of EA’s revenue comes from boxed game sales, the company hopes to build a business out of online subscriptions and microtransactions. The company plans to release Star Wars: The Old Republic next year, a massively multiplayer online role-playing game (MMORPG) that will cost $10-$15 a month to play and compete directly with Activision Blizzard’s World of Warcraft. Sales of EA’s downloadable and mobile content rose 30 percent to $570 million last year and should rise another 30 percent by March 2011, when the company’s current fiscal year ends.

However, Zynga is the gorilla in the room. In October, Bloomberg reported that the FarmVille and Mafia Wars publisher was worth $5.51 billion–more than EA, which has been a dominant game publisher for more than 20 years. To compete, EA is doing what it does best: spending and buying. The company will spend about $1 billion in R&D this year, and half that money will go toward digital games. In the last year, the publisher has also purchased Playfish, a social game developer, for $400 million, and Chillingo, a European casual games publisher, for $20 million. In addition, a free version of Battlefield is coming to PCs.

Do you think EA has what it takes to compete in the social, casual game space? Should they be investing in it so heavily?

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