NEW YORK (Reuters) - Electronic Arts Inc ERTS.O expects to cut its slate of video game titles by as much as 40 percent next year as the company continues to invest heavily in its small but fast-growing digital and online businesses.
EA is making a big bet on mobile and Internet-based games, as sales of traditional packaged titles -- which generate about 75 percent of EA’s revenue -- continue to slump across the industry.
But EA Chief Executive John Riccitiello told the Reuters Global Media Summit on Monday that investors have still failed to grasp the vast potential of digital gaming.
“I think we’re at the classic hump where we’ve told people where we’re going. There’s evidence we’re going to get there, but Vegas isn’t putting money on it because we’re only in the fourth inning,” Riccitiello said.
Shares of EA and other video game publishers have struggled over the past year, amid investor pessimism about the direction of the industry.
EA expects to publish roughly 35 traditional packaged games this fiscal year, down sharply from more than 50 last year, and Riccitiello expects that number to fall next year as well.
“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.
Analysts say EA’s prolonged turnaround effort is starting to bear fruit. The company has slashed costs and headcount, and has begun issuing more cautious forecasts.
Investors are eagerly anticipating next year's launch of "Star Wars: The Old Republic," a multiplayer online game that EA hopes will rival Activision Blizzard Inc's ATVI.O "World of Warcraft," which has 12 million subscribers.
EA has kept details about “Star Wars” close to the vest, although analysts say the company is spending in excess of $100 million to develop it.
Riccitiello declined to provide any forecasts for “Star Wars” but said the feedback so far has been “astonishingly positive.”
“Why couldn’t we get 3, 4, 5 million (subscribers)?” Riccitiello said.
The vast majority of EA’s revenue still comes from traditional packaged games, but sales of digital, downloadable and mobile content rose 30 percent last year to $570 million, or about 15 percent of total sales. The company expects to see another 30 percent gain this year, which ends in March 2011.
But when many investors think of digital games, they tend to think of “Farmville” maker Zynga, one of the hottest start-ups to emerge in years. Zynga, a developer of social network games, is growing fast and it is expected to file for an initial public offering in the not too distant future.
Riccitiello dismissed the excitement over Zynga, saying EA’s digital business looked a lot like Zynga’s except “it’s bigger and growing faster and has better IP (intellectual property).”
EA is spending roughly $1 billion on research and development this year, with around half that going to digital games.
EA is the No. 1 game publisher on Apple's AAPL.O App Store, where millions of people are now buying games. EA last year bought social gaming company Playfish in a deal valued at up to $400 million. Earlier this month, the company acquired iPhone game publisher Chillingo.
Riccitiello said Apple's App Store provides a better retail environment than Google's GOOG.O Android Market. He praised the openness of Android but said buying games on Android smartphones was confusing and "not a pleasant experience yet."
“It’s just more work right now,” he said.
Shares of Redwood City, California-based EA rose 1.3 percent on Monday, to close $15.01 on the Nasdaq.
Reporting by Gabriel Madway and Liana B. Baker; Editing by Phil Berlowitz and Steve Orlofsky
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