Will EA Lead a Games Industry Deflation?

By  |  Monday, November 9, 2009 at 4:12 pm

ea_logoElectronic Arts shared some good news and bad news today. First, the company acquired Facebook game maker Playfish for up to $400 million, but then EA announced that it will lay off 1,500 employees and close some of its game development studios.

VentureBeat’s Dean Takahashi has a good summary of today’s events, if you’re into the business side of things, but what’s really interesting is the way that EA is scooping out a significant chunk of the company.

Think of EA as a gigantic tower of game publishing. At the top are your high-budget, high-sales franchises, such Madden football, FIFA soccer, Need for Speed, Rock Band, Mass Effect and Left 4 Dead 2. At the bottom are EA’s smaller-scale ventures, such as mobile games and now social networking games from Playfish. The higher up the tower you go, the higher the production values, and the bigger the risk if the game tanks.

EA is essentially chopping off the middle part of the tower. Chief executive John Riccitiello said the company will now invest more in high-priority games (the stuff at the top) and digital businesses (the stuff at the bottom). Smart move, I think.

As I’ve written before, the games industry is facing a crisis now, and not just because of the recession. The cost of game development is spiraling exponentially upwards, leaving less room than ever for error. This is not a sustainable strategy, especially for B-list video games, because a gamer could easily limit his or her $60 game purchases to the best dozen titles of the year and still be perfectly happy.

The way down from this endless spiral is to focus on smaller-scale gaming. One way to do this is with cheaper, simpler downloadable games, such as the Xbox 360 hit Shadow Complex. EA, meanwhile, is muscling up in the mobile and social space. All these strategies are good antidotes for out-of-control game development costs.

So while it pains me to see that 1,500 people will lose their jobs, it had to happen this way.

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