EA, Activision lower forecast

FROM VARIETY: While Midway announces layoffs

By Ben Fritz -- Video Business, 12/21/2005

DEC. 21 | Santa is delivering a lump of coal to the videogame business.

Industry biggie Electronic Arts warned Tuesday that its holiday-quarter sales will decline by as much as a "mid-teens percentage" from the low end of guidance. Also on Tuesday, midsized publisher Midway Games, owned by Sumner Redstone, announced it is laying off 8% to 11% of its workforce.

The moves come a week after Activision, one of the top publishers behind EA, also cut its guidance.

Industryites are blaming the shortfall in part on slower-than-expected sales of Microsoft's new Xbox 360 console and Sony's PSP handheld videogame player.

But they're also admitting gamers are simply not as interested in 2005's titles. "The lineup of products this year is arguably not as compelling," said EA topper Larry Probst.

Last year, videogame publishers benefited from several hit games, most notably Halo 2 and Grand Theft Auto: San Andreas. But this year hasn't brought sequels to most of the industry's top properties and hasn't seen many original hits.

In addition, Probst said sales of the Xbox 360 and PSP have been softer than EA anticipated. Publishers rely on hardware sales to drive interest in games.

The Xbox 360 has largely sold out across North America, but publishers expected Microsoft to ship more units.

Overall, videogame sales in October and November have been off about 20% compared with 2004, according to the NPD Group. Industry sources say December sales are already tracking well below both last year and recent expectations.

Many believe consumers are holding off on buying games until they can get their hands on an Xbox 360 before Sony's PlayStation 3 and Nintendo's Revolution hit the market in the middle of next year.

Videogame sales always slow down somewhat as the launch of consoles approaches, but this year's drop has been much sharper than expected.

"The demand curve has shifted abruptly," observed EA chief financial officer Warren Jenson.

Midway said Tuesday it will lay off between 71 and 96 employees, incurring charges of $13 million.

The Redstone-controlled company didn't give a specific reason beyond reducing costs, but broader industry slowdown is likely affecting it as well.

Shares in EA were down 3.6% at $51.20 in after-hours trading following the warning.

Midway stock fell 5% Tuesday to $20.97 after layoffs were revealed.

Activision stock fell 8% last Thursday after the publisher warned it would miss its guidance.