Slow Sales for EA Augurs Tough Times for Video Game Business

Electronic Arts (ERTS), the largest video game maker in the U.S., released new guidance on January 11, and the numbers were awful. EA said that GAAP sales for its fiscal 2010, which ends in March, will be well below its November forecasts. GAAP net revenue is expected to be $3.6 billion to $3.7 billion for fiscal year 2010, as compared with prior guidance of $3.6 billion to $3.9 billion. GAAP diluted loss per share is expected to be in the range of $1.94 to $2.24 for fiscal year 2010, versus prior guidance of $1.20 to $2.05. EA's shares fell 8% after hours, to about $17.

It was only last November that EA said it would cut 10% of its work force, about 1,700 people. The company said it would focus on its most profitable games and bought online social media game company Playfish for $275 million -- a move that may take it away from its traditional distribution channels.

EA is such a large force in video games that its troubles are, to a large extent, also the industry's. Rival video game company Take-Two Interactive (TTWO) also revised its guidance downward last month and it's not likely that sales of Microsoft's (MSFT) Xbox 360 and Sony's (SNE) PS3 were near the high end of analyst expectations for the holiday season if sales of EA's popular games are doing so poorly.

Microsoft and Sony had hoped that cutting the cost of their consoles would lift sales -- a move that did help in October and November. But American consumers, financially exhausted from years of aggressive use of credit, appear to have withdrawn from their love affair with games.

Rabid gamers may have to make due with their old consoles and outdated versions of their favorite games like "Madden" football and "Halo" for a while. The signs are becoming more and more visible that the video game industry will not be recovering any time soon.