Electronic Arts: Layoffs & Lawsuits Tainting the Online Gaming Industry
Electronic Arts (NYSE: EA) has experienced a fair share of issues lately, as the company recently took famously failing gamer Zynga (NASDAQ: ZNGA) to court for copying key elements of "The Sims Social" game. Adding to what has already been a difficult month, EA-owned online gaming company PopCap has announced that a considerable amount of layoffs took place on Tuesday due to the fact that the web-o-sphere has shifted from paid games to free-to-play.
While it is easy to blame Electronic Arts for the layoffs as the company has been struggling in the market this year, PopCap co-founder John Vechey played devil's advocate in a blog post on Tuesday. He described how the choice to let employees go was that of PopCap and PopCap alone, as the online gaming realm is becoming difficult to monetize.
"Free-to-play, social and mobile games have exploded in popularity. That happened fast. Surprisingly so. The change in consumer tastes requires us to reorganize our business and invest in new types of games on new platforms. It's a completely different world from when we started," Vechey noted in his blog post.
PopCap let go of 50 employees in North America on Tuesday, expecting to end the year with the same amount of people it started with in 2012.
Vechey and his team stand behind Electronic Arts, and the reasons for doing so appear far from fictitious. Could it be that Electronic Arts helped to impose layoffs upon PopCap in order to payoff legal fees from its recent courtroom battle with Zynga?
Though this scenario is unlikely, it is not completely unfounded. Electronic Arts has been losing share value steadily over the past year, with the company currently trading down about 34 percent year-to-date. With the added legal costs associated with the Zynga lawsuit, the company has positioned itself for an uphill battle.
What Electronic Arts really needs is a win against Zynga – and according to Business Insider, the company is likely to succeed based on the evidence submitted. Any monetary gain would surely help either struggling company, but would cause harm to the reputation and profit of the other.
As the online gaming community attempts to reboot and generate profits in innovative ways, it appears that lawsuits and layoffs will continue to be obstacles on the way to success.
Electronic Arts closed Tuesday at $13.56, down almost 30 percent year-over-year. The company was down an additional .37 percent in pre-market trading.
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