Vidgame victorious

Electronic Arts sees huge earnings increases

Vidgame giant Electronic Arts reported whopping increases in earnings as it wrapped up a record fiscal year March 31 with a 44% rise in annual net revenues to almost $2.5 billion and a 212% jump in net income to $317 million. The totals make the company far and away the world’s biggest seller of such games.

The sterling numbers were fueled by EA’s 22 million-selling titles, including such Hollywood-spawned franchises as “Harry Potter,” “The Lord of the Rings: The Two Towers,” “Medal of Honor” and the James Bond actioner “Nightfire.” Potter titles sold more than 10 million units, “Nightfire” more than 5 million copies, the company said.

“We’re not just a growth company,” said chief financial and administrative officer Warren Jenson. “We’re a growth company that generated a lot of cash and an excellent rate of return.”

Overall, there was little to complain about for EA, whose $2.48 billion in revenues is triple that of its closest competitor. Gross margins hit 57%. The company finished the year with about $1.6 billion in cash, an ample kitty should it choose to make any of several rumored acquisitions in coming months.

“The company achieved all of its key objectives, and we are the leader on next-generation consoles and on the PC,” said chairman and CEO Larry Probst. “We enter our next fiscal year in great shape and with the strongest product line in our history.”

The only dent in the golden glint came from EA’s online missteps.

EA.com, which EA had announced in March would be consolidated back into the parent company as of April 1, eroded the overall profit numbers with asset impairment and restructuring charges that battered fourth-quarter results. Those charges chopped fourth-quarter net income by $50 million after taxes, leading to a quarterly drop in that metric of about 80%, from $47 million in 2002 to $9 million in 2003. “With EA.com, in fairness, we had a miss,” Jenson said, “and ‘The Sims Online’ is not where we want it to be.”

The online version of “The Sims,” the biggest-selling title in PC history, was released in November in a welter of mainstream press publicity and high hopes that it would draw a new audience willing to pay for subscription online games. EA execs have since acknowledged privately that they released the game before it was ready and have been working since to shore up gameplay problems, reduce costs and continue to build and stabilize the subscriber base.

EA prexy and chief operating officer John S. Riccitiello said the company is still trying to divine what combination of product and business model will work online as it continues to experiment with many approaches. While it’s clear that online distribution will be a vital long-term part of the game business, it’s less clear what will pay off over the next couple of years.

During that uncertain period, Riccitiello said, the company “will keep our investment modest, continue to push (online properties) and get behind those things that work. This (online games) is a very large hobby for the game companies.”

Jenson said “The Sims Online” currently has about 100,000 subscribers, up from 82,000 in its first incomplete quarter of release, with subscriber churn, or turnover, of 20% to 25%. The company hopes to grow that number to 125,000 by year’s end.

The fourth quarter’s total revenues were down 1%, to $463 million, which Jenson blamed on the timing of releases. Last year, EA put out 20 titles in the quarter, this year just 12.

The company also incurred modest restructuring charges as it closed studios in Irvine and Las Vegas, consolidating those operations in Los Angeles as part of a broader plan to create a 500-worker “mega-studio” that will house development teams for the James Bond, Lord of the Rings, Medal of Honor and other big franchises.

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