The cost of doing business in Vancouver has proved too much for Electronic Arts Inc. (NASDAQ: ERTS). The struggling video game maker has announced that it's pulling the plug on its downtown Black Box studio and reducing its global workforce by 10%, or approximately 1,000 people.
Black Box has a staff of roughly 400.
The announcement confirmed what sources had been indicating for days leading up to the news. EA had announced in October that it planned to cut staff by 6%.
The company's restructuring also calls for consolidating or closing at least nine studios and publishing locations. EA expects annual cost savings of US$120 million and restructuring charges of between US$55 million and US$65 million over the next several quarters.
According to EA, the Black Box development teams and associated game franchises will move to the Electronic Arts Canada campus in Burnaby.
EA spokesman Colin Macrae declined to speculate on whether all Black Box staff would make the move, which the company hopes to complete by mid-2009.
He added that EA's 500,000-square-foot Burnaby studio was expanded in 2006.
Macrae said the decision to consolidate Black Box results in part from the high cost of doing business in B.C.
"If Vancouver was previously considered a lower cost market to operate in, certainly that has changed over the years. Based on the cost of living, the real estate costs and the competition for talent that comes along with the growth of the industry, we've got an imperative to get our costs in line."
He contrasted the city's high cost of living and expensive real estate with Montreal, where EA's studio has grown to employ more than 600 people.
"You look at the costs of doing business in the Montreal market plus the very positive incentives that the provincial government has put in place to incent the games industry to grow and continue investing. Our investment in Montreal is a byproduct of that."
EA said it will be "implementing a plan to narrow its product portfolio to focus on hit games with higher margin opportunities."
Macrae could not confirm whether that meant the cancellation of titles or provide an update on the status of locally produced games such as Need for Speed.
Earlier this fall, Electronic Arts said it would not occupy a new 20,000-square-foot studio it had planned for Yaletown. The decision was made in the face of slow holiday sales blamed on the global economic downturn.
On December 9, EA announced it expected net revenue and earnings per share for fiscal 2009 to be below the financial guidance provided October 30.
"The revised expectations are primarily the result of lower than expected sales across North America and Europe," it said. "The company does not expect to provide updated financial guidance for fiscal 2009 prior to reporting its third quarter results in early February 2009."
"While we saw significant improvement in the overall quality of our key products this year, we're disappointed that our holiday slate is not meeting our sales expectations," said CEO John Riccitiello "Given this performance and the uncertain economic environment, we're taking steps to reduce our cost structure and improve the profitability of our business."
Andrew Petrozzi ([email protected]).