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At the same time, to further expand its market and get in early on new devices, EA is also investing heavily in developing games for new platforms, such as Sony’s PlayStation Portable (PSP) and Nintendo’s DS (dual screen).

“The console transition has something to do with [the financials],” admits Jeff Brown, EA’s vice president for corporate communications. “We have four completely new pieces of technology [including the recent Sony PSP], which have limited bases for now, with almost no revenue coming off those developments.”

But Brown also thinks the fruits of these efforts will “kick in” when the new platforms come to market. And he believes there’s still a committed base of video game aficionados “who are not going to just quit buying video games” until new consoles are released.

What’s more, even financially, the news isn’t all bad for EA. Its net revenue for fiscal 2005, which also ended in March, was up 6 percent from the previous year, to $3.1 billion. And the company has expanded its game titles that sell more than a million units in a year from 27 to 31. In fact, the company has a half-dozen consistently solid franchises – including The Sims, Need for Speed, and Madden NFL Football – that sell more than five million units a year.

David Cole, president of San Diego-based research firm DFC Intelligence, which follows the gaming industry, says he “wasn’t really surprised” at EA’s disappointing financials, given the runup on its highly valued stock in January and expectations that the company was going to do poorly in the previous quarter.

In spite of its standing as the premier maker of sports video games, with its hugely popular Madden football and Federation Internationale de Football Association (FIFA) soccer franchises, EA got blind-sided by rival Take2 Interactive, which began offering its own line of much cheaper ESPN-branded sports games last year. 

This value-priced alternative forced EA to slash prices on its own Madden game, and, according to Cole, forced EA to take a defensive position, spending an estimated $200 million in December to seal an exclusive five-year deal with the National Football League and another $790 million on a 15-year exclusive arrangement with ESPN, effectively locking out the Take2 Interactive competition.

Outside its lucrative sports franchises, EA sorely underestimated smaller game developers that rolled out a number of highly competitive offerings, notably, Halo 2, Grand Theft Auto: San Andreas, and Half-Life 2. Even Brown admits that over the big holiday season at the end of last year “we faced a murderers’ row of great products…in 22 years, EA has never seen competition from so many quality games.”

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