Electronic Arts Inc. (EA) CEO Steps Down, What’s Next?

It is becoming ever clearer that the traditional gaming industry is in turmoil. Whacked by piracy and a shift towards mobile and social gaming, gaming companies are under increasing pressure to keep up or go bust. The news of Electronic Arts Inc. (NASDAQ:EA) CEO John Riccitiello’s resignation underscores this point, and raises questions about the future of the industry. EA is one of the world’s largest game publishers, and as such can be regarded as an industry bellwether. The company owns a number of popular gaming franchises, including The Sims, FIFA, Medal of Honor, and Madden. What’s in store for this gaming giant and its industry?

CEO Resignation

John Riccitiello announced his resignation on Monday, after having headed the company since 2007. The news was cheered by investors, who sent the stock up over $20 in after-hours trading. The news comes amid reports of slowing sales across the gaming industry, which is trying to reinvent itself and embrace changing technologies and consumer preferences. Riccitiello has taken full responsibility for Electronic Arts Inc. (NASDAQ:EA)’s disappointing performance recently, stating the following in a blog post: “My decision to leave EA is really all about my accountability for the shortcomings in our financial results this year.” Chairman Larry Probst will be leading the company during the search for a new CEO.

The catalyst, or perhaps the final straw, leading to the decision involved the fiscal 2013 sales forecast and the current Q4 results. Versus a projected 4.3 billion sales figure, the company now expects sales of $3.78 billion or less. Regarding Q4, the company warned yesterday that its results may fall short of the previously issued and already lowered forecast of earnings between $0.57 and $0.72. According to Bloomberg data, Electronic Arts Inc. (NASDAQ:EA) posted net losses excluding items in four of the five past fiscal years. Lately, the company has been plagued by a series of badly executed moves, including the fumbled SimCity release, and poor reviews for its latest edition of the Medal of Honor series.

Paradigm Shift

The challenge that gaming companies now face is to make the switch from packaged games, which have traditionally accounted for the bulk of sales, to online content, which can be downloaded on tablets and mobile phones. Another trend is the switch towards a more social form of gaming, which Activision Blizzard, Inc. (NASDAQ:ATVI) has been able to capitalize on with its wildly popular and severely addictive World of Warcraft game–although the company is facing the same problems as Electronic Arts Inc. (NASDAQ:EA) in terms of users switching to free online content.