Electronic Arts: Lost in an Alien Landscape

John Riccitiello saw the crisis coming. In August 2007, soon after becoming CEO of video game maker Electronic Arts (ERTS), he gathered 160 lieutenants in New York and warned them that the $20 billion industry was headed for trouble. The major players were clinging to the model of selling shrink-wrapped games for $60 a pop, while users were turning to far cheaper online games. Only by "jumping into the abyss," he said, and radically changing itself could EA survive the looming shakeout.

The abyss proved to be deep. EA has lost money for 11 straight quarters since Riccitiello became CEO, and the stock is off 68% over the same period. The company has come up with lower-priced online games, but users have continued to flock to cheaper or free alternatives from upstart rivals. EA stunned Wall Street in January by slashing its outlook for the fiscal year ending in March, then again on Feb. 8 by providing a fiscal 2011 outlook that trailed some analysts' expectations. The company now expects to lose $197 million to $295 million for fiscal 2011 on sales of $3.45 billion to $3.7 billion, under standard accounting practices. "Management's credibility is nonexistent right now," says Patrick E. Becker Jr., chief investment officer of Portland (Ore.)-based Becker Capital Management, which holds about 1 million shares. (EA prefers to use nonstandard accounting that excludes certain charges, under which it expects to earn $165 million to $231 million for fiscal 2011.)