Electronic Arts Fizzles Out

Updated from May 3

Times have been tough for the video-game industry of late.

Electronic Arts (ERTS Quote - Cramer on ERTS - Stock Picks), the leading game publisher, predicted on Wednesday that things aren't going to improve anytime soon.

Indeed, the company said earnings for the fiscal year it just began would fall for the third straight year and come in far below analysts' expectations. The company's outlook is only the latest sign that what was supposed to be a relatively smooth transition to new game technology is proving to be anything but.

The problem EA and other publishers face is not only that it is far more complex and costly to develop games for the new systems, such as Microsoft's(MSFT Quote - Cramer on MSFT - Stock Picks) Xbox 360, than for the previous technology. Making matters worse, the business as a whole is becoming much more complicated, said EA CFO Warren Jenson in an interview with TheStreet.com.

Online games, games for cell phones and handheld systems, and global markets are each becoming important parts of the overall business, requiring increased investment and resources from companies such as EA that are already trying to ramp up production of games for the new consoles, he said.

Compared with past transitions, navigating this one has "become exponentially more difficult," Jenson said.

EA is investing in the future, and some of those investments, particularly in games for handhelds and mobile phones, are already paying off, he said.

But the ongoing transition troubles were evident even in this past quarter, a period for which EA's results surpassed the Street's expectations. Despite year-over-year sales gains, the company's bottom line swung from a profit to a loss. Weighing heavily on the company's results: charges related to a recent restructuring taken in response to the changing market and amortization costs related to the acquisition of Jamdat, a move EA made to become a major player in the market for mobile phone-based games.

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