Stark Contrasts

His job is complicated by the rapid change which the industry as a whole has undergone in the past five years. EA's traditional markets - movie tie-ins for kids and downstream consumers, sports licences and driving games for a young male audience, a handful of core franchises for high-end consoles - remain perfectly valid and profitable, but the environment around the company has expanded greatly beyond those borders. Tens of millions of new consumers have embraced the Wii and the DS. The iPhone has turned mobile gaming from a struggling niche to a powerful, visible market. World of Warcraft has demonstrated the potential of MMO services. Sites like Facebook drive millions upon millions of consumers to new gaming experiences every day.

It's in this context that the second of this week's big EA announcements must be read. Not only has the company chosen to restructure 1500 jobs out of existence, thus saving some $100 million (which comes on top of a previous 1100 layoffs, meaning that Riccitiello has now slashed EA's headcount by almost a quarter since his arrival), it has also announced that it will pay $275 million for casual online games firm Playfish.

On the face of it, this looks like a straightforward corporate U-turn - EA backing out of traditional console games and throwing its weight behind downstream online games. It would be fairer, however, to describe it as a move to diversify a company which has fallen behind the curve of the rest of the industry.

After all, EA can hardly be said to be abandoning upstream gaming. When Riccitiello joined, he effectively brought with him BioWare and Pandemic, two of the most respected "core" game studios in the world, and has been as good as his word in ensuring that EA's bloated management structure did not taint the new acquisitions. A new internal structure has given studios the independence and confidence to turn out critically acclaimed, new-IP titles such as Dead Space and Mirror's Edge. It's no coincidence that the talk of EA acquiring Ubisoft - rumours which for over a year insisted that the hands of the acquisition clock read two minutes to midnight - has evaporated. Under Riccitiello, EA has discovered an ability to create upstream IP which is competitive with that of its French rival.

The money, however, has not followed. Turnover is up, but operating profit is not. Having nurtured green shoots within the company, Riccitiello is now forced to cut away the firm's less profitable parts - and to focus some of its energies on the downstream sector, where rapid development times and low costs encourage risk-taking, and occasional blockbusters provide ample reward and profitability.

In this much, history may find Riccitiello to be a wiser man than his rivals at other publishers. EA will look with green, jealous eyes at Modern Warfare 2's success this week - especially given the undoubtedly depressing atmosphere at the company in the wake of the restructuring announcements. In years to come, however, Riccitiello's focus on diversifying EA's base while building up its ability to generate self-owned franchises stands to pay dividends.

The emergence of new markets and business models will not necessarily cannibalise the existing upstream market, of course, and publishers will reap profits from core gamers for years to come - but what Riccitiello has seen, and his rivals would do well to note, is that these developments do signal a time when the growth of "core" games will slow, and publishers wishing to expand will need to break into new markets and business models in order to do so. When that time comes, they may well find that EA is already there.