Another Reason for Gamers to Worry

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Electronic Arts (NAS: EA) is in the game -- but it may be a game of denial.

The country's second-largest video game company moved to squash rumors that it was in the process of laying off between 500 and 1,000 employees yesterday.

"We're growing and we're looking to hire hundreds of people for our digital, console, mobile and social games," a company spokesman is telling Reuters, eventually pointing out that EA expects to grow its overall head count this year.


However, the subsequent edits to the original Reuters article -- where claims that EA "denies" the layoff chatter was changed to "dismisses" and a reference to "restructuring" at EA was corrected to "reshuffling" -- are just as telling.

If EA is "reshuffling" its workforce, it's a sign that traditional games aren't panning out the way the industry -- after three rough years -- was hoping.

Of course EA wants more skin in mobile and social. It's a booming market, and even market leader Zynga (NAS: ZNGA) has indicated that it plans to continue making strategic acquisitions after last month's pricey deal for OMGPOP. When Vringo (ASE: VRNG) -- a tiny social app developer with a mere $718,000 in profitless revenue last year -- has seen its stock more than quadruple this year, the speculative fervor and rich valuations are going to be hard to resist.

Whether EA is "reshuffling" or not, many of the faces of traditional gaming are taking steps back.

Larger rival Activision Blizzard (NAS: ATVI) laid off 600 of its employees at Blizzard Entertainment as the company copes with a consistent decline in WorldofWarcraft players. GameStop (NYS: GME) plans to close 50 more stores than it opens this year.

EA and GameStop have been aggressively fortifying their digital initiatives, but it remains to be seen if the low prices and flimsy moats of the app realm will ever translate into the material profitability that the companies feasted on in the past.

Euphemisms and spin aside, the video game industry isn't getting any better.

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At the time this article was published The Motley Fool owns shares of GameStop. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard. Motley Fool newsletter services have also recommended writing covered calls on GameStop and creating a synthetic long position in Activision Blizzard. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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