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Vancouver's world-renowned video game development community is shrinking even more.

Electronic Arts Inc. dealt another blow to the game industry in British Columbia Friday when it announced plans to shutter its famous Black Box development studio in downtown Vancouver and increase the number of layoffs as part of the company's global restructuring.

EA's Black Box studio operations and development teams will be relocated to its suburban Burnaby campus, which plays host to sister studio EA Canada.

The announcement comes just one week after the video game publisher, based in Redwood City, Calif., said it was shelving plans to open a new, 20,000-square-foot facility in Vancouver's trendy Yaletown district due to slow holiday sales in Europe and North America as a result of the sagging global economy.

Although EA said the studio consolidations and layoffs will produce annual savings of about $120-million (U.S.), analysts worry that it might not be enough to revitalize the sputtering game producer as it battles rising costs and skittish consumers. "EA needs to stop investing in things that are speculative and don't have a proven business model," said Michael Pachter, a financial analyst for Wedbush Morgan Securities who tracks the video game industry.

EA's heavy investment in what are known as mid-session games - titles the studio distributes free in the hope that players will purchase upgrades such as new levels and in-game items - and its burgeoning cellphone game business are distracting the company from its core business and pushing up costs, even as consumer spending is waning, he said.

"We have to look at ways of being more efficient, look at ways of trimming from our cost structure," said EA spokesman Colin Macrae. "It was a tough decision, but it's the right decision for the company and our employees."

Although B.C. was long considered to be the centre of Canadian video game production, the province has slowly ceded that title to Quebec, where game companies enjoy hefty tax breaks and wage incentives to set up shop in Montreal and Quebec City. EA's Montreal studio now houses about 600 employees.

"Vancouver, while it may have been in the past regarded as a lower-cost place to operate, that's really not the case any more," Mr. Macrae said.

Vancouver Mayor Gregor Robertson said it's not surprising that EA would decide to consolidate its British Columbia operations in light of the current economic uncertainty.

"It's tough no matter what industry you're in, and it's particularly concerning to see new media get hit," he said in an e-mail to The Globe and Mail. "These are jobs that are bringing talent and creativity to Vancouver - jobs that we need to be retaining and expanding."

Mr. Robertson said he would support the province if it were to increase tax credits for the new media and video game industries.

"I'd like to see it on the province's agenda as a strategy to stabilize the economy in turbulent times," he said.

Also Friday, EA said it would increase the number of jobs it plans to trim in 2009. In October, the company said it was cutting 6 per cent of its employee base; yesterday, it raised that number to 10 per cent, or about 1,000 people. The company is also cutting the number of titles it plans to release in 2010, but didn't give further information.

EA said it expects the majority of the restructuring to be completed by the end of March, 2009.

The Black Box studio is responsible for the popular Need for Speed car racing games and EA's new Skate franchise.

Electronic Arts (ERTS)

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