Electronic Arts Inc slashed its fiscal 2010 forecast on weak holiday sales in Europe and a shift to its lower-margin distribution business, sending shares of the video game publisher down 8% in after-hours trading.

The publisher of "Madden NFL" and "Need for Speed" said industry packaged software sales in Europe were down as much as 15% in some countries, much worse than expected.

At the same time, EA said it generated around $75 million more than planned in revenue from titles it distributes but does not own, such as "Left 4 Dead 2" and "The Beatles: Rock Band." It earns thinner margins on those sales.

The lower forecast was the latest bad news for EA, which had a tough 2009 and cut jobs amid an industry-wide sales slump.

"That's a pretty bad miss," said Wedbush Morgan analyst Michael Pachter. "These results are bad enough and they've been going on consistently enough that somebody needs to be blamed for it."

Chief Executive John Riccitiello maintained that the company is executing on the right strategy.

For calendar 2010, EA expects industry packaged game sales to be flat to down mid-single digits.

"What we've described as a two-year comeback is clearly taking longer," Riccitiello said on a conference call.

Signal Hill Group analyst Todd Greenwald said EA's long-term investors are frustrated. He said the company clearly recognizes the shift to digital (distribution) that's underway, but has not done a good job of managing expectations.

"They just don't have the frontline title out there that they own," Greenwald said.

EA on Monday forecast earnings for the year ending March 31 of 40 cents to 55 cents a share on non-GAAP revenue of $4.13 billion to $4.2 billion. The earnings exclude charges and other special items.

That is a drop from its previous forecast of 70 cents to $1 a share on revenue of $4.2 billion to $4.4 billion.

For the quarter that ended on Dec. 31, EA expects earnings excluding items of 29 cents to 33 cents a share on non-GAAP revenue of $1.33 billion to $1.35 billion. Wall Street expected earnings of 56 cents a share on revenue of $1.42 billion.
The company forecast mon-GAAP gross profit margin of 51% to 52% for the quarter, due to the larger-than-expected contribution from the distribution business.

EA has been cutting costs and paring its game catalog as it seeks to adapt to the changing game market. It publishes more than 50 titles and has said it plans to cut that to about 40 next fiscal year to focus on quality games.

Last November, EA posted a wider quarterly loss and said it would cut about 1,500 jobs, or about 17% of its workforce.

The video game industry as a whole just wrapped up a difficult year. Year to date through the end of November, software sales in the United States were down 10.8%, according to NPD.

EA shares are up around 3% from a year ago, while those of rival Activision Blizzard Inc have risen more than 15%.

The shares of Redwood City, California-based EA closed at $18.27 on the Nasdaq and fell to $16.84 in extended trading.