• BusinessWeek , Thursday, May 10, 2007 10:15 AM

The video game industry is in the midst of what you might call re-growing pains, as investors wait for the latest round of next-generation game consoles to take hold with consumers. Knowing this, Wall Street was pleasantly surprised to see that Electronic Arts, the world's largest video game publisher, posted a better-than-expected net loss of 56 percent from the first quarter of 2006. EA posted net income of $613 million, higher than the $586.97 million forecast by analysts from Thomson Financial. As a result, the company's shares closed up 3 percent to $52.94 on the Nasdaq.

Just because the next-gen console cycle hasn't hit its stride yet doesn't mean the sailing is smooth over at EA. During the earnings call, one of the glaring thorns in the side of the big publisher was exposed: the company's failure to grow its pitiful share of the lucrative Asian market. EA relies mostly on annual sequels to its popular sports titles, including the John Madden football series, FIFA soccer, and the "Need for Speed" racing series. In the first quarter, 53 percent of the company's sales came from North America, 41 percent from Europe, and just 6 percent came from Asia.

Meanwhile, EA sold a negligible amount of titles for the next-gen systems; a third of its revenue came from titles sold on the seven-year old PlayStation 2, while about a fifth came from Microsoft's Xbox and Xbox 360. In its earnings call, the company CEO pointed out its need to expand more aggressively into online and mobile gaming.

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