The Learning Company said Friday it will fire 500 employees at recently acquired Broderbund to cut costs and consolidate Broderbund's resources.
The Learning Company, which publishes educational software like Reader Rabbit and Princeton Review, said it will take a US$15 million restructuring charge for the quarter to cover the cost of the job cuts. The firings at Broderbund, which has produced classics like Carmen Sandiego and Myst, will save The Learning Company more than $50 million a year.
"This was part of the original plan when we bought the company," said R. Scott Murray, The Learning Company's chief financial officer. "The business had too much infrastructure. Part of the success of this transaction is to cut costs. The only way to do that is to reduce headcount."
The firings will be at Broderbund's Petaluma, California, facility, which will close in mid-November, and at its headquarters in nearby Novato, the company said.
The Learning Company paid $330 million in June to buy Broderbund. The transaction was completed Monday.
Although Broderbund has some of the best-selling videogame titles ever, the company's profits have lagged for the past year because of heavy competition and collapsing prices. Broderbund's distribution could not compete with the likes of Microsoft (MSFT) and Electronic Arts (ERTS).
Broderbund had a net loss of $2 million on $52.4 million in revenues in the quarter ended 31 May.
"This is why [The Learning Company] is successful and Broderbund wasn't," said Steven Frankel, analyst at Adams Harkness. "The days of the artist are gone. It's about marketing, shelf space, and making money." The Learning Company "bought Broderbund for the brand, not for the people."
The Learning Company will increase distribution in all channels -- retail, school, direct response, OEM, and international. It will also work with key retailers like BestBuy, Walmart, and CompUSA to try and revive Broderbund, said Murray. Broderbund plans to release new software based on Rugrats -- the popular kids show on Nickelodeon -- next week, and The Learning Company will release over 50 new titles this quarter, said Murray.
On Monday, The Learning Company announced the start of a "Broderbund is Back" campaign.
The Learning Company stock was up $1.12 at $20.75 in early afternoon trading.
