Sony Online Entertainment, the one-time leader in the online gaming space, has been scaled back significantly.
The company has closed three development studios and laid off 205 of its roughly 700 employees amid growing competition in the space and the increasing number of alternate gaming platforms, such as the iPhone and Facebook.
The Denver, Seattle and Tucson studios will be closed.
"This strategic decision will have no impact on SOE's current portfolio of live games," the company said in a statement. "This strategic alignment of development resources better positions SOE to remain a global leader in online gaming and deliver on its promise of creating entertaining games for players of all ages, and servicing the 20 million players that visited SOE servers in just the past year."
Analysts say they were not tremendously surprised by the action.
"Sony is not making a lot of money as a company and they need to cut where they can," says Michael Pachter of Wedbush Securities. "I was surprised to learn [SOE] had 700 employees [prior to today]. ... They probably built out more than Japanese management believed was sustainable."
The move will result in the cancellation of one title-"The Agency," a massively multiplayer online (MMO) action game that has been in development at SOE for over six years. The company says it plans to instead focus resources on two new MMOs based on its "PlanetSide" and "EverQuest" franchises.
SOE wasn't the first company to launch an MMO (also known as persistent worlds). However, it was "EverQuest" that really put the genre on the map-and showed other publishers that players were willing to pay subscription fees of $15 per month for extended periods in an ever-changing game world.
These days, "EverQuest" still has an active player base, but it is dwarfed by the 12 million-plus players of Activision-Blizzard's "World of Warcraft". Electronic Arts, meanwhile, is in late development of a "Star Wars"-themed MMO, which is expected to be released late this year.
The company has high hopes for its next installment of the franchise, though.
"It's too soon to talk about," said SOE president John Smedley in an interview that took place before today's announcement. "When we do, I will say what we intent to show is not an evolutionary product. It's a revolutionary product. Its going to change the way we think about how MMO games are played. ... There will be a lot more information out before the end of the year."
SOE recently released one of the few cross-platform MMO games-"DC Universe Online," an action game set in the comic book world of Batman, Superman and other characters from DC Comics. Players are able to interact, regardless of whether they were playing the game via their PlayStation 3 or PC.
The game was expensive to create, though. Smedley says the division spent $60 million to create "DC Universe Online".
"These games are not cheap to make," he said.
SOE also recently took its free-play game "Free Realms" cross-platform as well, bringing the title to the PS3. "Free Realms" doesn't carry a mandatory monthly subscription fee like most MMOs, generating money instead via in-game microtransactions (small purchases made by players for in-game items). There are optional memberships available as well, which give players access to member-only quests, jobs, and items.
While it has not announced any projects for Sony's upcoming next-generation handheld gaming device, Smedley says SOE has been looking at the device. And the company has also been experimenting with other platforms, including Facebook, where it has struggled against larger social network gaming companies.
"It's not a super profitable segment for us," he said. "It's challenging, to be blunt. And we're trying to learn from that. ... Zynga seems to get a pass on the rules that are there now."