VIVENDI GAME UNIT SET TO LAY OFF 350 WORKERS.

Byline: Evan Pondel Staff Writer

Vivendi Universal Games will lay off 350 people, about 40 percent of the company's North American work force, as part of a turnaround plan to generate more revenue, the Los Angeles-based video-game maker said Monday.

The gaming unit of Vivendi Universal continues to grapple with losses after reporting a 27 percent decline in first-quarter revenue last month. The lackluster performance is drawing pause from analysts who now question the group's longevity. As a whole, the video-game industry has seen vigorous performance.

``Clearly, there have been some changes at Vivendi,'' said Stewart Halpern, analyst with RBC Capital Markets in New York. ``How well games fit into a corporate structure remains a question.''

As part of the reorganization, Vivendi plans to lay off 170 employees in Los Angeles during the next 60 days. Halpern said many workers have already been lured by neighboring video-game companies, with THQ Inc., Electronic Arts and Activision attractive destinations for the industry's top brass.

``Many of these companies are tending to grow with video games being their core; that's not necessarily the case at Vivendi,'' Halpern said.

Calabasas-based THQ continues to outperform VU Games, posting record revenue in the fourth quarter.

The company, known for video-game renditions of ``SpongeBob SquarePants,'' also reversed a loss in the previous fourth quarter and increased its guidance for 2005. Revenue increased to $123 million, up 84 percent from $64 million in the same period a year ago.

VU Games said its Irvine-based Blizzard Entertainment studio would not be affected by the staff reduction.

The company employs approximately 1,800 people globally, with a substantive presence in Paris, Germany and Singapore. Bruce Hack, VU Games chief executive officer, characterized the job cuts as necessary to improve the unit's ``operating effectiveness and profitability.'' Hack joined VU Games in January.

Looking ahead, VU Games plans to release several titles in the second half of the year, including ``World of Warcraft,'' ``Crash Twinsanity,'' ``Leisure Suit Larry'' and ``The Chronicles of Riddick: Escape From Butcher Bay.'' Despite the relatively varied troupe of releases, analysts are not convinced VU Games will improve its standing.

``The business has been really suffering; they come up with worse numbers every quarter,'' said Michael Nathanson, analyst with Bernstein & Co. in New York. ``They don't seem to have the right game mix.''

That could pose the biggest challenge for VU Games. Instead of focusing on a particular console, VU Games is spread out across a multitude of platforms. And Nathanson said that that, coupled with the company's product cycles, could result in Vivendi eventually parting with VU Games for good.

``They are certainly one step closer to that,'' he said.

Vivendi Universal added 22 cents to close at $26.43 Monday on the New York Stock Exchange.

Evan Pondel, [phone]

evan.pondel(at)dailynews.com