Typically at this point in the hardware cycle, he said, the cost of developing new videogames would lead to a loss. But in a conference call with investors yesterday, Riccitiello said revenue from digital content will keep EA profitable.

“In the face of, unfortunately, somewhat of a headwind relative to console, we’re getting top line growth, robust digital growth, robust margin expansion, robust EPS growth, while affording the investment in the next-gen console. I don’t think, going back to our foundation in ’82, that’s ever happened before. So what we are guiding for is entirely unprecedented, and it’s a function of everything we’ve been saying on the call so far. … It’s our hope to be able to accelerate top line through a transition and accelerate bottom line growth through a transition because we won’t be facing sort of negative console compares.”

Nintendo expects to release the Wii U later this year, which will require new games that tap into both the TV and a touchscreen device. Neither Microsoft or Sony have unveiled plans for their respective next-generation hardware systems, the Xbox and PlayStation. Riccitiello did not mention the new consoles by name, and instead referred any direct questions about hardware to Sony, Microsoft and Nintendo.

“We intend to invest $80 million in Gen4 console development in fiscal ’13. We are strong believers that console will return to strong growth, and represent a great opportunity — one that is in lockstep with our digital plans.”

In fiscal 2012, EA generated $1.2 billion in digital revenues, representing a 47 percent increase year over year. In the past six months alone, FIFA 12 — one of the company’s traditional packaged good titles — was able to break $100 million in digital revenues for the first time. This year, it’s predicting digital revenues of $1.7 billion, representing 40 percent of the company’s overall business.

Even though Riccitiello painted a positive outlook, he failed to turn to the tide.

Along with a broader market meltdown, the company’s stock fell 65 cents, or 4.3 percent, at $14.48 a share. At that price, the company’s stock is off more than 40 percent from its 52-week high of $26.13 a share.

During the call, Riccitiello also tried to stress that while Star Wars: The Old Republic is an important title for the company, it is getting an unfair amount of attention by analysts. In the quarter, he said the number of subscribers fell to 1.3 million from 1.7 million when the game launched.

“So while I understand there’s an enormous amount of interest, I don’t know that it warrants as much as what we’re seeing right now,” he said, according to a SeekingAlpha transcript.

The final highlight from the call was when Riccitiello questioned how much Zynga paid for OMGPOP and its hit title Draw Something, which was No. 1 for a short period of time. He didn’t actually name the two companies, but it was implied.

“Right now, what I’m starting to see is valuation expectations that assume that these things are all hockey stick moving up and to the right with no end in sight, and I think those are bad assumptions,” he said. “Some of them will work, some of them won’t, but they can’t all be worth the multiple that I’m seeing in the market right now.”

Chirpify is announcing today that it has raised $1.3 million in capital to build a payment platform on top of the popular microblogging service.

Investors in the round include Voyager Capital of Seattle and other angels, including Seattle’s Geoff Entress, BuddyTV CEO Andy Liu, former Facebook executive Rudy Gadre, HootSuite CEO Ryan Holmes and TiE Oregon Angels.

In addition to announcing the funding, the Portland, Ore., company said it is rolling out a payment platform specifically for digital content, where musicians can sell songs and concert tickets on Twitter.

“Twitter is a tremendous platform for brands, retailers, politicians, musicians and others to engage fans, yet with more than 140 million users there’s still no way to directly exchange goods and currency,” said Ryan Holmes, who invested in the round.

Here’s how Chirpify’s new digital content service will work:

Artists upload content to their to Chirpify dashboard, and then tweet out a message. Consumers then use Chirpify to link their PayPal account to their Twitter account. To buy a song, users would only have to reply to a tweet, saying that they are interested.

Chirpify then sends a message back with a link to the download.

The experience seems a little clunky because of the additional steps a consumer would have to take to link their PayPal account to the Twitter service. But if merchants provide enough compelling content for sale, it’s possible that consumers will adopt it.

The platform works similarly for other merchants and nonprofits, where messages are sent back and forth between the merchant and the consumer. Chirpify is free, and charges a 4 percent commission rate on each sale.

The company was founded by Chirpify CEO Chris Teso last year. Before Chirpify, Teso founded theGOOD, and has been a creative director at several advertising agencies.

As SVP of Worldwide Digital Media, Kessel oversees the company’s digital strategy, including books, music, video and the Kindle.

“After incredible success leading the Kindle team over the last several years, Steve Kessel decided to take a well-deserved and long-planned-for sabbatical,” said Amazon spokesman Drew Herdener.

Herdener declined to say when Kessel would return, but said that, in the meantime, Dave Limp, who runs the Kindle device business, and Russ Grandinetti, who runs Kindle content, were overseeing the digital business.

Kessel’s absence follows the launch of the Kindle Fire tablet late last year, and comes at a time when Amazon is aggressively pushing into digital content. Just today, founder and CEO Jeff Bezos sent a letter to shareholders, emphasizing how the Kindle is disrupting the book publishing industry.

Some sources I talked to believed that Kessel, 46, was unlikely to return to Amazon and were characterizing his departure as early retirement. Another source pointed to internal documents, which listed Kessel as overseeing Donald Katz, the CEO of Audible, the company’s audiobooks group. However, Amazon’s investor page continues to list Kessel as the SVP of Worldwide digital media, and Herdener said Kessel is not retiring and is not in charge of Audible.

As one of 10 executives who report directly to Bezos, Kessel has worked closely with the visionary founder since 1999. Initially, he served as the VP of U.S. Books, Music, Video and DVD, and then was the VP of digital before landing in his current role.

According to a BusinessWeek article, it was Kessel who conspired with Bezos in 2004 to explore the radical idea of the online retailer making their own hardware.

Over the years, Kessel has been quoted occasionally in press releases, providing updates on how well the Kindle is selling. In October 2010, he said: “It’s still October and we’ve already sold more Kindle devices since launch than we did during the entire fourth quarter of last year—astonishing because the fourth quarter is the busiest time of year on Amazon.”

Amazon has never released specific sales numbers about the Kindle — a secret that has largely stayed under wraps, likely due to the company’s small management team.

Kessel received his bachelor’s degree in Computer Science from Dartmouth College, and an MBA from Stanford’s Graduate School of Business.

As part of the announcement, the retailer is also confirming that it will take a 30 percent cut of each transaction, which is the standard across Apple’s App Store, Facebook and Google Play (Correction: In an earlier version, it stated that Google takes 5 percent, which only applies to the Google+ game network.)

The announcement is not a huge surprise, since Amazon has been testing in-app payments over the past few months with a number of developers in the Amazon Appstore, which runs on the Kindle Fire and a number of Android handsets.

The payments platform utilizes Amazon’s well-recognized and trusted “1-Click” purchasing experience that so many consumers are familiar with from shopping online. By bringing it to mobile, it will make it easy for consumers to purchase a few more coins inside a game or to subscribe to a magazine.

But while the announcement sounds fairly basic, the rollout is important for Amazon to get right, since developers’ initial reception to the Appstore was a little strained — and stories of making money on the platform have been mixed.

That’s because, unlike other app stores, Amazon has decided to dictate how much an app sells for, and in some cases, the company elects to make apps free as part of its Free App of the Day promotion. In doing so, developers sometimes make less revenue than they would normally expect (especially since there was no potential upside from in-app purchases).

Developers and publishers will be able to set the price of the items within the store, including virtual goods or subscriptions, an Amazon spokesperson said.

Based on developers that participated in the beta tests, so far Amazon’s Appstore looks like it has been monetizing well.

Storm8, which was one of the game developers that participated in the beta test, told AllThingsD that it generated $700,000 in revenue from in-app purchases in March — before Amazon’s cut. The Redwood City developer said it has 10 free-to-play apps in the store, including such titles as Kingdoms Live, Nightclub Story and Farm Story; at one point, four of its games ranked among the five most popular free apps on Amazon.

Flurry, which provides analytics software to developers, also estimated  that Amazon’s in-app payment platform monetizes well, and that it outperforms Google Play, but falls short of the industry’s gold standard, which is Apple.

Still, it’s unclear whether Amazon will be able to woo developers, given that it is so much smaller than the other players. Last month, after celebrating its first year in business, Amazon confirmed that it had more than 31,000 apps in its store, which is far fewer than either Google or Apple.

It’s also unclear how many devices the Appstore is installed on, since Amazon does not share much information, including how many Kindle Fires it has sold.

According to a report by IHS iSuppli, Amazon shipped 3.9 million Fires in the fourth quarter, to claim 14.3 percent of the market. That makes it the world’s second-largest tablet vendor, surpassing Samsung, which has been in the market far longer, with many more devices.

In the future, what could potentially be even more interesting for developers than in-app payments is if Amazon will let them use apps to sell merchandise, such as Rovio’s plush toys, or DVDs and other cross-promotional items.

An Amazon spokesperson declined to comment on the possibility.

The comments follow a less than stellar fourth-quarter performance in which the gigantic e-commerce provider spent nearly as much money as it brought in the door — even during its busiest quarter of the year.

Profits for the quarter fell 58 percent, while annual earnings were cut nearly in half.

Some analysts were hoping that the end of the year would be a low point for margins and that Amazon would start growing in 2012 as it benefited from the steep investments made the prior year.

But that’s not part of the plan.

“We’re incredibly optimistic about the opportunity that we have, and that’s why we have invested the way we have and why we’re continuing to invest in the business,” said Amazon’s CFO Tom Szkutak in a conference call with analysts.

For clarity, Piper Jaffray analyst Charles Munster asked again: “So, your outlook in terms of investment philosophy hasn’t changed versus last quarter going forward?”

“No, no,” Szkutak said. “We are continuing to look as we always do. We learn every week, month and quarter about customer adoption. We are looking at a lot of positive things across the business in terms of adoption, specifically Kindle growth from a device standpoint and content that’s following that.”

Other categories seeing growth, he said, include clothing, consumables, consumer electronics and Amazon Web Services.

“There’s a lot of interesting opportunities that we continue to invest in. So we are pleased with the performance in Q4 and what it means going forward for us.”

Over the past year, Amazon has invested heavily in infrastructure, including 17 fulfillment centers around the globe. At the end of the year, it had 56,200 employees, up 67 percent year over year, with most of the hiring coming in operations and customer service.

It has also invested heavily in the digital content business, including the Kindle.

It’s widely assumed that Amazon is breaking even or taking a slight loss on the sale of each Kindle Fire. It’s also securing expensive partnerships with content companies across music, video and books, and giving some of that content away as part of the $80 Prime membership, which also includes free two-day shipping.

All of those are bets that Amazon is hoping will reap profits over the long term, as customers continue to consume after they purchase an e-reader or tablet or sign up for Prime.

So far, it’s too early to see how the investment is faring, especially when it comes to new categories.

“It’s very, very early,” Szkutak said, “but so far, we like what we see, so that’s why we are continuing down the path of adding more content and making Prime better. … Because we are investing a lot, we are making sure we understand it very well.”

A lot of details, like Kindle sales numbers, are still being kept under wraps, but he promised Amazon will someday share more about how it is doing.

Unfortunately, the market isn’t as patient. In after-hours trading, the stock was down almost 10 percent at one point. During the session, it ended up down, 8.7 percent, or nearly $17 , to close at $177.50 a share.

Rakuten is set on challenging Amazon’s global dominance by appealing to the third-party merchants Amazon works with today and by growing it’s digital content business to compete with the Kindle.

We recently learned about the company’s strategy through the eyes of Neel Grover, the CEO of Buy.com, Rakuten’s online shopping subsidiary in the U.S.

For now, Rakuten is admittedly Amazon’s much smaller competitor, though it is dominant in Japan.

The publicly held company is worth $14.5 billion compared to Amazon’s $85 billion market capitalization, and it pales in comparison to Amazon’s mass in the U.S. Buy.com is ranked 410th here versus Amazon’s sixth-place standing, according to Compete.

But Grover said Rakuten has a two-part plan for going up against Amazon.

First, it will target and partner with third-party resellers and merchants.

Amazon does this, too, but often ends up competing with the merchants because it has its own warehouses and products that it is selling, he said.

“Oftentimes Amazon will compete with the retailer. [Third-party merchants] teach Amazon what to buy and sell, which is ultimately not good for the merchant,” he said.

Rakuten, on the other hand, does not own any warehouses or any inventory itself and instead gives retailers — brick and mortar or e-commerce — the tools and traffic to support their own businesses.

In May 2010, Rakuten acquired Buy.com.

“I sought out Rakuten. … I thought their model was one that would give us a unique differentiator in the U.S. and we could learn and bring their model to our site and customers,” Grover said. “We are still in the final stages of transforming, and it’s taken a bit of time to get it transformed.”

But, he confidently added, “It will win out in the long-term.”

A similar approach is being taken by eBay, another e-commerce giant in the U.S.

The second part of Rakuten’s plan is to go after Amazon’s growing digital business, spanning music, e-books and other content.

In November, the Japanese company purchased Kobo, a runner-up in the e-reader race behind the Kindle and Barnes & Noble’s Nook. It paid $315 million in cash for the Canadian company.

Rakuten is banking on the Kobo in assisting with its move into providing downloadable media to consumers, starting with e-books.

At the time of the acquisition, Kobo CEO Michael Serbinis told All Things D that Rakuten will give Kobo the financial backing to grow internationally, as well as compete in the U.S.

“The U.S. is absolutely important. It’s fundamental. We have millions of U.S. users today, and we plan to grow that substantially, and internationally it represents a big opportunity as well,” he said.

Earlier this month, Buy.com started linking to Kobo from its site, so that consumers have the option of buying a physical copy of a book or a digital version. Other integration efforts are also under way.

It also wants to get into other digital content, like music. Back in 1999, Buy.com was one of the original sites to have a digital music store, but Grover said it was a pretty poor experience because of all the restrictions that record labels were mandating. A lot of that has now changed.

“We are definitely looking as a group at all digital content. … We are looking at different solutions, but today we have not continued on with our initial music store,” he said.

As with Kobo and Buy.com, acquisitions are always an option, he said.

“We’ll continue to look at everything that would make our business better. It hasn’t been shy over the past two years. We have a global vision to create an e-commerce marketplace offering all goods, and we continue to see that grow.”

And going up against Amazon, some serious growth is what Rakuten and Buy.com will need.

In November and December, the number of online transactions increased by 37 percent, and overall sales jumped by 25 percent. But the average ticket size declined by 9 percent, according to Chase Paymentech, which analyzes information across the top 50 e-commerce retailers.

As it turns out, more consumers are turning to e-commerce for more of their everyday spending, rather than reserving online purchases for big-ticket items.

Here are Chase’s three reasons for the decline:

• More consumers are purchasing digital media, which has a lower price point than most physical goods — MP3s cost less than CDs, e-books cost less than paperbacks, and apps cost less than game cartridges.
• Prices for popular electronics, such as tablets, e-readers and TVs, are falling.
• More retailers are offering free shipping, which eliminates the incentive to fill carts to reach a free-shipping threshold.

EBay, which is the first major e-commerce provider to report Q4 results, confirmed it was also seeing the trend. The company’s payments division, PayPal, reported smaller transactions during the fourth quarter across the merchants it serves.

John Donahoe, eBay’s CEO, explained in an interview that the biggest driver of that trend was eBay’s acquisition of Zong, a mobile payments provider that powers the sale of digital goods. In addition, Donahoe said retailers, including eBay, heavily discounted products in order to drive more purchases this holiday.

Amazon, which is the leading e-commerce provider, also said that it is selling a lot of low-priced digital goods, ranging from e-books to MP3s.

Historically, the company has said that Christmas is the largest day of digital sales on Amazon.com, followed by Dec. 26. In 2010, from Christmas Eve through Dec. 30, Amazon customers purchased three times more digital content — including Kindle books, magazines, movies, TV shows, music and digital games — compared to the weekly average for the year.

Despite transactions declining overall, Chase identified two exceptions: Apparel and footwear rose 6 percent; toys rose 10 percent year over year.

(Amazon photo courtesy of thisisbossi)

The electronics manufacturer placed behind Target, Best Buy, Wal-Mart and Amazon, according to a comScore report that analyzed online shopping trends the day after Thanksgiving.

“Apple has not historically been in the top five — in fact, this is the first time I can remember,” said Andrew Lipsman, an analyst at comScore, who added that Apple was “nipping at Target’s heels,” registering only a few percentage points lower in overall traffic.

The strong ranking backs up a report today by 9to5Mac that said Apple’s Black Friday sales were “off the charts.” According to its sources, Apple blew away forecasts by 7 pm, and broke records for its biggest sales day ever.

ComScore’s figures include both Apple’s site as well as iTunes, so any resulting sales would encompass both hardware and digital products, such as apps and videos.

Separately, Experian Hitwise ranked Apple as the 12th most-visited retail site on Black Friday. It said the company’s total visits jumped 42 percent compared to 2010.

In both of these circumstances, what’s notable is Apple’s apparent mind share among consumers.

Best Buy, like some other retailers, is trying hard this season to be the go-to source for Apple products, running new TV ads promoting the chain as a place to buy Macs, iPads and iPhones. But Apple was able to rival gigantic big-box retailers, which carry thousands of products, including their own.

That’s impressive, especially since its discounts are generally not.

Lipsman agreed: “Even though Apple does not provide the selection of products that you might find at a big box retailer, it is obviously top of mind when it comes to the most in-demand products, like the iPhone and iPad. Two of the biggest growth sectors right now are tablets and digital content downloads, and obviously Apple is extremely well positioned on both fronts.”

The shaky results led the retailer’s shares to drop nearly seven percent in morning trading, but by the end of the day the stock had completely recovered, closing at $21.43, up 97 cents a share.

Why?

GameStop president Tony Bartel said the quarter was expected to be weak, due to poor hardware sales and a lack of major game releases. But he noted that there are several reasons to be excited about the second half of the year.

“As anticipated and forecasted, we knew the market was going to be softer than most anticipated, and sales were going to be down,” he said. “And at the same time, we are investing four cents of every quarter for strategic initiatives.”

Still, the company hit its guidance and exceeded most analysts’ expectations by earning $30.9 million, or 22 cents a share, on revenue of $1.74 billion. On average, analysts were estimating earnings of 21 cents a share on revenue of $1.81 billion, according to FactSet.

Here are three reasons for Bartel’s optimism: 

Price drops: Game hardware fell 16 percent in the second quarter, according to NPD Group, led by weak sales of Nintendo’s struggling 3DS and Sony’s PlayStation 3. Since then, both Sony and Nintendo have cut the price of those devices, which has already helped accelerate sales.

Presales: Bartel said there was a 30 percent reduction in titles being released in the second quarter compared to last year, but the pipeline of titles is very strong for the rest of the year. So far, GameStop has, over the next two quarters, more titles with a million-plus reservations than it has ever had. No word on which titles those are, but Bartel was willing to list some of the games he is “excited” about: Gears of War 3, Battlefield 3, Uncharted 3, Batman: Arkham City, Elder Scrolls and Assassin’s Creed, among others.

Digital revenues: GameStop is still on track to hit $450 million in digital revenues this year, which represents a 50 percent bump over 2010. In the second quarter it reported digital sales growth of 69 percent, and some of its latest digital initiatives haven’t even launched yet. Bartel said a survey found that 50 percent of customers who bought downloadable content at a GameStop store were buying it for the first time, and that they often paid in cash or with gift cards.

The company, called Ongo, filed a trademark registration in April. In the filing, Ongo describes itself as providing “computer and telecommunications software for use in aggregating and viewing news and syndication feeds.”

The reason for the Times’s investment in Ongo was unclear. As news organizations have grappled with how to deliver their content to digital devices and make money off of those readers, there have emerged a number of efforts to collaborate on packaging and selling content. News Corp. (NWS), which owns the Wall Street Journal, has been talking to media companies about creating a cable TV-type business for news, allowing consumers to set up one bill to access digital content from multiple media companies.

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But if you really want to know why things are really grim in the magazine world, don’t just pay attention to the right side of the graph, where ad pages plummet like Wile E. Coyote off a cliff. Look over at the left side, which shows that even before the econalypse hit, magazines were essentially flat.

That is, magazines aren’t just getting hurt by the economy–they’re getting pummeled by a fundamental shift of ad dollars away from print and to the Web.

So: Anyone who wants to stay in the magazine world needs to contemplate a career on the Web, right? Right. Except it’s unclear how many jobs the Web is going to offer, since digital content is worth so much less than its analog counterpart, at least in the eyes of advertisers. More on that later. No need to pile on the grimness on a Monday morning.