Update: According to various non-anonymous sources, Video Gamer's article is entirely untrue. Electronic Arts Creative Director and ex-Art Director on Dead Space Ian Milham says, "Almost nothing in that article is true," and, "I confirm nothing except the hooey in that story." UI Director for Visceral Dino Ignacio says, "The reports of our death were greatly exaggerated. Please stand by."
Additionally, EA's PR team has stated to Eurogamer and other sources the following quote, after declaring the Video Gamer article "patently false":
"While we have not announced sales for Dead Space 3, we are proud of the game and the franchise remains an important IP to EA."
Electronics Arts confirmed layoffs at Visceral Games and Visceral Montreal only a few weeks ago as part of a "console transition." The bigger picture, however, according to VideoGamer.com, is that Electronics Arts has canceled development of Dead Space 4 after Dead Space 3 failed to meet sales goals. The layoffs, then, were part of EA's restructuring process for the studio going forward.
Visceral Montreal was beginning pre-production on Dead Space 4, developing prototypes and hashing out a narrative for the sequel, when Electronics Arts executives arrived and shut it down. It's rumored that Visceral Montreal was closed as part of this process, but the studio's fate remains unclear.
The source also claimed that Visceral was told to focus on broader appeal for the sequel and to focus more on action than stealth -- which we ended up finding out on our own. In addition to the different direction, however, the source also claimed that Dead Space 3's budget was cut multiple times during development which had significant effects.
Last year, EA's Frank Gibeau stated that Dead Space 3's preorders were five times higher than those for Dead Space 2, but he also made clear that Dead Space 3 would need to sell around five million units to break even. If there was such a thing as too big for its own good, Electronics Art may have found it here... if they hadn't already found it in Star Wars: The Old Republic.
While news that Dead Space 4 may have been canceled is disappointing, I can't help disagreeing that the franchise's current direction wasn't one I was keen to follow. Perhaps its time to shrink the budget down and revisit what made the original title the success that it was. In the mean time, hopefully Visceral gets to work on a new next-gen IP, which everyone can look forward to.