Electronic Arts 2000 Annual Report Download - page 18

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Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America in July 1994 (the “Sony
Agreement”), as amended, we are authorized to develop and distribute software products compatible with the PlayStation.
Pursuant to the Sony Agreement, we engage Sony to manufacture PlayStation Compact Disks for distribution by us. Accordingly,
we have limited ability to control our supply of PlayStation products or the timing of their delivery.
AFFILIATED LABEL PRODUCT NET REVENUES AL product sales increased due to higher sales in North America. The increase in
Affiliated Label revenues compared to the same period last year was due to the distribution of titles by Square EA, including
Final
Fantasy
®
VIII,
partially offset by the termination of our distribution agreement with Accolade, which was acquired by a third party.
N64
®PRODUCT NET REVENUES The expected decrease in N64 revenues for fiscal 2000 compared to the same period last year
was due to the weak market for N64 products as well as strong comparisons of
World Cup 98
in the prior year. We released
eight titles in fiscal 2000, including
WCW™ Mayhem,
compared to nine titles in fiscal 1999. We expect revenues from N64
products to decline significantly in fiscal 2001.
Under the terms of the N64 Agreement, we engage Nintendo to manufacture our N64 cartridges for distribution by us.
Accordingly, we have little ability to control our supply of N64 cartridges or the timing of their delivery. A shortage of
microchips or other factors outside our control could impair our ability to obtain an adequate supply of cartridges.
In connection with our purchases of N64 cartridges for distribution in North America, Nintendo requires us to provide irrevo-
cable letters of credit prior to Nintendo’s acceptance of purchase orders from us for purchases of these cartridges. For purchases
of N64 cartridges for distribution in Japan and Europe, Nintendo requires us to make cash deposits. Furthermore, Nintendo
maintains a policy of not accepting returns of N64 cartridges. Because of these and other factors, the carrying of an inventory
of cartridges entails significant capital and risk.
ONLINE SUBSCRIPTION REVENUES Online subscription revenues are revenues collected for Internet game play on our web-
sites. The increase in online revenues for fiscal 2000 as compared to fiscal 1999 was attributable to the following:
•The average number of paying customers for
Ultima Online
increased to over 140,000 for fiscal 2000 as compared to over
105,000 in fiscal 1999.
•The increase in paying customers was due to continued strong sales of
Ultima Online,
the addition of new events within the
Ultima
worlds and the release of
Ultima Online: The Second Age™
in October 1998.
Ultima Online: The Second Age
added
features including new worlds, monsters and an in-game chat feature.
•We established servers for
Ultima Online
in Europe in June 1999 and in Japan in October 1998. This local dial-in capability
resulted in new customers in those territories for the fiscal 2000, as compared to fiscal 1999.
LICENSE, OEM AND OTHER REVENUES The increase in license, OEM and other revenues was primarily due to the following:
•License/OEM revenues increased due to the sales of Game Boy®Color titles in the current fiscal year.
•Other revenues decreased primarily due to decreases in 32-bit products, other than PlayStation as we are no longer pub-
lishing games for those platforms.
MD&A
16