Electronic Arts 2005 Annual Report Download - page 105

and damages incurred by the directors as a result of any lawsuit, or any judicial, administrative or investigative
proceeding in which the directors are sued as a result of their service as members of our Board of Directors.
INFLATION
We believe the impact of inÖation on our results of operations has not been signiÑcant for each of the past
three Ñscal years.
RISK FACTORS
Our business is subject to many risks and uncertainties, which may aÅect our future Ñnancial performance. If
any of the events or circumstances described below occurs, our business and Ñnancial performance could be
harmed, our actual results could diÅer materially from our expectations and the market value of our securities
could decline. The risks and uncertainties discussed below are not the only ones we face. There may be
additional risks and uncertainties not currently known to us or that we currently do not believe are material
that may harm our business and Ñnancial performance.
Our business is highly dependent on the success and timely release of new video game platforms, on the
continued availability of existing video game platforms, as well as our ability to develop commercially
successful products for these platforms.
We derive most of our revenue from the sale of products for play on video game platforms manufactured by
third parties, such as Sony's PlayStation 2 and Microsoft's Xbox. The success of our business is driven in large
part by the availability of an adequate supply of current-generation video game platforms, the timely release
and success of new video game hardware systems, our ability to accurately predict which platforms will be
most successful in the marketplace, and our ability to develop commercially successful products for these
platforms. We must make product development decisions and commit signiÑcant resources well in advance of
the anticipated introduction of a new platform. A new platform for which we are developing products may be
delayed, may not succeed or may have a shorter life cycle than anticipated. If the platforms for which we are
developing products are not released when anticipated, are not available in adequate amounts to meet
consumer demand, or do not attain wide market acceptance, our revenue will suÅer, we may be unable to fully
recover the resources we have committed, and our Ñnancial performance will be harmed.
Our industry is cyclical and has entered a transition period heading into the next cycle. During the
transition, we expect our costs to increase, we may experience a decline in sales as consumers anticipate
and adopt next-generation products and our operating results may suÅer and become more diÇcult to
predict.
Annual Report
Video game platforms have historically had a life cycle of four to six years, which causes the video game
software market to be cyclical as well. Sony's PlayStation 2 was introduced in 2000 and Microsoft's Xbox and
the Nintendo GameCube were introduced in 2001. Over the course of the next eighteen months, we expect
Sony, Microsoft and Nintendo to introduce new video game platforms into the market (so-called ""next-
generation platforms''). As a result, we believe that the interactive entertainment industry has entered into a
transition stage leading into the next cycle. During this transition, we intend to continue developing new titles
for the current-generation of video game platforms while we also make signiÑcant investments preparing to
introduce products upon the launch of the next-generation platforms. We have and expect to continue to incur
increased costs during the transition to next-generation platforms, which are not likely to be oÅset in the near
future. We also expect development costs for next-generation video games to be greater on a per-title basis
than development costs for current-generation video games. Further, we expect that, as the current-generation
of platforms reaches the end of its cycle and next-generation platforms are introduced into the market, sales of
video games for current-generation consoles may begin to decline. Consumers may defer game software
purchases until the next-generation platforms become available. This decline may not be oÅset by increased
sales of products for the new platforms. For example, following the launch of Sony's PlayStation 2 platform,
we experienced a signiÑcant decline in revenue from sales of products for Sony's older PlayStation game
console, which was not immediately oÅset by revenue generated from sales of products for the PlayStation 2
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