Electronic Arts 2005 Annual Report Download - page 107

development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our
competition may be able to achieve them more quickly than we can. In either case, our products and services
may be technologically inferior to our competitors', less appealing to consumers, or both. If we cannot achieve
our technology goals within the original development schedule of our products and services, then we may delay
their release until these technology goals can be achieved, which may delay or reduce revenue and increase our
development expenses. Alternatively, we may increase the resources employed in research and development in
an attempt to accelerate our development of new technologies, either to preserve our product or service launch
schedule or to keep up with our competition, which would increase our development expenses.
Our business is intensely competitive and ""hit'' driven. If we do not continue to deliver ""hit'' products or if
consumers prefer our competitors' products over our own, our operating results could suÅer.
Competition in our industry is intense and we expect new competitors to continue to emerge. While many new
products are regularly introduced only a relatively small number of ""hit'' titles accounts for a signiÑcant
portion of net revenue. Hit products published by our competitors may take a larger share of consumer
spending than we anticipate, which could cause our product sales to fall below our expectations. If our
competitors develop more successful products, oÅer competitive products at lower price points, or if we do not
continue to develop consistently high-quality and well-received products, our revenue, margins, and proÑtabil-
ity will decline.
If we are unable to maintain or acquire licenses to intellectual property, we will publish fewer hit titles and
our revenue, proÑtability and cash Öows will decline. Competition for these licenses may make them more
expensive, and increase our costs.
Many of our products are based on or incorporate intellectual property owned by others. For example, our EA
SPORTS products include rights licensed from major sports leagues and players' associations. Similarly, many
of our hit EA GAMES
TM
franchises, such as Bond, Harry Potter and Lord of the Rings, are based on key Ñlm
and literary licenses. Competition for these licenses is intense. If we are unable to maintain these licenses and
obtain additional licenses with signiÑcant commercial value, our revenues and proÑtability will decline
signiÑcantly. Competition for these licenses may also drive up the advances, guarantees and royalties that we
must pay to the licensor, which could signiÑcantly increase our costs.
If patent claims continue to be asserted against us, we may be unable to sustain our current business
models or proÑts.
Many patents have been issued that may apply to widely-used game technologies. Additionally, infringement
claims under many recently issued patents are now being asserted against Internet implementations of existing
Annual Report
games. Several such claims have been asserted against us. Such claims can harm our business. We incur
substantial expenses in evaluating and defending against such claims, regardless of the merits of the claims. In
the event that there is a determination that we have infringed a third-party patent, we could incur signiÑcant
monetary liability and be prevented from using the rights in the future, which could negatively impact our
operating results.
Other intellectual property claims may increase our product costs or require us to cease selling aÅected
products.
Many of our products include extremely realistic graphical images, and we expect that as technology continues
to advance, images will become even more realistic. Some of the images and other content are based on real-
world examples that may inadvertently infringe upon the intellectual property rights of others. Although we
believe that we make reasonable eÅorts to ensure that our products do not violate the intellectual property
rights of others, it is possible that third parties still may claim infringement. From time to time, we receive
communications from third parties regarding such claims. Existing or future infringement claims against us,
whether valid or not, may be time consuming and expensive to defend. Such claims or litigations could require
us to stop selling the aÅected products, redesign those products to avoid infringement, or obtain a license, all of
which would be costly and harm our business.
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