Electronic Arts 2005 Annual Report Download - page 108

From time to time we may become involved in other litigation which could adversely aÅect us.
We are currently, and from time to time in the future may become, subject to other claims and litigation,
which could be expensive, lengthy, and disruptive to normal business operations. In addition, the outcome of
any claims or litigation may be diÇcult to predict and could have a material adverse eÅect on our business,
operating results, or Ñnancial condition. For further information regarding certain claims and litigation in
which we are currently involved, see ""Part I Ì Item 3. Legal Proceedings'' above.
Our business, our products and our distribution are subject to increasing regulation of content, consumer
privacy and online delivery in the key territories in which we conduct business. If we do not successfully
respond to these regulations, our business may suÅer.
Legislation is continually being introduced that may aÅect both the content of our products and their
distribution. For example, privacy laws in the United States and Europe impose various restrictions on our web
sites. Those rules vary by territory although the Internet recognizes no geographical boundaries. Other
countries, such as Germany, have adopted laws regulating content both in packaged goods and those
transmitted over the Internet that are stricter than current United States laws. In the United States, the
federal and several state governments are considering content restrictions on products such as ours, as well as
restrictions on distribution of such products. Any one or more of these factors could harm our business by
limiting the products we are able to oÅer to our customers and by requiring additional diÅerentiation between
products for diÅerent territories to address varying regulations. This additional product diÅerentiation would
be costly.
If we do not continue to attract and retain key personnel, we will be unable to eÅectively conduct our
business. In addition, compensation-related changes in accounting requirements, in addition to evolving
legal and operational factors, could have a signiÑcant impact on our expenses and operating results.
The market for technical, creative, marketing and other personnel essential to the development and marketing
of our products and management of our businesses is extremely competitive. Our leading position within the
interactive entertainment industry makes us a prime target for recruiting of executives and key creative talent.
If we cannot successfully recruit and retain the employees we need, or replace key employees following their
departure, our ability to develop and manage our businesses will be impaired.
We annually review and evaluate with the Compensation Committee of our Board of Directors the
compensation and beneÑts that we oÅer our employees to ensure that we are able to attract and retain our
talent. Within our regular review, we have considered recent changes in the accounting treatment of stock
options, the competitive market for technical, creative, marketing and other personnel, and the evolving nature
of job functions within our studios, marketing organizations and other areas of the business. Any changes we
make to our compensation programs could result in increased expenses and have a signiÑcant impact on our
operating results.
Our platform licensors are our chief competitors and frequently control the manufacturing of and/or access
to our video game products. If they do not approve our products, we will be unable to ship to our customers.
Our agreements with hardware licensors (such as Sony for the PlayStation 2, Microsoft for the Xbox and
Nintendo for the Nintendo GameCube) typically give signiÑcant control to the licensor over the approval and
manufacturing of our products, which could, in certain circumstances, leave us unable to get our products
approved, manufactured and shipped to customers. These hardware licensors are also our chief competitors. In
most events, control of the approval and manufacturing process by the platform licensors increases both our
manufacturing lead times and costs as compared to those we can achieve independently. While we believe that
our relationships with our hardware licensors are currently good, the potential for these licensors to delay or
refuse to approve or manufacture our products exists. Such occurrences would harm our business and our
Ñnancial performance.
We also require compatibility code and the consent of Microsoft and Sony in order to include online
capabilities in our products for their respective platforms. As online capabilities for video game platforms
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