Electronic Arts 2005 Annual Report Download - page 65

Content Licensors
Many of our products are based on or incorporate intellectual property owned by others. For example, our EA
SPORTS products include rights licensed from the major sports leagues and players associations. Similarly,
many of our hit EA GAMES franchises, such as James Bond, Harry Potter and Lord of the Rings, are based
on key Ñlm and literary licenses. In Ñscal 2005, we entered into exclusive license agreements with ESPN, the
NFL, PLAYERS, Inc. (the NFL players' association), Collegiate Licensing Company (the licensing
authority for NCAA football) and the Arena Football League. In addition, we have long-standing, exclusive
relationships with various sports organizations and celebrities, including FIFA, UEFA (professional soccer),
NASCAR, Tiger Woods and the PGA TOUR, and, in the future, we may enter into other exclusive
relationships with other partners.
Products and Product Development
In Ñscal 2005, we generated approximately 71 percent of our net revenue from EA Studio-produced products
released during the year as compared to approximately 69 percent in Ñscal 2004. During Ñscal 2005, we
introduced 35 EA Studios titles, representing 109 stock keeping units, or SKUs, compared to 32 EA Studios
titles, comprising 97 SKUs, in Ñscal 2004. In Ñscal 2005, we had 31 titles that sold over one million units
(aggregated across all platforms). In Ñscal 2004, we had 27 titles and in Ñscal 2003 we had 22 titles that sold
over one million units (aggregated across all platforms). A SKU is a version of a title designed for play on a
particular platform and intended for distribution in a particular territory. In Ñscal 2005, we had one title, Need
for Speed Underground 2, published on Ñve diÅerent platforms which represented approximately 11 percent of
our total net revenue. No title represented more than 10 percent of our total net revenue in Ñscal 2004 while in
Ñscal 2003, we had one title, Harry Potter and the Chamber of Secrets
TM
, published on seven diÅerent
platforms, which represented approximately 10 percent of our total net revenue.
The products produced by EA Studios are designed and created by our employee designers and artists and by
non-employee software developers (we call them ""independent artists'' or ""third-party developers''). We
typically advance development funds to the independent artists and third-party developers during development
of our games, which payments are considered advances against subsequent royalties based on the sales of the
products. These terms are typically set forth in written agreements entered into with the independent artists
and third-party developers.
The retail selling prices of our newly released products in North America typically range from $29.99 to
$49.99. Other titles, including re-releases of older titles marketed as ""Classics'', have retail selling prices that
range from $9.99 to $29.99. The retail selling prices of our titles outside of North America vary widely
depending on factors such as local market conditions.
Annual Report
Our goal is to maintain our position as a leading publisher of games sold for play on the current-generation of
128-bit video game consoles and to extend our success into the next-generation of consoles and mobile
platforms. We will continue to invest in tools and technologies designed to facilitate development of our
products for current-generation platforms while also investing in tools and technologies for the next-generation
of consoles and mobile platforms. These investments are recorded in research and development in our
Consolidated Statement of Operations. We had research and development expenditures of $633 million in
Ñscal 2005, $511 million in Ñscal 2004 and $401 million in Ñscal 2003.
EA.com Web Site
Free Content. We oÅer free games on our web site under the following four brands: Pogo, EA GAMES, EA
SPORTS and EA SPORTS BIG. The majority of these free games are original games designed solely for play
on our web site (and on the games-oriented areas of America Online, our online games partner) while some of
the product oÅerings capitalize on our existing franchises adapted for online play. As of March 31, 2005, the
online product oÅerings within each brand included the following:
‚Pogo. We oÅered approximately 73 free online games under the Pogo brand. Pogo provides players a
variety of free online games geared towards family entertainment. The oÅerings include card games,
board games, casino games, word games, trivia games and puzzles. This category leverages prizes,
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