Electronic Arts 2006 Annual Report Download - page 5

PC Resurgence Ì Tied closely to the boom in online gaming is a recent creative and commercial
renaissance for PC games. By an order of magnitude, we are the world's number one publisher of games
for the PC. In Ñscal 2006, we had four of the top ten titles in North America and we estimate Ñve of the
top ten in Europe. Flagship franchises like The Sims, BattleÑeld and Command & Conquer
TM
have millions
of loyal players and new versions are being prepared to extend that success. We're also developing new PC
titles like SPORE
TM
from The Sims mastermind Will Wright and Crysis
TM
from the Crytek Studio in
Germany. Just recently, we announced plans to acquire Mythic Entertainment, a critically-acclaimed
developer of massively multiplayer online (MMO) games Ì this acquisition will enhance our position in
the rapidly growing MMO category.
A Focus on Craftsmanship and ProÑtability
Chairman’s Letter
EA has four overarching priorities that are central to the way we make and sell games. We're training new
and existing talent; we're adopting more eÇcient processes for making games; we're focused on quality;
and we're seeking to improve proÑtability by reducing our reliance on licensed properties.
People Ì We have established robust programs for keeping our existing talent trained and for preparing
new talent. EA is now working directly with more than 75 colleges and universities Ì providing funding
and expertise Ì to develop curriculum that will train the next generation of video game developers.
Process Ì The backbone of our studio system is a library of shared tools and technologies. There is no
single solution Ì no game engine that Ñts every franchise Ì but our commitment to sharing learning
across our multiple development locations improves eÇciency and allows us to manage a much larger
portfolio of products than our competitors.
Quality Ì When you publish more than 30 titles per year, it's important to remember that our consumers
are intelligent, they judge you on every title, and they have very long memories when a popular franchise
disappoints them.
In some instances Ì such as when The Godfather
TM
slipped out of the holiday quarter Ì we paid a heavy
price to ensure that we delivered a great game. Although it hurt our Ñnancial results in the short term, it
was the right decision for the long-term health of this important franchise. Shipping a high quality product
pays dividends in many ways and over many years Ì consumer loyalty, critical acclaim and most
importantly, enhanced morale among our employees who take an extraordinary amount of pride in their
work.
Wholly Owned Properties Ì A major shift in our portfolio strategy is to decrease our reliance on licensed
properties and increase the number of games that are based on ideas from people in our own studios.
Sports relationships such as our agreements with the NFL, NBA and FIFA, as well as movie titles like
Harry Potter and The Godfather will always be a part of EA's portfolio. However the cost of licenses
continues to escalate, which puts pressure on operating margins.
In an eÅort to improve both game quality and margins, we are striving to increase the percentage of our
revenue contributed by wholly owned properties from roughly forty percent today to at least Ñfty percent in
the next cycle.
To this goal, we've seen an explosion of creativity from our studios. Already in development is SPORE
from Will Wright's team and an incredibly innovative project from our new Montreal studio, Army of
Two
TM
. In addition, we'll see new iterations on powerful EA franchises such as The Sims, Need for Speed,
Medal of Honor
TM
, Burnout
TM
, SSX
TM
and Command & Conquer.
These and other new games to be announced in the months ahead will make an important statement about
EA's commitment to quality and innovation with a goal of improving our creative control and proÑt
margins.