Electronic Arts 2008 Annual Report Download - page 107

Including charges incurred through March 31, 2008, we expect to incur cash and non-cash charges between
$115 million and $125 million by fiscal 2010 related to our fiscal 2008 reorganization plan. These charges
will consist primarily of employee-related costs (approximately $10 million in cash charges), facility exit costs
(approximately $60 million in cash and non-cash charges), as well as other reorganization costs including
other contract terminations and IT and consulting costs to assist in the reorganization of our business support
functions (approximately $50 million in cash and non-cash charges).
Transition to a New Generation of Consoles. Video game hardware systems have historically had a life cycle
of four to six years, which causes the video game software market to be cyclical as well. The current cycle
began with Microsoft’s launch of the Xbox 360 in 2005, and continued in 2006 when Sony and Nintendo
launched their next-generation systems, the PLAYSTATION 3 and the Wii, respectively. During fiscal 2008,
the installed base of each of these systems continued to expand and, as a result, sales of our products for these
systems have also increased significantly. At the same time, however, demand for video games for prior-
generation systems, particularly the original Xbox and the Nintendo GameCube, has declined significantly.
Although we expect to continue developing and marketing new titles for the prior-generation PlayStation 2 in
fiscal 2009, we only expect to release one title for the original Xbox and no titles for the Nintendo GameCube.
As a result, we expect our sales of video games for prior-generation systems will continue to decline. The
decline in prior-generation product sales, particularly the PlayStation 2, may be greater or faster than we
anticipate, and sales of products for the new platforms may be lower or increase more slowly than we
anticipate. Moreover, we expect development costs for the new video game systems continue to be greater on
a per-title basis than development costs for prior-generation video game systems.
We have incurred increased costs during this transition as we have continued to develop and market new titles
for certain prior-generation video game platforms, while also making significant investments in products for
the new generation platforms. We expect research and development expenses to increase on an absolute basis
in fiscal 2009 as compared to fiscal 2008 (although not necessarily as a percentage of net revenue).
Online. Today, we generate net revenue from a variety of online products and services, including casual
games and downloadable content marketed under our Pogo brand, persistent state world games such as Ultima
Online
TM
and Dark Age of Camelot»,PC-based downloadable content and online-enabled packaged goods. In
addition, we are anticipating the release of a new massively multiplayer online role-playing game,
Warhammer»Online. We intend to make significant investments in online products, infrastructure and services
and believe that online gameplay will become an increasingly important part of our business in the long term.
Expansion of Mobile Platforms. Advances in mobile technology have resulted in a variety of new and
evolving platforms for on-the-go interactive entertainment that appeal to a broader demographic of consumers.
Our efforts to capitalize on the growth in mobile interactive entertainment are focused in two broad areas —
packaged goods games for handheld game systems and downloadable games for cellular handsets.
We have developed and published games for a variety of handheld platforms for several years. More recently,
the Sony PSP and the Nintendo DS, with their enhanced graphics, deeper gameplay, and online functionality,
provide a richer mobile gaming experience for consumers.
We expect sales of games for handhelds and cellular handsets to continue to be an important part of our
business worldwide.
Acquisitions and Investments. We have engaged in, evaluated, and expect to continue to engage in and
evaluate, a wide array of potential strategic transactions, including acquisitions of companies, businesses,
intellectual properties, and other assets. Since the beginning of fiscal 2007, we have announced and/or
completed several acquisitions and investments, including:
• In January 2008, we completed our acquisition of VG Holding Corp. (“VGH”), owner of both BioWare
Corp. and Pandemic Studios, LLC, which create action, adventure, and role-playing games. VGH was
headquartered in Menlo Park, California. BioWare Corp. and Pandemic Studios are located in
Edmonton, Canada; Los Angeles, California; Austin, Texas; and Brisbane, Australia.
Annual Report
31