Electronic Arts 2008 Annual Report Download - page 5

To Our Stockholders,
FY08 was a good year for both the interactive entertainment industry and for EA. In the past calendar year,
total software sales grew 26 percent to more than $33 billion. A few short years ago, gaming was almost
entirely about packaged goods games made for four or five platforms. Today, games generate revenue on over
10 platforms including consoles, PCs, handhelds and mobile phones. In addition to purchasing discs in stores,
consumers pay for content via downloads, subscriptions and micro-transactions.
Systems like the Wii from Nintendo are leading the way for the industry to capture new audiences — tens of
millions of women, seniors and children who were largely unreachable just three years ago. Sony’s
PLAYSTATION 3 and Microsoft’s Xbox 360 enable graphic fidelity that is beyond what many imagined
possible five years ago.
Accessible games like Rock Band and EA’s Pogo service are reaching whole new communities of players.
Online games are burgeoning around the globe and particularly in Asia where millions of players meet,
compete and form communities in rich massive multi-player worlds.
We believe these trends suggest the audience for interactive games can grow from a few hundred million today
to as many as two billion in the next decade.
Fiscal 08 Review
EA’s performance in FY08 tracked, and in some respects exceeded, the industry’s growth. We delivered
improved financial results, made good progress on operational imperatives and set a strategic framework for
dynamic growth in the next three years.
Our performance was particularly encouraging in that some key negative trends were reversed. After three
years of flat sales, we added $574 million in GAAP revenue, an increase of 19 percent, and nearly $1 billion
in non-GAAP revenue, an increase of 30 percent. We exceeded our top-line revenue guidance for the fiscal
year and delivered within our bottom-line guidance range. We are very pleased with the strength of our
revenue growth in FY08, however, there is room to improve on profitability.
After experiencing segment share losses in early FY08, we reversed that trend in the back half of the year.
This was done in part with the introduction of new intellectual properties such as Army of Two, an innovative
game from our Montreal Studio which sold more than 1.8 million copies in its debut. Another success was
Burnout Paradise, a critically acclaimed game from our Criterion Studio which sold 1.5 million copies in the
fiscal year.
A major contributor to EA’s improved segment share performance in the second half of the year was the
resurgence of our EA Partners business, which combines EA’s powerful publishing capacity with the creative
output of innovative independent game developers. In FY08 we launched critically acclaimed games like
Crysis with Crytek and The Orange Box with Valve. Rock Band, which we released in partnership with MTV
Networks and Harmonix, was a huge hit.
Our digital direct-to-consumer business, which includes mobile and online, delivered $342 million in
revenue — up over 25 percent. Within that, online revenue was up with the continued expansion of digital
downloads and micro-transactions, including the launch of EA SPORTS FIFA Online 2 in Asia. Our Pogo
online service is a particularly bright spot in our direct-to-consumer story, generating $100 million in revenue
last year.
In mobile, despite challenges in the first half of the year, we got the business back on track. Our revenue was
up seven percent for the full year with the back half up 11 percent year-over-year. We rebuilt our relationship
with T-Mobile and launched new games under our Hasbro license. Like other platforms, success on mobile is
defined by big hits and we’re pleased that our title, MONOPOLY HERE AND NOW, is a top-ten seller on each
of the four largest carriers in North America.
We also took steps to address EA’s cost structure. We closed a studio facility in Chicago and consolidated our
UK development operations into one facility. We moved headcount to low-cost locations and increased the
focus on outsourcing. And we consolidated our online technology initiatives into a centralized team that will
service each label with a common platform.
Stockholder Letter