Electronic Arts 2008 Annual Report Download - page 81

Acquisition of Bioware and Pandemic Studios
In January 2008, we acquired VG Holding Corp. (“VGH”), owner of both BioWare Corp. and Pandemic
Studios, LLC, game development studios that create action-adventure and role-playing games, such as Mass
Effect
TM
(BioWare) and Mercenaries
TM
(Pandemic). BioWare has development studios in Edmonton, Canada
and Austin, Texas and Pandemic Studios are located in Los Angeles, California and Brisbane, Australia.
Transition to New Video Game Consoles
The video game software industry is cyclical, driven by video game hardware systems, which have historically
had a life cycle of four to six years. 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. Given its significant installed base and ongoing popularity
outside of North America, we expect to continue developing and marketing new titles for the PlayStation 2 in
fiscal 2009. We only expect to release one title for the original Xbox and no titles for the Nintendo GameCube
in fiscal 2009. The new systems are more complex than their predecessors (e.g., some use multi-processor
technology, new and unique game controllers, online gameplay functionality and high definition video
capabilities) and development costs have been greater on a per-title basis than development costs for prior-
generation video game systems.
Proposed Acquisition of Take-Two Interactive Software
In the fourth quarter of fiscal 2008, we announced a proposal to acquire all of the issued and outstanding
shares of common stock of Take-Two Interactive Software, Inc. (“Take-Two”), for a total purchase price of
approximately $2.1 billion (including fees and expenses). Take-Two’s Board of Directors has stated that our
offer undervalues the company and is not in the best interests of stockholders. If we were to acquire Take-
Two, we expect the acquisition would have a material impact on our future financial position and results of
operations and cash flows. Although the offer is not conditional upon any financing arrangements, our Board
of Directors has authorized us to obtain additional financing, a portion of which may be used in part to fund
the acquisition. There can be no assurance that we will acquire Take-Two.
Our Operating Structure
Following our fiscal 2008 reorganization, our business is organized around four operating labels — EA Games,
EA SPORTS, The Sims and EA Casual Entertainment — and an additional group that works closely with the
labels — Global Publishing. Each label is structured to operate globally and includes several key functions
including development studios, product marketing, and planning for products and services. Global Publishing
operates in three regions, North America, Europe and Asia. Global Publishing works in partnership with the
labels and is responsible for strategic planning, field marketing, sales, distribution, operations, product
certification, quality assurance, motion capture, art outsourcing and localization within the local markets in
which we operate.
In fiscal 2008, we generated approximately 55 percent of our net revenue from games developed by our
studios that were initially released during the year, as compared to approximately 65 percent in fiscal 2007.
Excluding titles developed for cellular handsets, during fiscal 2008 we released 34 titles developed by our
studios compared to 32 titles in fiscal 2007. For the fiscal years ended March 31, 2008, 2007 and 2006,
research and development expenses were $1,145 million, $1,041 million and $758 million, respectively.
EA Games Label
The EA Games label is home to the largest number of our studios and development teams, which together
create an expansive and diverse portfolio of games, such as action-adventure, role playing, racing and combat
games, marketed under the EA brand. In addition to traditional packaged-goods games, EA Games also
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