Electronic Arts 2008 Annual Report Download - page 96

If one or more of our titles were found to contain hidden, objectionable content, our business could suffer.
Throughout the history of our industry, many video games have been designed to include certain hidden
content and gameplay features that are accessible through the use of in-game cheat codes or other
technological means that are intended to enhance the gameplay experience. However, in several recent cases,
hidden content or features have been found to be included in other publishers’ products by an employee who
was not authorized to do so or by an outside developer without the knowledge of the publisher. From time to
time, some hidden content and features have contained profanity, graphic violence and sexually explicit or
otherwise objectionable material. In a few cases, the Entertainment Software Ratings Board (“ESRB”) has
reacted to discoveries of hidden content and features by reviewing the rating that was originally assigned to
the product, requiring the publisher to change the game packaging and/or fining the publisher. Retailers have
on occasion reacted to the discovery of such hidden content by removing these games from their shelves,
refusing to sell them, and demanding that their publishers accept them as product returns. Likewise, consumers
have reacted to the revelation of hidden content by refusing to purchase such games, demanding refunds for
games they’ve already purchased, and refraining from buying other games published by the company whose
game contained the objectionable material.
We have implemented preventative measures designed to reduce the possibility of hidden, objectionable
content from appearing in the video games we publish. Nonetheless, these preventative measures are subject to
human error, circumvention, overriding, and reasonable resource constraints. In addition, to the extent we
acquire a company without similar controls in place, the possibility of hidden, objectionable content appearing
in video games developed by that company but for which we are ultimately responsible could increase. If a
video game we published were found to contain hidden, objectionable content, the ESRB could demand that
we recall a game and change its packaging to reflect a revised rating, retailers could refuse to sell it and
demand we accept the return of any unsold copies or returns from customers, and consumers could refuse to
buy it or demand that we refund their money. This could have a material negative impact on our operating
results and financial condition. In addition, our reputation could be harmed, which could impact sales of other
video games we sell. If any of these consequences were to occur, our business and financial performance
could be significantly harmed.
If we ship defective products, our operating results could suffer.
Products such as ours are extremely complex software programs, and are difficult to develop, manufacture and
distribute. We have quality controls in place to detect defects in the software, media and packaging of our
products before they are released. Nonetheless, these quality controls are subject to human error, overriding,
and reasonable resource constraints. Therefore, these quality controls and preventative measures may not be
effective in detecting defects in our products before they have been reproduced and released into the
marketplace. In such an event, we could be required to recall a product, or we may find it necessary to
voluntarily recall a product, and/or scrap defective inventory, which could significantly harm our business and
operating results.
Our international net revenue is subject to currency fluctuations.
For the fiscal year ended March 31, 2008, international net revenue comprised 47 percent of our total net
revenue. We expect foreign sales to continue to account for a significant portion of our total net revenue. Such
sales may be subject to unexpected regulatory requirements, tariffs and other barriers. Additionally, foreign
sales are primarily made in local currencies, which may fluctuate against the U.S. dollar. We use foreign
exchange forward contracts to mitigate some foreign currency risk associated with foreign currency denom-
inated assets and liabilities (primarily certain intercompany receivables and payables) and, from time to time,
foreign currency option contracts to hedge foreign currency forecasted transactions (primarily related to a
portion of the revenue and expenses denominated in foreign currency generated by our operational subsidiar-
ies). However, these activities do not fully protect us from foreign currency fluctuations and, can themselves,
result in losses. Accordingly, our results of operations, including our reported net revenue and net income, and
financial condition can be adversely affected by unfavorable foreign currency fluctuations, particularly the
Euro, British pound sterling and Canadian dollar.
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