Electronic Arts 2009 Annual Report Download - page 93

Annual Report
Our business is highly dependent on the success and availability of video game hardware systems
manufactured by third parties, as well as our ability to develop commercially successful products for these
systems.
We derive most of our revenue from the sale of products for play on video game hardware systems (which we
also refer to as “platforms”) manufactured by third parties, such as Sony’s PlayStation 2, PLAYSTATION 3,
PlayStation Portable, Microsoft’s Xbox 360, Nintendo’s Wii and DS. The success of our business is driven in
large part by the commercial success and adequate supply of these video game hardware systems, our ability to
accurately predict which systems will be successful in the marketplace, and our ability to develop commercially
successful products for these systems. We must make product development decisions and commit significant
resources well in advance of anticipated product ship dates. A platform for which we are developing products
may not succeed or may have a shorter life cycle than anticipated. If consumer demand for the systems for which
we are developing products is lower than our expectations, our revenue will suffer, we may be unable to fully
recover the investments we have made in developing our products, and our financial performance will be
harmed. Alternatively, a system for which we have not devoted significant resources could be more successful
than we had initially anticipated, causing us to miss out on meaningful revenue opportunities.
If we do not consistently meet our product development schedules, our operating results will be adversely
affected.
Our business is highly seasonal, with the highest levels of consumer demand and a significant percentage of our
sales occurring in the December quarter. In addition, we seek to release many of our products in conjunction with
specific events, such as the release of a related movie or the beginning of a sports season or major sporting event.
If we miss these key selling periods for any reason, including product delays or delayed introduction of a new
platform for which we have developed products, our sales will suffer disproportionately. Likewise, if a key event
to which our product release schedule is tied were to be delayed or cancelled, our sales would also suffer
disproportionately. For example, we had initially planned to release an upcoming game, Harry Potter and the
Half-Blood Prince™, in November 2008 (during our fiscal year ending March 31, 2009). The game is now
expected to be released in the summer of 2009 in conjunction with the release of the Warner Bros. Pictures’ film.
Our ability to meet product development schedules is affected by a number of factors, including the creative
processes involved, the coordination of large and sometimes geographically dispersed development teams
required by the increasing complexity of our products and the platforms for which they are developed, and the
need to fine-tune our products prior to their release. We have experienced development delays for our products in
the past, which caused us to push back release dates. In the future, any failure to meet anticipated production or
release schedules would likely result in a delay of revenue and/or possibly a significant shortfall in our revenue,
increase our development expense, harm our profitability, and cause our operating results to be materially
different than anticipated.
Our business is intensely competitive and “hit” driven. If we do not deliver “hit” products and services or
if consumers prefer our competitors’ products or services over our own, our operating results could suffer.
Competition in our industry is intense and we expect new competitors to continue to emerge in the United States
and abroad. While many new products and services are regularly introduced, only a relatively small number of
“hit” titles accounts for a significant portion of total revenue in our industry. Hit products or services offered by
our competitors may take a larger share of consumer spending than we anticipate, which could cause revenue
generated from our products and services to fall below expectations. If our competitors develop more successful
products or services, offer competitive products or services at lower price points or based on payment models
perceived as offering a better value proposition (such as pay-for-play or subscription-based models), or if we do
not continue to develop consistently high-quality and well-received products and services, our revenue, margins,
and profitability will decline.
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