Electronic Arts 2010 Annual Report Download - page 109

Annual Report
Trends in Our Business
Economic Environment. Overall consumer spending has declined as a result of the national and global
economic downturn. Retailers globally continue to take a conservative stance in ordering game inventory. We
believe that the continued decline in the packaged goods sector contributed to the lower than anticipated demand
for our products during the 2009 holiday selling season. We remain cautious about our future sales in light of the
economic environment and the impact it has had on our business.
Current Generation Game 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. Unlike past cycles, we believe this
current cycle may be extended, partly due to the growth of online gaming services and content, the greater
graphic and processing power of the current-generation hardware and the introduction of new peripherals.
However, growth in the installed base of users of the Xbox 360, the PLAYSTATION 3 and the Wii may slow
down in light of the economic environment. Consequently, our industry may experience a decline.
Wireless Platforms. Advances in wireless technology have resulted in a variety of new and evolving platforms
for on-the-go interactive entertainment that appeal to a broad consumer base. Our efforts in wireless interactive
entertainment are focused in two areas – packaged goods games for handheld game systems and downloadable
games for mobile devices. We expect sales of games for mobile devices to continue to be an important part of
our business worldwide.
Catalog Sales. The video game industry is experiencing a change in retail sales patterns which is decreasing
revenue from our catalog sales. Currently, many console games experience sales cycles that are shorter than in
the past. To mitigate this trend, we offer our consumers a direct-to-consumer service (such as “head-to-head”
play or other multiplayer options) and/or additional content available through our online service to further
enhance the gaming experience and extend the time that consumers play our games after their initial purchase.
Used Games. Certain of our customers sell used video games, which are generally priced lower than new video
games and do not result in revenue to the publisher of the games from the sale. We have seen the market for used
video games grow. If our customers continue to increase their sales of used video games, it could negatively
affect our sales of new video games and have an adverse impact on our operating results.
Concentration of Sales Among the Most Popular Games. We see a larger portion of packaged goods games
sales concentrated on the most popular titles, and that those titles are typically sequels of prior games. We have
reacted to this trend by significantly reducing the number of games that we produce to provide greater focus on
our most promising intellectual properties.
Digital Content Distribution and Services. Consumers are spending an ever-increasing portion of their money
and time on interactive entertainment that is accessible online, or through mobile digital devices such as smart
phones, or through social networks such as Facebook and MySpace. We provide a variety of online delivered
products and services. Many of our games that are available as packaged good products are also available
through direct online download through the Internet (from websites we maintain and others that we license). We
also offer online delivered content and services that are add-ons or related to our packaged goods products such
as additional game content or enhancements of multiplayer services. Further, we provide other games, content
and services that are available only via electronic delivery, such as Internet-only games and game services, and
games for mobile devices. Advances in mobile technology have resulted in a variety of new and evolving devices
that are being used to play games by an ever-broadening base of consumers. We have responded to these
advances in technology, and consumer acceptance of digital distribution, by offering subscription services, online
downloads for a one-time fee, and advertising-supported free games and game sites. We expect online delivery of
games and game services to be an increasing part of our business going forward.
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