Electronic Arts 2010 Annual Report Download - page 93

Annual Report
Item 1A: Risk Factors
Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any
of the events or circumstances described below occurs, our business and financial performance could be harmed,
our actual results could differ materially from our expectations and the market value of our stock could decline.
The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and
uncertainties not currently known to us or that we currently do not believe are material that may harm our
business and financial performance.
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 3, Microsoft’s Xbox
360 and Nintendo’s Wii. 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. 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. We find that driving “hit” titles
often requires large marketing budgets and media spend. We may not recover the investments that we make in
marketing and advertising on certain products and that could harm our profitability. 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 and
market more successful products or services, offer competitive products or services at lower price points or based
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