Electronic Arts 2011 Annual Report Download - page 89

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 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 throughout the
world. Our competitors range from large established companies to emerging start-ups. In our industry, though
many new products and services are regularly introduced, only a relatively small number of “hit” titles accounts
for a significant portion of total revenue for the industry. We have significantly reduced the number of games
that we develop, publish and distribute: in fiscal year 2010, we published 54 primary titles, and in fiscal year
2011, we published 36. In fiscal year 2012, we expect to release approximately 22 primary titles, including
launching our massively – multiplayer online role-playing game Star Wars: The Old Republic. Publishing fewer
titles means that we concentrate more of our development spending on each title, and driving “hit” titles often
requires large marketing budgets and media spend. The underperformance of a title may have a large adverse
impact on our financial results. Also, 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.
In addition, both the online and mobile games marketplaces are characterized by frequent product introductions,
relatively low barriers to entry, and new and evolving business methods, technologies and platforms for
development. We expect competition in these markets to intensify. It is also possible that consumer adoption of
these new platforms for games and other technological advances in online or mobile game offerings could
negatively impact our sales of console, handheld and traditional PC products before we have sufficiently
developed profitable businesses in these markets. If our competitors develop and market 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 free-to-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.
Our operating results will be adversely affected if we do not consistently meet our product development
schedules or if key events or sports seasons that we tie our product release schedules to are delayed or
cancelled.
Our business is highly seasonal, with the highest levels of consumer demand and a significant percentage of our
sales occurring in the December quarter. If we miss these key selling periods for any reason, including product
delays, product cancellations, or delayed introduction of a new platform for which we have developed products,
our sales will 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 or cancel release
dates. We also seek to release certain products in conjunction with specific events, such as the beginning of a
sports season or major sporting event, or the release of a related movie. If a key event or sports season to which
our product release schedule is tied were to be delayed or cancelled, our sales would also suffer
disproportionately. 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.
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