Electronic Arts 2014 Annual Report Download - page 83

Annual Report
The console segment of the entertainment software industry is cyclical, driven by the periodic introduction
of new console systems. As new console systems are introduced, our operating results may be more
volatile.
New video game console systems have historically been developed and released every few years, which causes
the video game software market to be cyclical as well. In periods of transition from legacy generation consoles to
new generation consoles, sales of software for legacy generation console systems typically slow or decline in
response to the anticipated and actual introduction of new consoles, and new generation console software sales
typically stabilize after new consoles are widely-established with the consumer base.
During fiscal year 2014, consumers responded to the introduction of new consoles-the PlayStation 4 from Sony
and Xbox One from Microsoft-by purchasing fewer software products for the Sony PlayStation 3 and Microsoft
Xbox 360 legacy generation consoles. We expect this trend to continue. This trend could also accelerate faster
than anticipated and may put downward pressure on legacy generation video game software pricing, which could
negatively affect our operating results. Our revenues from new generation software sales may not offset the
negative effects of this trend on our operating results. In the near term, we expect to continue to develop and
market products and services for the Xbox 360 and PlayStation 3, while also developing and marketing products
and services for the Xbox One and PlayStation 4. We do not control the unit volumes of the new generation
console systems made available for sale or the rates at which consumers purchase these consoles. As a result, our
operating results during this transitional period may be more volatile and difficult to predict.
Our business is dependent on the success and availability of video game hardware systems and devices
manufactured by third parties, as well as our ability to develop commercially successful products and
services for these systems and devices.
The success of our business is driven in part by the commercial success and adequate supply of video game
console systems, PCs, mobile phones and tablets manufactured by third parties. Our success also depends on our
ability to accurately predict which platforms will be successful in the marketplace and our ability to develop
commercially successful products and services for these platforms. We must make product development
decisions and commit significant resources well in advance of anticipated platform release dates and may incur
significant expense to adjust our product portfolio and development efforts in response to changing consumer
platform preferences. Additionally, we may enter into certain exclusive licensing arrangements that affect our
ability to deliver or market products or services on certain platforms. A platform for which we are developing
products and services may not succeed to the extent expected or new platforms may take market share and game
software consumers away from platforms for which we have devoted significant resources. If consumer demand
for the platforms for which we are developing products and services is lower than our expectations, we may be
unable to fully recover the investments we have made in developing our products and services, and our financial
performance will be harmed. Alternatively, a platform 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.
Our adoption of new business models could fail to produce our desired financial returns.
We are actively seeking to monetize game properties through a variety of new business models, including online
distribution of full games and additional content, free-to-play games supported by advertising and/or micro-
transactions and subscription services. Forecasting our revenues and profitability for these new business models
is inherently uncertain and volatile. Our actual revenues and profits for these businesses may be significantly
greater or less than our forecasts. Additionally, these new business models could fail for one or more of our titles,
resulting in the loss of our investment in the development and infrastructure needed to support these new
business models, and the opportunity cost of diverting management and financial resources away from more
successful businesses.
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