Electronic Arts 2014 Annual Report Download - page 87

Annual Report
unable to get our products and services approved, manufactured and distributed to customers. For the fiscal year
ended March 31, 2014, 55 percent of our net revenue was derived from products and services for Sony’s
PlayStation 3 and 4 and Microsoft’s Xbox 360 and One consoles (combined across all four platforms). For our
digital products and services delivered direct to consumers via digital channels such as Sony’s PlayStation
Network, Microsoft’s Xbox LIVE Marketplace, Apple’s App Store and the Google Play store, the channel
partner has policies and guidelines that control the promotion and distribution of these titles and the features and
functionalities that we are permitted to offer through the channel.
In addition, while we have negotiated agreements in place with our channel partners - these agreements reserve
the right by our channel partners to determine and change unilaterally certain key terms and conditions, including
the ability to change their user and developer policies and guidelines, which can negatively impact our business.
If our channel partners establish terms that restrict our offerings through their channels, or significantly impact
the financial terms on which these products or services are offered to our customers, our business could be
harmed.
Acquisitions, investments and other strategic transactions could result in operating difficulties, dilution to
our investors and other negative consequences.
We expect to continue making acquisitions or entering into other strategic transactions including (1) acquisitions
of companies, businesses, intellectual properties, and other assets, (2) minority investments in strategic partners,
and (3) investments in new interactive entertainment businesses (e.g., online and mobile publishing platforms) as
part of our long-term business strategy. These transactions involve significant challenges and risks including that
the transaction does not advance our business strategy, that we do not realize a satisfactory return on our
investment, that we acquire unknown liabilities, or that we experience difficulty in the integration of business
systems and technologies, the integration and retention of new employees, or in the maintenance of key business
and customer relationships of the businesses we acquire, or diversion of management’s attention from our other
businesses. These events could harm our operating results or financial condition.
Future acquisitions and investments could also involve the issuance of our equity and equity-linked securities
(potentially diluting our existing stockholders), the incurrence of debt, contingent liabilities or amortization
expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased cash and non-
cash expenses, such as stock-based compensation. Any of the foregoing factors could harm our financial
condition or prevent us from achieving improvements in our financial condition and operating performance that
could have otherwise been achieved by us on a stand-alone basis. Our stockholders may not have the opportunity
to review, vote on or evaluate future acquisitions or investments.
If we are unable to maintain or acquire licenses to include intellectual property owned by others in our
games, or to maintain or acquire the rights to publish or distribute games developed by others, our
business may be harmed.
Many of our products are based on or incorporate intellectual property owned by others. For example, our EA
SPORTS products include rights licensed from major sports leagues and players’ associations. Similarly, other
products are based on film and literary licenses and our Hasbro products are based on a license for certain of
Hasbro’s toy and game properties. We also publish and distribute products developed and owned by third-parties
under license agreements with these parties. Competition for these licenses and rights is intense. If we are unable
to maintain these licenses and rights or obtain additional licenses or rights with significant commercial value, our
revenues, profitability and cash flows may decline significantly. Competition for these licenses may also drive up
the advances, guarantees and royalties that we must pay to licensors and developers, which could significantly
increase our costs and reduce our profitability.
Our business is subject to risks generally associated with the entertainment industry, any of which could
significantly harm our operating results.
Our business is subject to risks that are generally associated with the entertainment industry, many of which are
beyond our control. These risks could negatively impact our operating results and include: the popularity, price
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