Electronic Arts 2015 Annual Report Download - page 87

Annual Report
If our marketing and advertising efforts fail to resonate with our customers, our business and operating
results could be adversely affected.
Our products and services are marketed worldwide through a diverse spectrum of advertising and promotional
programs such as online and mobile advertising, television advertising, retail merchandising, website
development, event sponsorship and direct communications with our consumers including via email. Our ability
to sell our products and services is dependent in part upon the success of these programs. If the marketing for our
products and services fails to resonate with our customers, particularly during the critical holiday season or
during other key selling periods, or as advertising rates or other media placement costs increase, these factors
could have a material adverse impact on our business and operating results.
A significant portion of our sales are made to a relatively small number of key customers. If these
customers reduce their purchases of our products and services or become unable to pay for them, our
business could be harmed.
During the fiscal year ended March 31, 2015, approximately 58 percent of our net revenue was derived from our
top ten customers. Though our products are available to consumers through a variety of retailers and directly
through us, the concentration of our sales in one, or a few, large customers could lead to a short-term disruption
in our sales if one or more of these customers significantly reduced their purchases or ceased to carry our
products and services, and could make us more vulnerable to collection risk if one or more of these large
customers became unable to pay for our products or declared bankruptcy. Additionally, our receivables from
these large customers generally increase significantly in the December quarter as they make purchases in
anticipation of the holiday selling season. Having such a large portion of our total net revenue concentrated in a
few customers could reduce our negotiating leverage with these customers. If one or more of our key customers
experience deterioration in their business, or become unable to obtain sufficient financing to maintain their
operations, our business could be harmed.
Our channel partners have significant influence over the products and services that we offer on their
platforms.
Our products and services are sold to customers, primarily through retailers and online through our channel
partners, including Sony, Microsoft, Apple and Google. In many cases, our channel partners set the rates that we
must pay to provide our games and services through their online channels. In certain cases, our channel partners
retain flexibility to change their fee structures or adopt different fee structures for their online channels, which
could adversely impact our costs, profitability and margins.
Outside of the financial arrangements, our agreements with our channel partners typically give them significant
control over other aspects of the distribution of the products and services that we develop for their platform. For
example, our agreements with Sony and Microsoft typically give significant control to them over the approval,
manufacturing and distribution of our products and services, which could, in certain circumstances, leave us
unable to get our products and services approved, manufactured and distributed to customers. For the fiscal year
ended March 31, 2015, 66 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.
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