Electronic Arts 2015 Annual Report Download - page 98

have increased by approximately $524 million, or 25 percent for the fiscal year ended March 31, 2015 as
compared to the fiscal year ended March 31, 2014. This increase is primarily due to our FIFA and Plants vs.
Zombies franchises, and Titanfall, partially offset by decreased revenue in our SimCity, Crysis, and Dead Space
franchises. In addition, our international investments and our cash and cash equivalents denominated in foreign
currencies are subject to fluctuations in foreign currency exchange rates and decline in value when the U.S. dollar
strengthens against the currencies in which our international investments are denominated.
Trends in Our Business
Digital Transformation. Our business continues to transform from a traditional packaged goods business model
to one in which our games and services are sold and delivered via a network connection, with digitally-delivered
content, features and services helping to extend the life of the respective game offering. For example, many of
our products that traditionally have been sold only as packaged goods products can now also be purchased and
downloaded via a network connection. We also include digitally-delivered content, features and services as part
of the product offering, either made available for free or at additional cost. For example, the Ultimate Team
mode incorporated into recent iterations of our FIFA, Madden NFL, NHL and NBA franchises and expansion
packs available digitally for our Battlefield and Sims franchises have kept many of our players engaged with
those games for longer periods of time. Additionally, our mobile and PC free-to-download games are available
solely via digital delivery and are typically monetized through a business model through which we sell
incremental content and/or features in discrete transactions. We also provide our EA Access service for the Xbox
One which offers players access to a selection of EA games and other benefits for a monthly or annual fee.
We significantly increased our digital net revenue from $1,440 million in fiscal year 2013 to $1,833 million in
fiscal year 2014 and $2,199 million during fiscal year 2015. We expect this portion of our business to continue to
grow through fiscal year 2016 and beyond.
Console System Transition. We have made and will continue to make significant investments in products and
services for the PlayStation 4 from Sony and Xbox One from Microsoft, and we also expect to continue to
develop and market products and services for the Microsoft Xbox 360 and the Sony PlayStation 3. Industry sales
of major games for these legacy consoles declined significantly during our 2015 fiscal year. Although the decline
in sales for legacy consoles was less than we anticipated during fiscal year 2015, we think that this sales decline
trend will continue. The success of our products and services for the new-generation consoles depends in part on
the commercial success and adequate supply of, as well as our ability to develop commercially successful
products and services for, these consoles.
Foreign Currency Exchange Rates. International sales are a fundamental part of our business, and the
significant strengthening of the U.S. Dollar during the second half of fiscal year 2015 (particularly relative to the
Euro, British pound sterling, Swedish krona and Canadian dollar) had a negative impact on our reported
international net revenues, but a positive impact on our reported international operating expenses because these
amounts were translated at lower rates in fiscal year 2015 than in fiscal year 2014. While we use foreign currency
hedging contracts to mitigate some foreign currency exchange risk, these activities are limited in the protection
that they provide us and can themselves result in losses. We currently anticipate foreign currency exchange rates
to have a negative impact on our expected reported net revenue in fiscal year 2016 as compared to fiscal year
2015, but the strengthening of the U.S. dollar is expected to have a positive impact on our reported operating
expenses as a significant portion of those expenses are incurred outside the United States.
Mobile and PC Free-to-Download Games. The proliferation of mobile phones and tablets has significantly
increased the consumer base for mobile games. The broad consumer acceptance of free-to-download business
models, which allow consumers to try new games with no up-front cost and pay for additional content or in-game
items, has led to growth in the mobile gaming industry. Likewise, the mass introduction and wide consumer
acceptance of free-to-download, micro-transaction-based PC games played over the Internet has also broadened
our consumer base. We expect revenue generated from mobile and PC free-to-download games to remain an
important part of our business.
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