Electronic Arts 2016 Annual Report Download - page 98

failure to prevent or mitigate security breaches or cyber risk could result in interruptions to the services we
provide, degrade the user experience, cause our users to lose confidence in our products, as well as significant
legal and financial exposure. This could harm our business and reputation, disrupt our relationships with partners
and diminish our competitive position.
Successful exploitation of our systems can have other negative effects upon the products, services and user
experience we offer. In particular, the virtual economies that we have established in many of our games are
subject to abuse, exploitation and other forms of fraudulent activity that can negatively impact our business.
Virtual economies involve the use of virtual currency and/ or virtual assets that can be redeemed by a player
within a particular game or game service. The abuse or exploitation of our virtual economies include the
illegitimate generation and sale of virtual items in black markets. Our online services have been impacted by
in-game exploits and the use of automated processes to generate virtual currency illegitimately in the past, which
were traded in black markets. These kinds of activities and the steps that we take to address these issues may
result in a loss of anticipated revenue, interfere with players’ enjoyment of a balanced game environment and
cause reputational harm.
We may experience outages and disruptions of our online services that may harm our business.
We are investing and expect to continue to invest in technology, hardware and software to support the online
functionality of our portfolio of products and services. Launching and operating games and services with online
features, developing related technologies and implementing online business initiatives is expensive and complex.
Execution of these initiatives could result in operational failures and other issues impacting the technical stability
of our products and services. In addition, having the necessary infrastructure to support the online functionality
of our products and services is vital to our growth and success. Our products and services could be adversely
impacted by outages, disruptions and failures in our network and related infrastructure, as well as in the online
platforms or services of key business partners who offer or support our products and services.
Our business is subject to currency fluctuations.
International sales are a fundamental part of our business. For our fiscal year ended March 31, 2016, international
net revenue comprised 57 percent of our total net revenue, and we expect international sales to continue to
account for a significant portion of our total net revenue. As a result of our international sales, and also the
denomination of our foreign investments and our cash and cash equivalents in foreign currencies, we are exposed
to the effects of fluctuations in foreign currency exchange rates. Strengthening of the U.S. dollar, particularly
relative to the Euro, British pound sterling, Australian dollar, Chinese yuan and South Korean won, has a
negative impact on our reported international net revenue but a positive impact on our reported international
operating expenses (particularly when the U.S. dollar strengthens against the Swedish krona and the Canadian
dollar) because these amounts are translated at lower rates. For example, during our fiscal year ended March 31,
2016, our reported international revenue would have been $266 million higher and our operating expenses would
have been $113 million higher on a constant currency basis. We use foreign currency hedging contracts to
mitigate some foreign currency risk. However, these activities are limited in the protection they provide us from
foreign currency fluctuations and can themselves result in losses.
Declines or fluctuations in the recurring portion of our business may have a negative impact on our
financial and operating results.
Our business model includes revenue that we deem recurring in nature, such as revenue from our annualized
titles (e.g., FIFA and Madden NFL), and associated services, and ongoing mobile businesses. While we are
confident in our ability to forecast the revenue from these areas of our business with greater certainty than for
new offerings, we cannot provide assurances that consumers will purchase these games and services on a
consistent basis. Furthermore, we may cease to offer games and services that we previously had deemed to be
recurring in nature. Consumer purchases of our games and services may decline or fluctuate as a result of a
number of factors, including their level of satisfaction with our games and services, our ability to improve and
innovate our annualized titles, our ability to adapt our games and services to new platforms, outages and
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