Ubisoft 2009 Annual Report Download - page 35

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Costs have been kept under control as the production teams have been strengthened, by setting up sites in
countries such as China, India and Singapore, where production costs are lower.
In Canada, Ubisoft depends on substantial grants and any change in government policy could have a
significant impact on production costs and the Company’s profitability. Ubisoft ensures that it renegotiates
these agreements on a regular basis and does not foresee any risk over the next few years. The Group has
also concluded a new long-term agreement with the state of Ontario and is setting up a new studio in
Toronto.
Although the video games industry has been affected by the global economic crisis and is changing
dramatically, the market for consoles is expected to stabilize in 2010 thanks to positive prospects for the
Xbox 360™ and the PlayStation®3, which the Group has focused on. At the same time, the online gaming
sector is developing rapidly. This includes games that can only be played online, traditional games that
include an online multiplayer component and the development of online services such as Uplay and anti-
piracy solutions.
Even if 2010 saw a sharp deterioration in operating performance, the success of Assassin’s Creed® 2 and
Just Dance® shows that Ubisoft’s business model, which combines competitive development costs with a
varied range of own franchises, constant innovation and a high level of reactivity, is still relevant.
Nevertheless, the uncertain economic situation and the technological changes that are taking place may
continue to impact the Company’s performance.
1.1.7.1.3 Risks of a delay or poor start to the release of a flagship game
Seasonal trends in the video games business:
Sales/quarter in millions
of euros2009/2010 Breakdown 2008/2009 Breakdown 2007/2008 Breakdown
1st quarter83 10 % 169 16 % 134 15 %
2n
d
quarter83 10 % 175 17 % 127 14 %
3r
d
quarter495 56 % 508 48 % 450 48 %
4
th
quarter210 24 % 206 19 % 217 23 %
Consolidated annual
sales871 100 % 1,058 100 % 928 100 %
The third quarter of the financial year represents, on average, 51 % of annual sales over the last three
financial years.
In a very competitive and above all seasonal market, increasingly characterized by the need to release big
hits, the announcement of a delay in releasing an expected game may have a negative impact on the
Group’s income and future results and thus on the performance of its share price.
A game’s launch may be delayed by the difficulty in accurately predicting the time required to develop or test
it. This year, Ubisoft (like most other operators in the sector) had to delay several games, including, in
particular, Red Steel® 2 and Splinter Cell Conviction™.
The launch of a game below the standard required for it to fully realize its potential can negatively impact the
Company’s results. This is the case with sales of the game James Cameron’s Avatar: The Game™, which
have been lower than expected.
Whether in the organization of its teams or ongoing research into improving development processes, Ubisoft
relies on the efficiency of its in-house expertise and synergies between its studios in order to anticipate these
risks and alert the management teams as necessary.
1.1.7.1.4 Risks associated with recruiting and retaining talented staff
The Group’s success largely depends on the talent and skills of its production and marketing teams in a
highly competitive international market. If the Group were no longer able to attract and retain new talents, or