2K Sports 2004 Annual Report Download - page 10

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acquired certain assets from Microsoft Corporation, including Indie Built (“Indie”), the developer of the
successful Top Spin (tennis), Amped and Amped 2 (snowboarding) and Links (golf) sports games, and the
intellectual property rights associated with these products. In addition, we acquired Venom Games Limited
(“Venom”), a UK-based developer of the boxing games Rocky and Rocky Legends. See “Co-publishing and
Distribution Agreement with SEGA,” “Management’s Discussion and Analysis of Financial Corporations
Results of Operations — Business Acquisitions” and Note 3 to Consolidated Financial Statements.
Industry Overview
Expanding gamer demographics has driven demand for interactive entertainment software in recent years.
Video games have increasingly become a mainstream entertainment choice for a maturing, technologically
sophisticated audience. According to the International Development Group (“IDG”), the average age of
Americans who play video and PC games is 29, with an estimated 60% of all Americans, or approximately
145 million people, playing video games on a regular basis.
According to IDG, sales of video game hardware and software and PC games reached $11.2 billion in the
United States, and $8.2 billion in Europe, in 2003. Strong demand for interactive software games is expected
to continue as a result of increasing penetration of video game console platforms. Video game hardware
manufacturers offer platforms with more powerful and realistic graphics, backwards compatibility (the ability
to play the platforms’ previous generation of games), broadband connectivity and media convergence features.
Sony has announced plans to launch the PlayStation Portable™ (“PSP”), a multipurpose handheld platform
for games, movies and music, which is expected to become available in North America in March 2005. We
recently acquired Mobius Entertainment Limited (“Mobius”), a UK-based developer of games designed
to operate on handheld devices, such as Sony’s PSP. Nintendo recently introduced the DS, a dual screen
handheld gaming device, featuring a touch screen, wireless gameplay and text messaging capabilities. Also,
Microsoft is expected to launch its next-generation platform, the Xbox 2, for the 2005 holiday season, and
Sony is expected to launch its next-generation platform, the PlayStation 3, in 2006. These platforms are
expected to accelerate the fusion of music, movies, video gameplay and online computer entertainment.
We have devoted our principal efforts and resources toward developing highly successful cutting edge
proprietary intellectual properties; establishing well-known product brands with significant potential for
sequels; and focusing our creative efforts on delivering games that are attractive to a broad demographic. We
continue to diversify our publishing operations, and our Jack of All Games distribution subsidiary continues to
capitalize on the growing installed base of hardware and the proliferation of software titles and outlets to
purchase software. We believe that we are positioned for future growth as the interactive entertainment
industry continues to expand and evolve.
Fiscal 2004 Product Launches
We publish products in the action, racing, strategy, sports and simulation genres. During fiscal 2004, we
published 9 new internally developed titles and 33 new titles developed by third parties. Of these titles,
3 internally developed titles and 4 externally developed titles sold more than one million units across all
platforms, and 7 externally developed titles sold more than 500,000 units across all platforms.
Grand Theft Auto products accounted for approximately 34.3% of our revenues for fiscal 2004, with Grand
Theft Auto: San Andreas for the PlayStation 2; Grand Theft Auto Double Pack for the Xbox; and Grand Theft
Auto: Vice City for the PlayStation 2 accounting for 20.9%, 5.7% and 3.6%, respectively, of our revenues for
this year. No other product accounted for more than 10% of our revenues for this year.
Our frontline products sell at retail for $49.95 in North America. Products that are designated Sony’s Greatest
Hits and Microsoft’s Platinum Hits sell for $19.99. We currently offer our sports titles at $19.99, and we
position other value-priced product offerings at $9.99. We include online capability features in certain of our
PC, PlayStation 2 and Xbox titles, which permits users to play against one another on the Internet.
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