2K Sports 2004 Annual Report Download - page 12

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Co-publishing and Distribution Arrangement with SEGA
Effective May 2004, we entered into a three-year agreement with SEGA Corporation, whereby we co-publish
and exclusively distribute SEGA’s sports titles. Under our current arrangement, we are entitled to receive all
of the revenue and profit, if any, from the sale of the sports titles developed by Visual Concepts and Kush,
and we are obligated to pay for development and marketing costs of the sports titles. The agreement may be
terminated by us under certain circumstances, including as a result of SEGA’s failure to obtain licenses from
the major sports leagues and players associations.
Pursuant to an option agreement with SEGA, we have the right to purchase all of the outstanding capital stock
of Visual Concepts and Kush. The option is exercisable until the earlier of (1) March 31, 2006 or (2) the
termination of our distribution agreement with SEGA. We are currently negotiating the option price, and we
are continuing to evaluate potential opportunities in the market for sports titles.
Software Content and Licensing
We have established a portfolio of successful proprietary software content. We own all of the intellectual
property rights associated with the following brands: Grand Theft Auto; Max Payne; Midnight Club;
Manhunt; Red Dead Revolver; Smuggler’s Run; Oni; Myth; Spec Ops; Railroad Tycoon; Tropico; Army Men;
and School Tycoon. We believe that content ownership facilitates our internal product development efforts and
maximizes profit potential.
In August 2003, we acquired all of the intellectual properties associated with Red Dead Revolver (subject to a
distribution license in Asia) in consideration of a royalty on future product sales and, in September 2003, we
acquired all the ownership rights associated with the Army Men brand. In May 2002, we acquired all of the
intellectual properties associated with the game Max Payne, as well as a royalty-free perpetual license to use
the Max Payne game engine technologies.
We also actively seek to acquire licenses for well-recognized properties. We acquired the exclusive worldwide
rights to create video games based on the theatrical motion picture entitled “The Warriors.” During fiscal
2004, we acquired exclusive rights to certain properties owned by the Cartoon Network, as well as exclusive
rights to, among other things, certain properties associated with Charlie and The Chocolate Factory. We
expect to continue to actively pursue selective acquisitions of property rights that we believe will enhance
our prospects.
Software Development
We develop most of our frontline software titles for our Rockstar label through our internal development
studios: Rockstar San Diego, the developer of Midnight Club and Smuggler’s Run; Rockstar North, the
developer of the Grand Theft Auto and Manhunt series; Rockstar Toronto, the developer of the PlayStation 2
versions of Max Payne and Max Payne 2: The Fall of Max Payne; Rockstar Vancouver; and Rockstar Vienna,
the developer of the Xbox versions of Max Payne and Max Payne 2: The Fall of Max Payne.
In March 2004, we acquired Mobius (Rockstar Leeds), a UK-based studio that specializes in developing titles
for handheld platforms such as Sony’s PSP. It is currently anticipated that Rockstar Leeds will develop
Rockstar titles for the PSP based on two of Rockstar’s premier brands.
We also develop products for the PC through our internal development studios: PopTop Software, the
developer of the Railroad Tycoon series and Tropico 2; Frog City, the developer of Tropico: Pirate Cove; and
Cat Daddy Games.
We recently acquired Venom, a UK-based studio and the developer of the successful boxing game Rocky.We
also recently acquired Indie, best known for developing Top Spin, the award-winning tennis game, Amped and
Amped 2, snowboarding games, and Links, a golf game.
As of October 31, 2004, our internal development studios and product development department had 755
employees with the technical capabilities to develop and localize (translate into foreign languages and make
other changes appropriate to the territory) software titles for all major hardware platforms and the PC in all
major territories.
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