2K Sports 2004 Annual Report Download - page 14

in the event of our bankruptcy. Upon termination of all of our agreements with Nintendo, we have certain
rights to sell off existing inventories. We also entered into a similar three-year agreement with Nintendo for
GameCube covering European territories.
We also entered into an agreement with Nintendo that expires in July 2007, granting us the right and license
to develop software for Nintendo’s Game Boy Advance in the western hemisphere. We entered into a similar
agreement with Nintendo for European territories.
Sales and Marketing
We sell software titles to retail outlets in North America and Europe through direct relationships with large
retail customers and third-party distributors. Our customers in North America include Best Buy, Blockbuster,
Circuit City, Electronics Boutique, GameStop, Target, Toys “R” Us, Wal-Mart and other leading mass
merchandisers; video, electronic and toy stores; national and regional drug stores; supermarket and discount
store chains; and specialty retailers. Our European customers include Carrefour, Dixons, Game Group
(formerly Electronics Boutique), Karstadt, and Media Saturn. We have sales and marketing operations in
Australia, Austria, Canada, France, Germany, Holland, Italy, New Zealand, Spain and the United Kingdom.
For fiscal 2004, sales to our five largest customers accounted for approximately 38.9% of our revenues, with
Wal-Mart accounting for 10.4% of our revenues. No other customer accounted for more than 10% of our
revenues for this year.
Our marketing and promotional efforts are intended to maximize exposure and broaden distribution of our
titles, promote brand name recognition, assist retailers and properly position, package and merchandise our
titles. We market titles by implementing public relations campaigns, using print and on-line advertising,
television, radio spots and outdoor advertising. For fiscal 2004, we incurred selling and marketing costs of
$117.6 million. We label and market our products in strict accordance with Entertainment Software Rating
Board (ESRB) principles and guidelines.
Our Rockstar Games subsidiary actively pursues relationships with participants in the music and entertainment
industries. We believe that the shared demographics between various media and some of the software titles
marketed by Rockstar Games provide excellent cross-promotional opportunities. We have been working with
popular recording artists to create sophisticated game soundtracks, have entered into agreements to license
high-profile names and likenesses, and have arrangements for co-branding opportunities. Rockstar, in
collaboration with Interscope Records, an affiliate of Universal Music Group, also released an eight-CD box
set soundtrack to Grand Theft Auto: San Andreas with more than 80 tracks, including in-game radio stations
featuring a mix of rap, rock, country and R&B.
To date, Max Payne,Midnight Club,Midnight Club 2, Conflict: Desert Storm,Smuggler’s Run,Grand Theft
Auto 3,Grand Theft Auto: Vice City,Manhunt and State of Emergency have been designated Sony’s Greatest
Hits Program titles. Max Payne, Midnight Club 2, and Conflict: Desert Storm have been designated
Microsoft’s Platinum Hits Program titles. To qualify for these programs under our agreements with hardware
manufacturers, our products had to satisfy certain shelf life and sales requirements. In connection with these
programs, we receive manufacturing discounts from Sony and Microsoft. Nintendo has also established a
Player’s Choice Program for the Nintendo GameCube.
We seek to stimulate continued sales and maximize profit potential by reducing the wholesale prices of our
products to retailers at various times during the life of a product. Price concessions may occur at any time in
a product’s life cycle, but typically occur six to nine months after a product’s initial launch. A significant
amount of our price concessions to retailers relates to products designated as a Greatest or Platinum Hits
Program title offered by Sony and Microsoft. Price concessions related to these Programs in fiscal 2004 and
2003 amounted to $5.5 million and $33.4 million, respectively. In certain international markets, we provide
volume rebates to stimulate continued product sales.
We also employ various other marketing methods designed to promote consumer awareness, including in-store
promotions and point-of-purchase displays, direct mail, co-operative advertising, as well as attendance at trade
shows. We employ separate sales forces for our publishing and distribution operations. As of October 31,
2004, we had a sales and marketing staff of 237 persons.
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