2K Sports 2004 Annual Report Download - page 15

Distribution
We distribute our own titles as well as third-party software, hardware and accessories in North America
through our Jack of All Games subsidiary. We distribute three major categories of third-party console and
handheld products, consisting principally of newly released and popular software titles, budget and catalog
software titles, and hardware.
We procure products from suppliers principally using standard purchase orders based on our assessment of
market demand, as well as pre-orders from retailers. We periodically enter into agreements with our suppliers
that provide exclusive distribution rights to certain products. We carry inventory quantities that we believe are
necessary to provide rapid response time to retailer orders. We utilize electronic data interchange with many
of our retailers to enhance the efficiency of placing and shipping orders and receiving payments.
Our Jack of All Games subsidiary maintains warehouse facilities and sales offices in Ohio and Toronto,
Canada. Products arrive at our warehouses to be picked, packed and shipped to customers. We generally ship
products by common carrier. Because we generally ship products within seven days of receipt of orders,
backlog is not material to our business.
Jack of All Games continues to capitalize on the growing installed base of hardware and the proliferation of
software titles and outlets to purchase software. It has established a strong presence in the budget segment
of the business due to its expanding portfolio of value-priced products and its expertise in selling these titles.
Jack of All Games continues to leverage this strategy by serving as the exclusive distributor of our value-
priced published products.
Manufacturing
Sony and Nintendo are the sole manufacturers of software products sold for use on their respective hardware
platforms. We begin the manufacturing process for our published titles by placing a purchase order for the
manufacture of our products with Sony or Nintendo and utilizing our line of credit with the manufacturer.
We then send software code and a prototype of the product to the manufacturer, together with related artwork,
user instructions, warranty information, brochures and packaging designs for approval, defect testing and
manufacture. Games manufactured by Sony and Nintendo are generally shipped within two weeks of receipt
of our manufacturing order. The same procedure applies to games for the Xbox, although Xbox games must
be manufactured by pre-approved manufacturers.
Production of PC software includes CD-ROM pressing, assembly of components, printing of packaging and
user manuals and shipping of finished goods, which is performed by third-party vendors in accordance with
our specifications, and, to a limited extent, by us. We believe that there are alternative sources for these
services that could be obtained without delay. We send software code and a prototype of a title, together
with related artwork, user instructions, warranty information, brochures and packaging designs to the
manufacturers. Games are generally shipped within two weeks of receipt of our manufacturing order.
To date, we have not experienced any material difficulties or delays in the manufacture of our titles or
material delays due to manufacturing defects. Our software titles carry a 90-day limited warranty.
Competition
In our publishing business, we compete both for licenses to properties and the sale of interactive entertainment
software with Sony, Microsoft and Nintendo, each of which is a large developer and marketer of software
for its own platforms. Each of these competitors has the financial resources to withstand significant price
competition and to implement extensive advertising campaigns, particularly for prime-time television spots.
These companies may also increase their own software development efforts or focus on developing software
products for third-party platforms.
We also compete with domestic companies such as Electronic Arts, Activision, THQ, Midway Games and
Atari and international companies such as SEGA, Vivendi, Ubi Soft, Eidos, Capcom, Konami and Namco.
In addition, we believe that large software companies and media companies are increasing their focus on the
interactive entertainment software market. Certain of our competitors are developing online interactive games
and interactive networks that may compete with our products for consumer dollars. Some of our competitors
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