2K Sports 2004 Annual Report Download - page 32

rates, shipping delays and international political, regulatory and economic developments, all of which can
have a significant impact on our operating results.
Risk Factors
The market for our titles is characterized by short product life cycles. The market for our titles is
characterized by short product life cycles and frequent introductions of new products. New products
introduced by us may not achieve significant market acceptance or achieve sufficient sales to permit us to
recover development, manufacturing and marketing costs. The life cycle of a game generally involves a
relatively high level of sales during the first few months after introduction followed by a decline in sales,
although sales of certain products may extend for significant periods of time, including through our election to
participate in Sony’s Greatest Hits and Microsoft’s Platinum Hits programs. Because revenues associated with
the initial shipments of a new product generally constitute a high percentage of the total revenues associated
with the life of a product, any delay in the introduction of one or more new products could adversely affect
our operating results for particular periods. If we introduce a relatively limited number of new products in any
period, the failure of one or more of our products to achieve market acceptance could adversely affect our
operating results.
A significant portion of our revenues is derived from a limited number of titles. For the year ended
October 31, 2004, our ten best selling titles accounted for approximately 46.3% of our revenues, with Grand
Theft Auto: San Andreas for the PlayStation 2 accounting for 20.9% of our revenues; Grand Theft Auto
Double Pack for the Xbox accounting for 5.7% of our revenues; Grand Theft Auto: Vice City for PlayStation 2
accounting for 3.6% of our revenues; Max Payne 2: The Fall of Max Payne for PlayStation 2 accounting
for 3.2% of our revenues; and Manhunt for PlayStation 2 accounting for 2.9% of our revenues. For the year
ended October 31, 2003, our ten best selling titles accounted for approximately 50.6% of our revenues, with
Grand Theft Auto: Vice City for PlayStation 2 accounting for 33.6% of our revenues; Midnight Club 2 for
PlayStation 2 accounting for 4.1% of our revenues, and Grand Theft Auto: Vice City for PC accounting
for 2.6% of our revenues. For the year ended October 31, 2002, our ten best selling titles accounted for
approximately 59.5% of our revenues. If we fail to continue to develop and sell new, commercially successful
titles, our revenues and profits may decrease substantially and we may incur losses.
Our quarterly operating results may vary significantly, which could cause our stock price to decline. We have
experienced and may continue to experience wide fluctuations in quarterly operating results. The interactive
entertainment industry is highly seasonal, with sales typically higher during the fourth calendar quarter (our
fourth and first fiscal quarters), due primarily to the increased demand for games during the holiday buying
season. Our failure or inability to introduce products on a timely basis to meet seasonal fluctuations in
demand will harm our business and operating results. These fluctuations could also cause our stock price to
decline. Other factors that cause fluctuations include:
•delays in the introduction of new titles;
•the size and timing of product and business acquisitions;
•variations in sales of titles designed to operate on particular platforms;
•development and promotional expenses relating to the introduction of new titles;
•availability of hardware platforms;
•the timing and success of title introductions by our competitors;
•product returns and price concessions; and
•the timing of orders from major customers.
Our expense levels are based, in part, on our expectations regarding future sales and therefore our operating
results would be harmed by a decrease in sales or a failure to meet our sales expectations. The uncertainties
associated with interactive entertainment software development, manufacturing lead times, production delays
and the approval process for products by hardware manufacturers and other licensors make it difficult to
predict the quarter in which our products will ship and therefore may cause us to fail to meet financial
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