2K Sports 2004 Annual Report Download - page 33

expectations. In future quarters our operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock could significantly decline.
Our business is cyclical, and we may fail to anticipate changing consumer preferences. Our business is
subject to all of the risks generally associated with the interactive entertainment software industry, which has
been cyclical in nature and has been characterized by periods of significant growth followed by rapid declines.
Our future operating results will depend on numerous factors beyond our control, including:
•the popularity, price and timing of new software and hardware platforms being released and distributed
by us and our competitors;
•international, national and regional economic conditions, particularly economic conditions adversely
affecting discretionary consumer spending;
•war, acts of terrorism and military action, which could adversely affect consumer preferences in
entertainment;
•changes in consumer demographics;
•the availability and popularity of other forms of entertainment; and
•critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted.
In order to plan for acquisition and promotional activities, we must anticipate and respond to rapid changes in
consumer tastes and preferences. A decline in the popularity of interactive entertainment software or particular
platforms could cause sales of our titles to decline dramatically. The period of time necessary to develop new
game titles, obtain approvals of manufacturers and produce finished products is unpredictable. During this
period, consumer appeal for a particular title may decrease, causing product sales to fall short of expectations.
Rapidly changing technology and platform shifts could hurt our operating results. The interactive
entertainment industry in general is associated with rapidly changing technology. As more advanced platforms
achieve market acceptance, consumer demand for software for older platforms declines.
We are continuing to devote significant development resources primarily on products designed for Sony’s
PlayStation 2 and Microsoft’s Xbox. If consumer demand for these platforms declines generally or as a result
of the next hardware transition cycle, we may experience lower than expected sales or losses from products
designed for these platforms.
We also have begun to devote significant development resources on products designed for next-generation
hardware platforms, initially for Microsoft’s Xbox 2. It is difficult to anticipate hardware development cycles
and we must make software development commitments and investment decisions well in advance of the
introduction of new hardware platforms. If new hardware platforms are delayed or do not achieve consumer
acceptance, we may not be able to recover our investments and our business and financial results could be
materially adversely affected.
A number of software publishers who compete with us have developed or are currently developing software
for use by consumers over the Internet. Future increases in the availability of such software or technological
advances in such software or the Internet could result in a decline in platform-based software and impact our
sales. Direct sales of software by major publishers over the Internet would materially adversely affect our
distribution business.
Our expansion into the market for sports and other licensed titles may not be successful. We are seeking to
diversify our product offerings by capitalizing on significant growth opportunities in the market for sports and
other licensed action and strategy titles. Our success in this market will depend in part on our ability to attract
licensors with popular properties and to enter into favorable arrangements with these licensors, including with
licensors representing the major sports leagues and players associations. Competition for sports and other
licensed properties is intense. If we are unable to obtain and maintain licenses to popular properties, our
revenue and profitability with respect to these products could decline dramatically. Competition for these
licenses also may increase advances and royalties payable to licensors. We may be unable to enter into
favorable license agreements, and our efforts to diversify our product offerings may not result in increased
revenues or profitability.
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