2K Sports 2008 Annual Report Download - page 20

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Item 1A. Risk Factors
Our business is subject to many risks and uncertainties, which may affect our future financial performance.
Because of the risks and uncertainties described below, as well as other factors affecting our operating
results and financial condition, past financial performance should not be considered to be a reliable
indicator of future performance and our business and financial performance could be harmed and the
market value of our securities could decline.
We depend on our key management and product development personnel.
Our continued success will depend to a significant extent on our senior management team and our
relationship with ZelnickMedia. In 2008, we amended our existing management agreement with
ZelnickMedia whereby it has agreed to provide executive management services to us and our Board
through October 31, 2012. We entered into this amendment in order to secure management resources
which we believe will allow us to grow our business and take advantage of opportunities in the interactive
entertainment marketplace. Our Executive Chairman, Chief Executive Officer and an Executive Vice
President are partners of ZelnickMedia. We are also highly dependent on the expertise, skills and
knowledge of certain of our Rockstar employees responsible for content creation and development of our
Grand Theft Auto titles and titles based on other brands. Although we entered into new long-term
employment agreements with members of the creative team of our Rockstar Games publishing label, we
may not be able to continue to retain these personnel at current compensation levels, or at all.
The loss of the services of our executive officers, ZelnickMedia or our key Rockstar employees could
significantly harm our business. In addition, if one or more key employees join a competitor or form a
competing company, we may lose additional personnel, experience material interruptions in product
development, delays in bringing products to market and difficulties in our relationships with licensors,
suppliers and customers, which could significantly harm our business. Failure to continue to attract and
retain other qualified management and creative personnel could adversely affect our business and
prospects.
We are dependent on the future success of our Grand Theft Auto products and we must continue to publish
‘‘hit’’ titles or sequels to such ‘‘hit’’ titles in order to compete successfully in our industry.
Grand Theft Auto and certain of our other titles are ‘‘hit’’ products and have historically accounted for a
substantial portion of our revenue. If we fail to continue to develop and sell new commercially successful
‘‘hit’’ titles or sequels to such ‘‘hit’’ titles or experience any delays in product releases or disruptions
following the commercial release of our ‘‘hit’’ titles or their sequels, our revenue and profits may decrease
substantially and we may incur losses. For the years ended October 31, 2008, 2007 and 2006, our Grand
Theft Auto titles accounted for 46.2%, 13.1% and 22.4% of our net revenue, respectively, and our 10 best
selling titles accounted for approximately 64.2%, 26.6% and 38.4% of our net revenue, respectively. In
addition, competition in our industry is intense and a relatively small number of hit titles account for a
large portion of total revenue in our industry. Hit products offered by our competitors may take a larger
share of consumer spending than we anticipate, which could cause revenue generated from our products to
fall below our expectations. If our competitors develop more successful products or services at lower price
points or based on payment models perceived as offering better value (such as pay-for-play or subscription-
based models), or if we do not continue to develop consistently high quality and well-received products and
services, our revenue and profitability may decline.
We may not fully realize the anticipated benefits resulting from the recently completed reorganization of our
executive management team and our business.
During the second quarter of 2007, five new members and one incumbent director were elected to our
Board at our annual meeting. Our Board then elected a new Chairman and a new Chief Executive Officer,
and also appointed one additional incumbent member and one additional new member to our Board, for a
10