2K Sports 2008 Annual Report Download - page 27

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Our competitors include regional, national and international distributors, as well as hardware
manufacturers and software publishers. We may lose market share or be forced in the future to reduce our
prices in response to our competitors. Our distribution business has been adversely affected by lower sales
volume of software titles, the availability of certain hardware products, a decrease in average selling prices
of interactive entertainment products as our industry transitions to current generation technology and
increased competition in the value software market.
A number of software publishers who compete with us have developed and commercialized or are
currently developing online games for use by consumers over the Internet. If technological advances
significantly increase the availability of online games and if consumer acceptance of online gaming grows
substantially, it could result in a decline in our platform-based software sales and negatively impact sales of
our products.
Increased competition for limited shelf space and promotional support from retailers could affect the success
of our business and require us to incur greater expenses to market our titles.
Retailers have limited shelf space and promotional resources and competition is intense among newly
introduced interactive entertainment software titles for adequate levels of shelf space and promotional
support. Competition for retail shelf space is expected to increase, which may require us to increase our
marketing expenditures to maintain desirable sales levels of our titles. Competitors with more extensive
lines and more popular titles may have greater bargaining power with retailers. Accordingly, we may not be
able, or we may have to pay more than our competitors, to achieve similar levels of promotional support
and shelf space.
A limited number of customers account for a significant portion of our sales. The loss of a principal customer
could seriously hurt our business.
A substantial portion of our product sales are made to a limited number of customers. Sales to our five
largest customers accounted for approximately 40.2%, 51.1% and 49.4% of our net revenue for the years
ended October 31, 2008, 2007 and 2006, respectively, with GameStop accounting for 13.1% of net revenue
for the year ended October 31, 2008. Our sales are made primarily pursuant to purchase orders without
long-term agreements or other commitments, and our customers may terminate their relationship with us
at any time. Certain of our customers may decline to carry products containing mature content. The loss of
our relationships with principal customers or a decline in sales to principal customers, including as a result
of a product being rated ‘‘AO’’ (age 18 and over), could materially adversely affect our business and
operating results. Furthermore, our customers may also be placed into bankruptcy, become insolvent or be
liquidated due to the recent turmoil in the economy, the global contraction of credit or for other factors.
Bankruptcies or consolidations of certain large retail customers could seriously hurt our business, including
as a result of uncollectible accounts receivable from such customers and the concentration of purchasing
power among remaining large retailers.
Returns of our products by our customers and price concessions granted to our customers may adversely affect
our operating results.
We are exposed to the risk of product returns and price concessions with respect to our customers. Our
distribution arrangements with customers generally do not give them the right to return titles to us or to
cancel firm orders. However, we sometimes accept product returns from our distribution customers for
stock balancing and negotiate accommodations to customers, which include credits and returns, when
demand for specific products falls below expectations. We accept returns and grant price concessions in
connection with our publishing arrangements and revenue is recognized after deducting estimated reserves
for returns and price concessions. While we believe that we can reliably estimate future returns and price
concessions, if return rates and price concessions for our products exceed our reserves, our revenue could
decline.
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