2K Sports 2008 Annual Report Download - page 40

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Overview
Our Business
We are a global publisher, developer and distributor of interactive entertainment software, hardware and
accessories. Our publishing segment consists of our Rockstar Games, 2K Games, 2K Sports and 2K Play
publishing labels. We develop, market and publish software titles for the leading gaming and entertainment
hardware platforms including: Sony’s PLAYSTATION↦3 (‘‘PS3’’) and PlayStation2↦ (‘‘PS2’’) computer
entertainment systems; Sony’s PSP↦ (PlayStation↦Portable) (‘‘PSP’’) system; Microsoft’s Xbox 360↦
(‘‘Xbox 360’’) video game and entertainment system; Nintendo’s Wii↩ (‘‘Wii’’) and DS↩ (‘‘DS’’) systems;
and for the PC and Games for Windows↦. The installed base for the prior generation console platforms,
including PS2 (‘‘prior generation platforms’’) is substantial. The release of the PS3, Xbox 360, and Wii
platforms (‘‘current generation platforms’’) has further expanded the video game software market. Our
plan is to diversify and continue to expand the number of titles released on the current generation
platforms while continuing to market titles developed for prior generation platforms given their significant
installed base, as long as it is economically attractive to do so. Our distribution segment, which primarily
consists of our Jack of All Games subsidiary, distributes our products as well as software, hardware and
accessories produced by others to retail outlets in North America. We have pursued a strategy of
capitalizing on the widespread market acceptance of interactive entertainment, as well as the growing
popularity of innovative action, adventure, racing, role-playing, sports and strategy games that appeal to
the expanding demographic of video game players.
We endeavor to be the most creative, innovative and efficient company in our industry. Our strategy is to
capitalize on the expanding demographics of video game players, and focus on creating premium quality
games and successful franchises for which we can create sequels. We have established a portfolio of
successful proprietary software content for the major hardware platforms in a wide range of genres
including action, adventure, racing, role-playing, sports and strategy. We believe that our commitment to
creativity and innovation is a distinguishing strength, allowing us to differentiate many of our products in
the marketplace by combining advanced technology with compelling story lines and characters to provide
unique gameplay experiences for consumers. We have created, acquired or licensed a group of highly
recognizable brands to match the variety of consumer demographics we aspire to serve, ranging from
adults to children and hard-core game enthusiasts to casual gamers.
We publish our titles under four separate labels: Rockstar Games, 2K Games, 2K Sports and 2K Play, with
each label focused on distinct product genres and target demographics. We expect Rockstar Games, our
wholly-owned publisher of the hit Grand Theft Auto and Midnight Club franchises, to continue to be a
leader in the action product category by leveraging our existing titles as well as developing new brands. We
expect 2K Games, publisher of the internally developed, successful Sid Meier’s Civilization series and the
critically acclaimed BioShock title, to continue to develop new and successful franchises in the future. Our
2K Sports series, which includes Major League Baseball 2K, NBA 2K and NHL 2K, are published on an
annual basis and provide us with revenue streams that are consistent relative to our other products. We
established the 2K Play label to focus on the growing market of casual and family-oriented games. Carnival
Games has been a strong performing title, and 2K Play has continued to grow the franchise through
sequels and product extensions. 2K Play also has a partnership with Nickelodeon to publish video games
based on top rated Nick Jr. titles such as Dora the Explorer and Go, Diego, Go!. We have expansion
initiatives in the rapidly growing Asia Pacific markets, where our strategy is to broaden the distribution of
our existing products, develop a presence in Japan, and establish an online gaming presence, especially in
China and Korea.
Revenue in our publishing segment is primarily derived from the sale of internally developed software
titles and software titles developed on our behalf by third parties. Operating margins in our publishing
30