2K Sports 2009 Annual Report Download - page 21

Our business is dependent on our ability to enter into successful software development arrangements with third
parties.
Our success depends on our ability to continually identify and develop new titles on a timely basis. We rely
on third party software developers for the development of some of our titles. Quality third party
developers are continually in high demand. Software developers who have developed titles for us in the
past may not be available to develop software for us in the future. Due to the limited number of third party
software developers and the limited control that we exercise over them, these developers may not be able
to complete titles for us on a timely basis or within acceptable quality standards, if at all. We have entered
into agreements with third parties to acquire the rights to publish and distribute interactive entertainment
software as well as to use licensed intellectual properties in our titles. These agreements typically require
us to make development payments, pay royalties and satisfy other conditions. Our development payments
may not be sufficient to permit developers to develop new software successfully, which could result in
material delays and significantly increase our costs to bring particular products to market. Software
development costs, promotion and marketing expenses and royalties payable to software developers and
third party licensors have increased significantly in recent years and reduce potential profits derived from
sales of our software. Future sales of our titles may not be sufficient to recover development payments and
advances to software developers and licensors, and we may not have adequate financial and other
resources to satisfy our contractual commitments to such developers. If we fail to satisfy our obligations
under agreements with third party developers and licensors, the agreements may be terminated or
modified in ways that are burdensome to us, and have a material adverse affect on our financial condition
and operating results.
We cannot publish our titles without the approval of hardware licensors that are also our competitors.
We are required to obtain licenses from Sony, Microsoft and Nintendo, which are also our competitors, to
develop and publish titles for their respective hardware platforms. Our existing platform licenses require
that we obtain approval for the publication of new titles on a title-by-title basis. As a result, the number of
titles we are able to publish for these hardware platforms, our ability to manage the timing of the release of
these titles and, accordingly, our net revenue from titles for these hardware platforms, may be limited. If a
licensor chooses not to renew or extend our license agreement at the end of its current term, or if a
licensor were to terminate our license for any reason or does not approve one or more of our titles, we may
be unable to publish that title as well as additional titles for that licensor’s platform. Termination of any
such agreements or disapproval of titles could seriously hurt our business and prospects. We may be unable
to continue to enter into license agreements for certain current generation platforms on satisfactory terms
or at all. Failure to enter into any such agreement could also seriously hurt our business.
Our platform licensors control the fee structures for online distribution of our games on their platforms.
Certain platform licensors have retained the right to change the fee structures for online distribution of
both paid content and free content (including patches and corrections) on their platforms. Each licensor’s
ability to set royalty rates makes it difficult for us to forecast our costs. Increased costs could negatively
impact our operating margins. We may be unable to distribute our content in a cost-effective or profitable
manner through this distribution channel, which could adversely impact our business and results of
operations.
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