2K Sports 2009 Annual Report Download - page 36

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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 and hardware.
Our publishing business consists of our wholly-owned labels Rockstar Games and 2K, which publishes its
titles under 2K Games, 2K Sports and 2K Play. We develop, market and publish software titles for the
leading gaming and entertainment hardware platforms including: Sony’s PlayStation3 (‘‘PS3’’) and
PlayStation2 (‘‘PS2’’) computer entertainment systems; Sony’s PSP (PlayStationPortable) (‘‘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. We also selectively develop
and publish titles for digital distribution via Sony’s PlayStationNetwork (‘‘PSN’’) and Microsoft’s Xbox
LIVEMarketplace (‘‘Xbox LIVE’’) and Xbox LIVEArcade (‘‘XBLA’’), as well as digitally offer our
PC titles through online download stores and services such as Steam. We have also begun to develop and
publish titles for the iPhone and iPod touch. The global installed base for the prior generation of
platforms, including PS2 and DS (‘‘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. We are continuing to increase the number of titles released on the current generation
platforms while also developing titles for certain prior generation platforms such as PS2 and DS given their
significant installed base, as long as we believe it is economically attractive to do so. Our distribution
business, which 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 interactive entertainment market, particularly the expanding demographics of video game
players, and focus on creating premium quality games and successful franchises for which we can create
sequels. We develop most of our frontline products internally and own the intellectual property associated
with most of our titles, which we believe best positions us financially and competitively. We have
established a portfolio of 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 storylines and
characters that 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 game enthusiasts to casual gamers.
Revenue in our publishing business 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
business are dependent in part upon our ability to continually release new, commercially successful
products and to manage software product development costs. We have internal development studios
located in Australia, Canada, China, the Czech Republic, the United Kingdom and the United States.
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 franchises as
well as developing new brands, including Agent. Rockstar continues to expand on our established
franchises by releasing sequels as well as offering downloadable episodes and content. The critically
acclaimed Grand Theft Auto: Chinatown Wars from Rockstar Leeds, the winner of the 2009 Develop Award
for Best Handheld Game Studio, is expected to be released next year onto mobile platforms for the iPhone
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