2K Sports 2009 Annual Report Download - page 37

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and iPod touch. Rockstar is also well known for developing brands in other genres, including Bully,
Manhunt, Max Payne and Red Dead franchises, and introduced a new brand in the music genre this fall with
Rockstar Games and Timbaland present Beaterator.
2K Games has published a variety of popular entertainment properties across multiple genres and
platforms and we expect them to continue to develop new and successful franchises in the future. 2K
Games’ internally owned and developed franchises include the critically acclaimed, multi-million unit
selling BioShock, Mafia, and Sid Meier’s Civilization series. 2K Games also expanded the Sid Meier’s
Civilization series by releasing Sid Meier’s CivilizationRevolution onto mobile platforms for the iPhone
and iPod touch. 2K Games expects to further expand upon the Civilization franchise by introducing
Civilization Network exclusively on Facebook in calendar 2010. 2K Games has externally developed
titles that have included The Darknessand The Elder Scrolls IV: Oblivion, and released the externally
developed title Borderlandsin October 2009.
Our 2K Sports series, which includes Major League Baseball 2K, NBA 2K and NHL 2K, provides annual
revenue streams since they are generally published on a yearly basis. We develop most of our 2K Sports
software titles through our internal development studios including the Major League Baseball 2K series,
NBA 2K series, NHL 2K series, and our Top Spin tennis series. We develop certain of our 2K Sports titles
using external studios, including our Major League Baseball arcade baseball series The BIGS. 2K Sports
has secured long-term, third party exclusive licensing relationships with Major League Baseball Properties,
the Major League Baseball Players Association and Major League Baseball Advanced Media. In addition,
2K Sports has secured licensing agreements with the National Basketball Association (NBA) and the
National Hockey League (NHL).
2K Play focuses on developing and publishing titles for the market of casual and family-friendly games. 2K
Play titles are developed by both internal development studios and third party developers. Internally
developed titles include Carnival Games and Birthday Party Bash. This year, 2K Play announced a new
licensed casual and family-friendly, internally developed game, Ringling Bros. and Barnum & Bailey
Circus, which was released in November 2009. 2K Play also has a partnership with Nickelodeon to publish
video games based on its top rated Nick Jr. titles such as Dora the Explorer; Go, Diego, Go!; Ni Hao, Kai-lan
and The Backyardigans. In 2009, 2K Play began to work with several small independent developers to
publish casual gaming titles exclusively for XBLA, including Axel & Pixel and The Misadventures of P.B.
Winterbottom. We expect family-oriented gaming to continue to be a component of our industry in the
future.
We also have expansion initiatives in the Asia-Pacific markets, where our strategy is to broaden the
distribution of our existing products, expand our business in Japan, and establish an online gaming
presence, especially in China and Korea. In 2009, 2K Sports secured a multi-year license from the NBA to
develop an online version of the NBA simulation game in China, Taiwan, South Korea and Southeast Asia.
At the same time, 2K Sports announced a partnership with Tencent Holdings Limited, one of China’s
leading online game operators, to co-develop and distribute NBA 2K Online in China.
Our distribution business, which is comprised of our Jack of All Games subsidiary, distributes our products
as well as third party software, hardware and accessories to retail outlets primarily in North America.
Revenue in our distribution business is derived from the sale of third party software titles, hardware and
accessories in North America. Operating margins in our distribution business depend in large part on the
mix of software and hardware sales, with software sales generally yielding higher margins than hardware.
In September 2008, we agreed to outsource the pick, pack, ship and warehousing functions for our
publishing and distribution businesses to a third party logistics management solutions provider.
Additionally, we adopted a plan to reduce the number of units held in inventory in order to focus on higher
margin titles and improve the operating efficiency of the business. We also sold certain assets of our U.S.
based distribution business to the third party logistics management solutions provider.
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