Blizzard 2005 Annual Report Download - page 32

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hardware฀to฀continue฀to฀grow฀given฀its฀current฀low฀price฀point;฀however,฀at฀a฀slower฀pace฀than฀previous฀years฀given฀the฀upcoming฀next-generation฀console฀transition.฀We฀
also฀expect฀fiscal฀2006฀GameCube฀net฀revenues฀to฀increase฀over฀fiscal฀2005฀given฀our฀planned฀2006฀product฀slate.฀Nintendo฀recently฀announced฀that฀they฀will฀be฀releasing฀
their฀next-generation฀console,฀the฀Revolution,฀in฀calendar฀2006.฀Given฀the฀initially฀low฀installed฀base,฀we฀expect฀the฀release฀of฀the฀Revolution฀to฀have฀little฀initial฀impact฀on฀
our฀net฀revenues.
Hand-held
(In thousands)
March 31, 2005
% of Publishing
Net Revenues March 31, 2004
% of Publishing
Net Revenues Increase/(Decrease) Percent Change
$138,695 13% $24,945 4% $113,750 456%
Net฀revenues฀from฀sales฀of฀titles฀for฀the฀hand-held฀for฀the฀year฀ended฀March฀31,฀2005฀increased฀456%฀from฀the฀prior฀fiscal฀year,฀from฀$24.9฀million฀to฀$138.7฀million.฀This฀
was฀driven฀mainly฀by฀a฀significant฀increase฀in฀the฀number฀of฀GBA฀titles฀released฀from฀four฀titles฀in฀fiscal฀2004฀to฀eleven฀titles฀in฀fiscal฀2005฀and฀the฀introduction฀of฀two฀new฀
handheld฀devices,฀NDS,฀which฀was฀released฀worldwide,฀and฀PSP,฀which฀was฀released฀in฀North฀America.฀We฀successfully฀executed฀our฀strategy฀of฀having฀a฀high-quality฀
presence฀at฀the฀launch฀of฀both฀the฀NDS฀and฀PSP฀platforms฀with฀one฀title฀based฀on฀the฀Spider-Man฀franchise฀at฀the฀launch฀of฀the฀NDS฀and฀two฀titles฀based฀on฀the฀Spider-Man฀
and฀Tony฀Hawk฀franchises฀for฀the฀launch฀of฀the฀PSP.฀In฀addition฀to฀the฀increase฀in฀the฀number฀of฀GBA฀titles฀released,฀we฀implemented฀a฀customized฀marketing฀plan฀for฀the฀
GBA฀platform฀and฀demographic฀to฀support฀a฀strong฀slate฀of฀new฀releases฀including฀
THUG 2, Shrek 2: Beg for Mercy!, Shark Tale, Lemony Snicket’s A Series of Unfortunate Events, Spider-Man 2
฀and฀
Shrek 2
฀which฀were฀all฀targeted฀toward฀the฀demographic฀of฀the฀GBA฀audience.
We฀expect฀the฀overall฀hand-held฀market฀to฀grow฀significantly฀with฀the฀recent฀releases฀of฀the฀NDS฀and฀PSP.฀However,฀with฀the฀releases฀of฀the฀NDS฀and฀PSP฀we฀expect฀that฀
market฀share฀for฀the฀GBA฀will฀eventually฀begin฀to฀decrease฀while฀the฀overall฀hand-held฀market฀will฀continue฀to฀expand฀with฀a฀growing฀installed฀base฀and฀broader฀demo-
graphic฀on฀the฀newer฀platforms.฀We฀expect฀to฀continue฀our฀focus฀on฀developing฀hand-held฀games฀for฀mass-market฀consumers฀for฀each฀of฀these฀hand-held฀platforms.฀
Due฀to฀the฀expected฀increase฀in฀the฀overall฀hand-held฀market฀and฀our฀fiscal฀2006฀product฀slate,฀we฀expect฀net฀revenues฀from฀sales฀of฀titles฀for฀the฀hand-held฀to฀increase฀
over฀fiscal฀2005.
Overall
The฀platform฀ mix฀of฀ our฀ future฀publishing฀net฀ revenues฀will฀likely฀ be฀impacted฀ by฀a฀number฀ of฀ factors,฀ including฀ the฀ ability฀ of฀ hardware฀manufacturers฀ to฀ continue฀ to฀
increase฀their฀installed฀hardware฀base,฀the฀introduction฀of฀new฀hardware฀platforms,฀as฀well฀as฀the฀timing฀of฀key฀product฀releases฀from฀our฀product฀release฀schedule.฀We฀
expect฀that฀net฀revenues฀from฀console฀titles฀will฀continue฀to฀represent฀the฀largest฀component฀of฀our฀publishing฀net฀revenues฀with฀PS2฀having฀the฀largest฀percentage฀of฀
that฀business฀due฀to฀its฀larger฀installed฀hardware฀base.฀We฀expect฀net฀revenues฀from฀hand-held฀titles฀to฀remain฀the฀smallest฀component฀of฀our฀publishing฀net฀revenues.฀
However,฀with฀the฀recent฀releases฀of฀the฀NDS฀and฀PSP฀platforms,฀we฀expect฀to฀see฀a฀continued฀increase฀in฀our฀hand-held฀business฀in฀comparison฀to฀prior฀periods.฀Our฀
net฀revenues฀from฀PC฀titles฀will฀be฀primarily฀driven฀by฀our฀product฀release฀schedule.
A฀significant฀portion฀of฀our฀revenues฀and฀profits฀is฀derived฀from฀a฀relatively฀small฀number฀of฀popular฀titles฀and฀brands฀each฀year฀as฀revenues฀and฀profits฀are฀significantly฀
affected฀by฀our฀ability฀to฀release฀highly฀successful฀or฀“hit”฀titles.฀ For฀ example,฀for฀the฀ year฀ended฀March฀31,฀2005,฀31%฀of฀our฀consolidated฀net฀revenues฀and฀41%฀of฀
worldwide฀publishing฀net฀revenues฀were฀derived฀from฀net฀revenues฀from฀our฀
Spider-Man 2, THUG 2
฀and฀
Call of Duty: Finest Hour
฀titles.฀Though฀many฀titles฀have฀substantial฀production฀
or฀ acquisition฀costs฀ and฀marketing฀budgets,฀once฀ a฀title฀ recoups฀these฀costs,฀incremental฀net฀ revenues฀directly฀and฀positively฀impact฀ operating฀profits฀ resulting฀in฀a฀
disproportionate฀amount฀of฀operating฀income฀being฀derived฀from฀these฀select฀ titles.฀We฀expect฀that฀a฀limited฀number฀of฀titles฀and฀ brands฀will฀continue฀ to฀produce฀a฀
disproportionately฀large฀amount฀of฀our฀net฀revenues฀and฀profits.
page 30
Activision, Inc. — 2005 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations