Electronic Arts 2016 Annual Report Download - page 96

Item 1A. Risk Factors
Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any
of the events or circumstances described below occurs, our business or financial performance could be harmed,
our actual results could differ materially from our expectations and the market value of our stock could decline.
The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and
uncertainties not currently known to us or that we currently do not believe could be material that may harm our
business or financial performance.
Our business is intensely competitive and “hit” driven. If we do not deliver “hit” products and services, or
if consumers prefer our competitors’ products or services over our own, our operating results could suffer.
Competition in our industry is intense. Many new products and services are regularly introduced in each major
industry segment (console, mobile and PC free-to-download), but only a relatively small number of “hit” titles
account for a significant portion of total revenue in each segment. Our competitors range from large established
companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the world. If
our competitors develop and market more successful products or services, offer competitive products or services
at lower price points, or if we do not continue to develop consistently high-quality and well-received products
and services, our revenue, margins, and profitability will decline.
We maintain a relatively limited product portfolio in an effort to focus on developing high-quality products with
the potential to become “hits”. High-quality titles, even if highly-reviewed, may not turn into “hit” products.
Many “hit” products within our industry are iterations of prior hit products with large established consumer bases
and significant brand recognition, which makes competing in certain product categories challenging. In addition,
hit products or services of our competitors may take a larger share of consumer spending than we anticipate,
which could cause our products and services to underperform relative to revenue expectations. Publishing a
relatively small number of major titles each year also concentrates risk in those titles and means each major title
has greater associated risk. The increased importance of extra content and live services revenue to our business
heightens this risk as extra content and live services for poorly-received or underperforming games may generate
lower than expected sales. A significant portion of our revenue has historically been derived from games and
services based on a few popular franchises. For example, in fiscal year 2016, net revenue generated from the sale
of products and services associated with our three largest franchises accounted for approximately 55 percent of
our net revenue. The underperformance of a single major title and the associated extra content may have a large
adverse impact on our financial results.
Our operating results will be adversely affected if we do not consistently meet our product development
schedules or if key events, sports seasons or movies that we tie our product release schedules to are
delayed, cancelled or poorly received.
Our ability to meet product development schedules is affected by a number of factors both within and outside our
control, including feedback from our players, the creative processes involved, the coordination of large and
sometimes geographically dispersed development teams, the complexity of our products and the platforms for
which they are developed, the need to fine-tune our products prior to their release, and, in certain cases,
approvals from third parties. We have experienced development delays for our products in the past, which caused
us to delay or cancel release dates. We also seek to release certain products in conjunction with key events, such
as the beginning of a sports season, major sporting event, or the release of a related movie. If such a key event
were delayed, cancelled or poorly received, our sales would likely suffer materially. Any failure to meet
anticipated production or release schedules would likely result in a delay of revenue and/or possibly a significant
shortfall in our revenue, increase our development and/or marketing expenses, harm our profitability, and cause
our operating results to be materially different than anticipated.
Our business is highly seasonal with the highest percentage of our sales occurring in the quarter ending in
December. While our sales generally follow this seasonal trend, there can be no assurance that this trend will
continue. If we miss key selling periods for products, for any reason, including product delays, product
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