THQ 2005 Annual Report Download - page 30

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Our product development team manages the development of our games in a way which we believe
encourages creativity and innovation while allowing us to implement our methodologies through the
development cycle to assure product quality. Our procedure for the selection, development, production
and quality assurance of our internally and externally produced interactive entertainment software titles is
known as the “Greenlight Process.” The Greenlight Process beginswith the concept visualization stage, in
which we evaluate and assess the opportunity for a product and determine whether anintellectual property
will translate well into a game. Part of the green-light process is the identification of the development
resource; whether a title will be developed using internal or external development resources. With respect
to licensed properties, our strategy is to develop games based on our long-term key properties, such as
those licensed from Disney/Pixar and Nickelodeon, using our internal studios so that we maintain greater
control over the development process and obtain a higher operating margin. Original properties are
generally developed by either an internal studio or third-party developer which created the intellectual
property.
Once we determine where a product will be developed, our internal product development team oversees
the internal or external developer in its design, technical assessment and construction of each game. Upon
completion of development, each game is extensively play-tested by us to ensure compatibility with the
appropriate hardware systems and configurations and to minimize the number of bugs and other defects
found in the products. If required, we also send the game to the manufacturer for its review and approval.
The development cycle for a new game depends on the platform and whether it is based on an original or
licensed property. Licensed properties generally have a shorter development cycle than an original
property since the concepts have already been created. Additionally, when developing an intellectual
property into a game which is simultaneously being made into a motion picture, our development schedule
is designed to ensure that our games are commercially available by the motion picture’s release. The
development cycle for console platforms, PC games and the PSP system generally ranges from 12 to 24
months, Game Boy Advance ranges from6 to9 months, Nintendo DS ranges from 9 to 12 months and
wireless games range from 6 to 9 months. These relatively long development cycles require that we assess
whether there will be adequate retailer and consumer demand for a game well in advance of its release.
To support our products after release, we provide online access to our customers on a 24-hour basis as well
as operator help lines during regular business hours. The customer support group tracks customer
inquiries, and we use this data to help improve the development and production processes.
Manufacturing
Other than games that we release for sale on PCs or wireless devices, our video games are manufactured
for us by the platform manufacturers or their authorized vendors. We contract with various PC replicators
for the manufacturing of our PC products.
The platform game manufacturing process beginswith our placing apurchase order with a manufacturer.
We then send the software code and a prototype of the game to the manufacturer, together with related
artwork, user instructions, warranty information, brochures and packaging designs, for approval, defect
testing, and manufacture.
We are required by our platform licenses to provide a standard defective product warranty on all of the
products sold. Generally, we are responsible for resolving, at our own expense,any warrantyor repair
claims. We have not experienced any material warranty claims, but there is no guarantee that we will not
experience such claims in the future.