THQ 2005 Annual Report Download - page 67

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RISK FACTORS
Our business is subject to many risks and uncertaintieswhich may affect our future financial performance.
Some of those important risks and uncertainties whichmay cause our operating results to vary or which
may materially and adversely affect our operating results are as follows:
We must continue to develop and sell new titles in order to remain profitable.
Our profitability has directly resulted from our ability to develop and sell successful new titles for use on
multiple platforms. Consumer preferences for games are difficult to predict, and even the most successful
titles remain popular for only limited periods of time, often less than six months. The life cycle of a game
generally consists of a relatively high level of sales during the first few months after introduction, followed
by a decline in sales. In some instances, a sales decline may also be accompanied by decreasing sales prices,
which may result in credits or allowances to our customers.
We rely on a relatively small number of brands for a significant portion of our sales.
A small number of our products make up a substantial portion of our sales each year, and these products
are responsible for a disproportionate amount of our net income. In fiscal 2005, sales of titles for our three
top-selling brands, Disney/Pixar, Nickelodeon,and WWE were 21%, 17% and 14% of net sales,
respectively, and in fiscal 2004, net sales of products based on such brands were 18%, 16% and 16%,
respectively. For the twelvemonths ended March 31, 2003, sales of titles for our three top selling brands,
Nickelodeon, WWE, and Scooby-Doo! were 22%, 20% and 9% of net sales, respectively. A limited number
of brands may continue to produce a disproportionately large amountof our sales. Due to this dependence
on a limited number of brands, the failure of one or more products based on these brands to achieve
anticipated results may significantly harm our business and financial results.
Additionally, we are currently involved in litigation with the WWE with respect to our video game license.
Since WWE titles make up a significant portion of our sales, our inability to retain the license could harm
us.
Our inability to acquire or create intellectual property rights which have a high level of consumer
recognitionor acceptance couldharm us.
Approximately two-thirds of our net sales in fiscal 2005, fiscal 2004 and the twelve months ended
March 31, 2003 was derived from products based on popular licensed properties. Our economic success
could be limited by our inability to obtain other mass-market licenses in the future. Additionally, a
decrease in the popularity of the underlying property of our licenses could negatively impact our ability to
sell products based on such licenses.
We also generate revenue from wholly-owned intellectual property. The success of our internal brands
depends on our ability to create original ideas which appeal to the core gamer. Titles based on wholly-
owned intellectual property can be expensive to develop and marketsince they do not have a built-in
consumer base or licensor support. Our inability to create new products targeted at the core gamer could
impact our operations.
Our inability toenter intoagreements with the manufacturers to develop, publish and distribute titles on
their platforms could seriously impact our operations.
We are dependent on the platform manufacturers and our non-exclusive licenses with them, both for the
right to publish titles for their platforms and for the manufacture of our products for their platforms. Our
existing platform licenses require that we obtain approval for the publication of new games on a title-by-
title basis. Asa result, the number of titles we are able to publish for these platforms, and our sales from
titles for these platforms, may be limited. Should any manufacturer choose not to renew or extend our