THQ 2007 Annual Report Download - page 14

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Platform Licenses
Our business is dependent upon entering into licenseagreements with the platform manufacturers, which
allow us the right to develop,publish and distribute titles for use on such manufacturer’s platform. Our
platform licenses includelicenses to publish on consoles andhandheldplatforms manufacturedby
Nintendo, Sony and Microsoft. Each license is for afixed term, andas each license expires, we generally
enter into a new agreement or an amendment with the licensor to extend the term of theagreement.
Certain agreements,such as the licenses with Sony and Microsoftfor PlayStation 2 and Xbox 360,
respectively, automatically renew each year unless either party gives notice by the applicable date that it
intends to terminate theagreement. Additionally, each agreement designates a territory in which we can
publish anddistributetitles. We currently arelicensed or are in negotiations to license rights to publish and
distribute titles on all platforms that arecurrently sold in the United States and Canada. Our key platform
licenses also allow us to publishanddistribute titles in Europe, Australia, New Zealand and Japan. We are
also licensed to publish anddistribute titlesfor GameCube, PlayStation 2, Xbox,and Xbox 360invarious
additional territories, includingparts of Asia and Central and SouthAmerica. We expect to enter into
additional platform licenses and extend current licenses as newplatforms are launched or our current
agreements expire.
The platform licenses are not exclusive andrequire that each title be approved by the manufacturer. The
manufacturershave the right to review, evaluateandapproveaprototype of each title andthe title’s
packaging and marketing materials. Once a title is developed and approvedby themanufacturer, the title
is manufactured solely by such manufacturer or a designated vendor of themanufacturer.The licenses
establish thepayment terms for the manufacture of each cartridge or disc made, which generally provide
for achargefor every cartridge or disc manufactured. The amounts charged by the manufacturers forboth
console discsandhandheld cartridges include a manufacturing, printing andpackagingfee as well as a
royalty for the use of the manufacturer’s name, proprietary information and technology, and aresubject to
adjustment by themanufacturers at their discretion.
In addition, we must indemnify the manufacturers with respect to all loss, liability and expense resulting
from any claim against the manufacturer involving thedevelopment, marketing, sale, or use of ourgames,
including any claims for copyright or trademark infringement brought against the manufacturer. As a
result, we bear a risk that theproperties upon which thetitles are based, or that the information and
technology licensedfrom others and incorporated in theproducts, mayinfringe the rights of third parties.
Conversely, our agreements with ourthird-party software developers and property licensorstypically
provide for us to be indemnified with respect to certain matters. If any claim is brought by amanufacturer
against us for indemnification, however, our developers or licensors may not have sufficient resources to,
in turn, indemnify us. Furthermore, these parties’ indemnification of us may not cover the matter that gives
rise to the manufacturer’s claim.
Each platform licensemay be terminated by the manufacturer if abreachor default by us is not cured after
we receive written notice from themanufacturer, or if we become insolvent. Upon termination of a
platform license for any reason other than our breach or default, we have a limited period of time to sell
any existing product inventory remaining as of the date of termination. The length of this sell-off period
varies between90 and 180 days, dependingupon the platform agreement. We must destroy any such
inventory remaining after the end of the sell-off period. Upon termination as a result of our breach or
default, we must destroy any remaining inventory.
Product Development
We develop our products using bothinternal and external development resources. The internal resources
consist of producers, game designers, software engineers, artists, animators andgame testers locatedwithin
our16 internal studios and corporateheadquarters. The external development resources consist of