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33
A C T I V I S I O N , I N C . • • 2 0 0 7 A N N U A L R E P O R T
the current year. The decrease in net revenues for GBA is primarily related to slower GBA sales due
to wider acceptance of the NDS platform. The net revenue increase for NDS reflects the strong
performance of our key fiscal 2007 titles which include Over the Hedge, Tony Hawk’s Downhill Jam,
X-Men: The Official Game, Spider-Man: Battle for New York and LucasArts’ LEGO Star Wars II: The Original
Trilogy in Europe, as the platform continued to gain consumer acceptance and market share. PSP
net revenues for fiscal 2007 were slightly lower than the previous year. In fiscal 2006, we released
a stronger PSP slate and our titles performed well with the consumer excitement for the March
2005 North America platform launch, and the September 2005 European platform launch. The
2006 slate included Tony Hawk’s Underground 2, Spider-Man 2, X-Men Legends II, World Series of Poker, and
two affiliate titles in Europe. Our key releases in fiscal 2007 were Marvel: Ultimate Alliance, Tony Hawk’s
Project 8, Call of Duty: Roads to Victory, and one European affiliate title, LucasArts’ LEGO Star Wars II:
The Original Trilogy.
With the installed base of the NDS and PSP continuing to increase, we expect that fiscal 2008
hand-held net revenues will continue to increase year over year.
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 hard-
ware base for the next-generation platforms, as well as the performance 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 Xbox 360 having the largest
percentage of that business in fiscal 2008 due to its large installed hardware base and our strong
slate of titles. We expect significant growth in net revenues from PS3 and Wii next-generation
console systems and a decrease in the percentage of PS2 business in fiscal 2008. With the installed
base of the NDS and PSP platforms continuing to increase, we also expect to see a continued
increase in our hand-held business in line with the growth in the installed base. Our net revenues
from PC titles will be primarily driven by our product release schedule.
A significant portion of our revenues and profits are derived from a relatively small number of popu-
lar titles and brands each year and revenues and profits are significantly affected by our ability to
release highly successful “hit” titles. For example, for the year ended March 31, 2007, 29% of our
consolidated net revenues and 39% of worldwide publishing net revenues were derived from net
revenues from our Call of Duty 3, Guitar Hero II, and Marvel: Ultimate Alliance titles. Though many of
these 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.
Three key factors that could affect future publishing and distribution net revenue performance are
console hardware pricing, software pricing, and transitions in console platforms. As console hard-
ware moves through its life cycle, hardware manufacturers typically enact price reductions.
Reductions in the price of console hardware typically result in an increase in the installed base of
hardware owned by consumers. Historically, we have seen that lower console hardware prices put
downward pressure on software pricing. However, we expect console software launch pricing for the
Xbox360 and PS3 to hold at current levels as a result of the strong consumer acceptance of these
price points that has occurred since the launch of the next generation platforms and the greater
product capability and value of next generation titles. We continue to expect software pricing on