THQ 2005 Annual Report Download - page 68

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45
license agreement at the end of its current term, or if any license were terminated, we would be unable to
publish additional titles for that manufacturer’s platform, which could negatively affect our operating
results.
Additionally, since each of the manufacturers publishes games for its own platform, and also manufactures
products for all of its other licensees, a manufacturer may give priority to its own products or those of
other publishers in the event of insufficient manufacturing capacity. Unanticipated delays in the delivery of
products could also negatively affect our operating results.
The introduction of new platforms could materially impact the sales of our products and our development
expenses.
Our future success depends on our ability to adapt to rapidly changing technologies, including the
development and sale of entertainment software to accommodate the introduction of new platforms to the
interactive entertainment software industry. When new platforms are announced or introduced into the
market, consumers typically reduce their purchases of entertainment software products for current
platforms in anticipation of new platforms becoming available. During these periods, sales of our game
console entertainment software products may be expected to slow or even decline until new platforms are
introduced and achieve wide consumer acceptance. Microsoft, Sony, and Nintendo have announced plans
to introduce new console platforms in the next year. Further, Sony recently introduced its hand-held
gaming device, PSP, and Nintendo launched a new dual-screened, portable game system, Nintendo DS.
Delays in the launch, shortages, technical problems or lack of consumer acceptance of the next generation
platforms could adversely affect our sales of products for these platforms.
Additionally, platform transitions are generally marked by escalating development costs. New platforms
have historically required the development of new software and alsohave the effect of undermining
demand for products based on older technologies. Because product development cycles are difficult to
predict, we must make substantial product development and other investments in products for a particular
platform well in advance of introduction of the platform. If the platforms for which we develop new
software products or modify existing products are not released on a timely basis or do not attain significant
market penetration, or if we develop products for a delayed or unsuccessful platform, we may not be able
to recover in revenuesour development costs, which could be significant, and our business and financial
results could be significantly harmed.
Video game product development schedules are difficult to predict and can be subject to delays.
Postponements in shipments can substantially impact our earnings in any given quarter.
Our ability to meet product development schedules is affected by a number of factors, including the
creative processes involved, the coordination of large and sometimes geographically dispersed
development teams required by the increasing complexity of our products, and the need to refine and tune
our products prior to their release. We have in the past experienced development delays for several of our
products. Failure to meet anticipated production schedules may cause a shortfall in our sales and
profitability and cause our operating results to be materially different from expectations. Delays that
prevent release of our products during peak selling seasons or in conjunction with specific events, such as
the release of a related movie, could adversely affect our financial performance.
We rely on external developers for the development of some of our titles.
Some of our titles are developed by external developers. We have no direct control over the business,
finances and operational practices of these external developers. A delay or failure to complete the work
performed by external developers may result in delays in, or cancellations of, product releases. The future
success of externally developed titles will depend on our continued ability to maintain relationships and