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4
In fiscal 2007,we positioned thecompany to take advantage of these growing trends. We signed
agreements with industry leaders for in-gameadvertising, which we plan to implement in several fiscal2008
titles,including Juiced 2: Hot Import Nights,MX vs. ATV: Untamed, and Stuntman: Ignition . We offered our
first PC titles viadigital distribution channels. We provided digital downloads of additional content for
Saints Row and plan to expand our digital download offerings in fiscal 2008. We re-positioned our wireless
business for future growth, adding new brands anddevelopment capabilities to the business. We secured
therights to publishWarhammer:40,000 as a massively multiplayer online game and commenced internal
development of this title.
•Expand international business
As the global gamingmarket continues to grow, we believe that international markets represent a
significant growth opportunity for us. In fiscal 2007, we increased ourmarket share in bothEurope and the
Asia-Pacific region. Our internationalrevenues totaled $426.7million or 42% of total net sales, up from
$316.6 million or 39%of revenues ayear ago.
Internationalrevenues were drivenby our increasingly globalproduct portfolio and our expanded direct
salespresence. We currently distributeour products in more than 75 countries and territories outsideof
North America.In fiscal 2007, we established salesoffices in Italy andMexico. We nowoperate
international offices in North America, Europeand Asia-Pacific as follows: United States, Canada and
Mexico; Austria, Denmark, France, Germany, Italy, Spain, Switzerland, theNetherlands and theUnited
Kingdom;Australia, Korea, and Japan.
We expect to continueto expand our international business. In fiscal 2008, we expect international
revenues to grow to 43% of revenues,driven by continued execution on our global product portfolio and
our ability to drive higher sales via direct distribution of our products. In addition, we are currently
exploring new business opportunities in China, which has not been a key marketfor us in the past.
Industry Overview
As apublisher of interactive entertainment software, we consider ourselves to be part of the entertainment
industry. At the most fundamental level, our products compete with other forms of entertainment, such as
motion pictures, television and music, for the leisuretime and discretionary spending of consumers. We
believe that video games have increasingly become amainstream entertainment choice for both children
and adults. According to theInternationalDevelopmentGroup, Inc. (“IDG”), an independent consulting
and advisory services company that analyzes theconsumer electronics andinteractive entertainment
industries, sales of console, handheld andPC games (excluding wireless) reached $7.9 billion in North
America, and $7.1 billion in Europe in 2006. We look toward an expanding market for interactive
entertainment software over the next several years dueto the introductionof the newgenerationof
console systems. We believe that improved graphics and expanded artificial intelligence capabilitiesofthe
new platforms will enhance game play and help grow our industry significantly. In addition, incremental
revenue opportunities from in-game advertising, downloadable content/micro-transactions and mobile
content are expected to grow to $7 billion in 2009 from $2 billion in 2006, according to DFC Intelligence
andJuniper Research.
Thefirst modern platform was introduced by Nintendoin1985. Advancesin technologyoverthe past 20
years have resulted in continuous increases in theprocessing power of the chips that power both the
consoles and PC. Forthe past several years, Sony has been theleader in the console market(with its
PlayStation 2 console); however,Microsoftand Nintendo are large andviable competitors. In 2005,
Microsoft introduced its newgeneration console, Xbox360, and bothSony and Nintendo releasedtheir
newgeneration consoles, PlayStation 3 andWii, respectively, in November2006. Nintendo has been the
dominant manufacturer of handheld platforms with its Nintendo DS and Game BoyAdvance.In fiscal