THQ 2007 Annual Report Download - page 13

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5
2005 Sony introduceditsfirst handheld platform, the PSP. PCs continue to be a viable interactive game
platform andover the past few years, wirelessdevices, such as mobile phones, have become a viable
gaming platform.
We currently develop andpublish products forall major platforms, andthis diversification continues to be
a cornerstoneofour strategy. In fiscal 2007, ourproduct releases were for the Sony PlayStation 2 andPSP,
MicrosoftXbox andXbox 360, Nintendo Wii, DS, GameCube and GameBoy Advance, PC and wireless
devices. In fiscal 2008 we expect to add products for theSony PlayStation 3 to this line-up andexpect to
continue to enter intoadditional platform licenses and extend current licenses as new platforms are
launched or our current agreements expire.
Products
We develop, market andsell video gamesandotherinteractivesoftware andcontent forconsole platforms,
handheld platforms and PCs. In fiscal 2007, we published eight titles that shipped more than one million
units. The following list identifies games that generated asignificant portion of our sales during the fiscal
years ended March 31,2007,2006 and2005:
•in fiscal 2007, Disney•Pixar’s Cars,WWE SmackDown vs.Raw2007,Saints Row,Nickelodeon titles,
Avatar: TheLast Airbender and SpongeBob SquarePants: Creature from the Krusty Krab andBratz:
Forever Diamondz, and;
•in fiscal 2006, WWESmackDown vs. Raw 2006,Juiced ,Destroy AllHumans!,SpongeBob
SquarePants: Lights, Camera, PANTS! andThe Incredibles: Rise of theUnderminer ; and
•in fiscal 2005, Disney•Pixar’s The Incredibles,TheSpongeBob SquarePants™Movie, and WWE
SmackDown vs.Raw .
Our games are based on intellectual property that is either wholly-owned by us or licensed from third
parties. We develop our games using both internal development resources and external development
resources working for us pursuant to contractualagreements. Whether a game is developed internally or
externally, upon completion of development we extensively play-test each game,and if required, send the
game to themanufacturer for its review and approval.Other than games that we release for PCs or
wireless devices, the console manufacturers or theirauthorized vendors manufacture our products forus.
We then market and distribute our games for sale throughouttheworld.
Intellectual Property
Our business process begins with the creation of intellectual property or acquisition of intellectual property
rights. Traditionally, most of ourtitles were based upon licensedpropertiesthathave attained ahighlevel
of consumer recognition or acceptance. We have relationships with many well-knownlicensors, including
Disney"Pixar, Nickelodeon, WorldWrestling Entertainment, Warner Bros. and MGA Entertainment.
Our intellectual property licenses usually grant us the exclusive use of the property for specified titles, on
specified platforms, within a defined territory and during the license term. Allof our licenses are of varying
duration and we payroyalties to our property licensorsgenerally based on ournet sales of the title which
includes thelicensor’s intellectual property. We typically advance payments against minimum guaranteed
royalties over thelicenseterm. Royalty ratesare generally higher forproperties withproven popularity and
less perceived risk of commercial failure.
Our original intellectual property is created either by oneof our 16 development studiosorby athird-party
developerthat we contract with, in which instance, we retainall ownership rights in the intellectual
property. In other instances, wherein a third-party developer creates theintellectualproperty and develops
thegame,weobtain a license that is typically exclusiveand we try to retainrights to any future products
based on theintellectual property.