THQ 2008 Annual Report Download - page 13

developer with whom we contract. We have also acquired intellectual properties from other publishers or
developers. The titles we create based on intellectual properties we own may contain certain licensed
content, such as music or rights to use of a name or object (such as a brand-name vehicle). In this case, we
enter into a license agreement with the content owner and pay either a fixed fee or royalty for the use of
such content.
Developing Our Products
We develop our products using both internal and external development resources. The internal resources
consist of producers, game designers, software engineers, artists, animators and game testers located within
our internal studios located throughout the United States, in the United Kingdom and in Australia, and in
our corporate headquarters. The external development resources consist of third-party software
developers and other independent resources such as artists. We refer to this collective group of
development resources as our Studio System.
We make the decision as to which development resources to use based upon the creative and technical
challenges of the product, including whether the intellectual property being developed into a game is
licensed, an original concept that we created, or an original concept created by a third-party developer.
Once we determine where a product will be developed, our product development team oversees the
internal or external resources in its design, technical assessment and construction of each game.
The development cycle for a new game depends on the platform and the complexity and scope of the
game. Additionally, when developing an intellectual property into a game which is simultaneously being
made into a motion picture, our development schedule is designed to ensure that our games are
commercially available by the motion picture’s theatrical release. The development cycle for console and
PC games ranges from 18-36 months and the development cycle for handheld games ranges from
12-24 months.
These development cycles require that we assess whether there will be adequate retailer and consumer
demand for a game well in advance of its release. The investments in such development, prior to reaching
technological feasibility, are recorded as product development expenses in our consolidated statement of
operations. We had product development expenses of $128.9 million in fiscal 2008, $97.1 million in fiscal
2007 and $94.6 million in fiscal 2006.
Upon completion of development, each game is extensively play-tested by us to ensure compatibility with
the appropriate hardware systems and configurations, and to minimize the number of bugs and other
defects found in the products. If required, we also send the game to the manufacturer for its review and
approval. To support our products after release, we provide online access to our customers on a 24 hour
basis as well as operator help lines during regular business hours. The customer support group tracks
customer inquiries, and we use this data to help improve the development and production processes.
Manufacturing Our Products
Other than games we release for sale on PCs, digital download, or wireless devices, our video games are
manufactured for us by the platform manufacturers or their authorized vendors. We contract with various
DVD replicators for the manufacturing of our PC products.
The platform game manufacturing process begins with our placing a purchase order with a manufacturer.
We then send the approved software code to the manufacturer (together with related artwork, user
instructions, warranty information, brochures and packaging designs) for manufacturing.
We are required by our platform licenses to provide a standard defective product warranty on all of the
products sold. Generally, we are responsible for resolving, at our own expense, any warranty or repair
claims. We have not experienced any material warranty claims, but there is no guarantee that we will not
experience such claims in the future.
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