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This excerpt taken from the ATVI 10-K filed Jun 9, 2006. Call of Duty 2: Big Red One 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 hardware 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 also seen that lower console hardware prices put downward pressure on software pricing. While we expect console software launch pricing for the Xbox360 to hold at $59.99, we have noticed downward pressure on the prices of current-generation software. Additionally, when new console platforms are announced or introduced into the market, such as the upcoming 2006 calendar year releases of the PS3 and Wii and the November 2005 release of the Xbox360, consumers typically reduce their purchases of game console entertainment software products for current console 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.
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