Activision Blizzard (ATVI)

Sales and Marketing (in thousands, as restated)

Sales and marketing expenses of $36.2 million and $46.4 million represented 19% of consolidated net revenues for the three months ended June 30, 2006 and 2005, respectively.  The decrease in absolute dollars was a result of the release of two titles in the first quarter of fiscal 2007 compared to three titles in the first quarter of fiscal 2006 as well as implementing a more targeted sales and marketing plan.  In addition, in the first quarter of fiscal 2006 we invested in significant marketing programs to support our fiscal 2006 first quarter title releases, Doom 3, Madagascar, and Fantastic Four. This decrease was partially offset by expenses of $1.0 million related to stock option expenses as a result of the implementation of SFAS No. 123R as well as sales and marketing expenses associated with RedOctane.  Despite a more focused sales and marketing plan, sales and marketing expenses as a percentage of consolidated net revenues remained flat at 19% due to expense associated with the implementation of SFAS No. 123R and reduced pricing on current generation titles.

We expect sales and marketing expense to decrease on both an absolute basis and as a percentage of consolidated net revenues in fiscal 2007 due to a more focused slate in fiscal 2007 and a more targeted sales and marketing plan.

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Sales and Marketing (in thousands, as restated)

Sales and marketing expenses of $230.3 million and $128.9 million represented 16% and 14% of consolidated net revenues for the years ended March 31, 2005 and 2004, respectively.  The increases in both absolute dollars and as a percentage of net revenues was primarily generated by our publishing business as a result of significant marketing programs, including television and in-theatre ad campaigns and in-store promotions, run in support of our key fiscal 2005 “big proposition” title releases Spider-Man 2, Shrek 2, Doom 3, Shark Tale, X-Men Legends, THUG 2, Call of Duty: Finest Hour, and Lemony Snicket’s A Series of Unfortunate Events.  Our experience has shown that this increased spending will lengthen the product sales life cycle and add to the long-term prospects of the respective product lines.