Activision Blizzard (ATVI)

•                  A shift in the product mix versus the first nine months of fiscal 2005.  PC revenues represented 20% of publishing revenues in the first nine months of fiscal 2005 compared to 15% in the first nine months of fiscal 2006.  PC titles typically have significantly lower product costs associated with them.

Partially offset by:

•                  An increase in the percentage of consolidated net revenues provided by our publishing business from 78% in the first nine months of fiscal 2005 to 80% in the first nine months of fiscal 2006.  Our publishing business typically has lower cost of sales - product costs than our distribution business.

We expect cost of sales – product costs as a percentage of net revenues to increase for the remainder of the year as a larger percentage of revenues will be generated from our distribution business for the rest of fiscal 2006.  However, we also expect to benefit from sustained higher retail pricing on Xbox360 titles which would partially offset the increase in distribution business

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•                  A shift in the product mix versus the first six months of fiscal 2005.  PC revenues represented 28% of publishing revenues in the first half of fiscal 2005 compared to 11% in the first half of fiscal 2006.  PC titles typically have significantly lower product costs associated with them.

•                  An increase in the percentage of consolidated net revenues provided by our distribution business from 18% in the first half of fiscal 2005 to 22% in the first half of fiscal 2006.  Our distribution segment is a lower margin business than our publishing segment.

We expect cost of sales – product costs as a percentage of net revenues to decrease for the remainder of the year as LucasArts’ titles will comprise a lower percentage of our overall revenues and a lower percentage of revenues will be generated from our distribution business for the rest of fiscal 2006.  We also expect to benefit from higher retail pricing on our titles for the upcoming launch of the Xbox 360.

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•                  An increase in price protection reserves related to channel inventory due to reduced pricing for catalog titles.

We expect cost of sales – product costs as a percentage of net revenues to decrease for the remainder of the year as LucasArts’ titles will comprise a lower percentage of our overall revenues.

We expect the overall hand-held market to grow significantly with the recent releases of the NDS and PSP.  However, with the releases of the NDS and PSP we expect that market share for the GBA will eventually begin to decrease while the overall hand-held market will continue to expand with a growing installed base and broader demographic on the newer platforms.  We expect to continue our focus on developing hand-held games for mass-market consumers for each of these hand-held platforms.   Due to the expected increase in the overall hand-held market and our fiscal 2006 product slate, we expect net revenues from sales of titles for the hand-held to increase over fiscal 2005.

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