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Electronic Arts Inc   (EA)
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    Sector  Technology    Industry Software & Programming
   Industry Software & Programming
   Sector  Technology

Electronic Arts Inc

Business Description


Electronic Arts develops, markets, publishes and distributes interactive software games that are playable by consumers on the following platforms:

Home videogame machines (such as the Sony PlayStation 2®, Microsoft Xbox®, Nintendo GameCubeTM and Sony PlayStation consoles),

Personal computers (PCs),

Hand-held game machines (such as the Game Boy® Advance), and

Online, over the Internet and other proprietary online networks.

We were initially incorporated in California in 1982. In September 1991, we were reincorporated under the laws of Delaware. Our principal executive offices are located near San Francisco, California at 209 Redwood Shores Parkway, Redwood City, California.

One of our strengths is our ability to publish interactive software games for multiple platforms. Our products, designed to play on consoles and handhelds, are published under license from the manufacturers of these platforms (for example, Sony for the PlayStation and PlayStation 2, Microsoft for the Xbox and Nintendo for the Nintendo GameCube and Game Boy Advance) and we pay a fee to these console manufacturers for the right to publish products on their platforms. We invest in the creation of state-of-the-art software tools that we use in product development and to convert products from one platform to another. We also make important investments in facilities and equipment that allow us to create and edit video and audio recordings that are used in our games. Since our inception, we have published games for over 43 different platforms.

Our product development methods and organization are modeled on those used in other sectors of the entertainment industry. Employees whom we call “producers” are responsible for overseeing the development of one or more products. The interactive software games that we develop and publish are broken down into three major categories: (1) EA studio products, (2) co-publishing products, and (3) distribution products.

The console, PC and hand-held games that we publish are made available to consumers on a disk (usually CD or DVD format) or a cartridge that is packaged and typically sold in retail stores and through our own online store. We refer to these as packaged goods products. In North America and Europe, our largest markets, these packaged goods products are sold primarily to retailers that may be mass market retailers (such as Wal-Mart), electronics specialty stores (such as Best Buy) or game software specialty stores (such as Electronics Boutique). We also maintain a smaller business where we license to manufacturers of products in related industries (for example, makers of personal computers or computer accessories) rights to include certain of our products with the manufacturer’s product or offer our products to consumers who have purchased the manufacturer’s product. We call these combined products “OEM bundles”.

There are three ways in which we publish games that are playable online by consumers. First, we include online capability features in certain of our PC and PlayStation 2 products and soon Xbox, which enable consumers to play against one another via the Internet. We also publish games that are playable only online. One type of these online-only games is called “persistent state worlds” or massively multiplayer online games and is server based. Consumers experience these games as interactive virtual worlds where thousands of other consumers can interact with one another. Examples of our persistent state world products are Ultima OnlineTM and The Sims Online. These persistent state world games are often sold to consumers in the form of a CD or DVD that contains much of the software necessary to play the game online. Other types of online-only games that we publish are available on the World Wide Web and include card games, puzzle games and word games (marketed under the “Pogo” brand), all of which are made available to consumers on our website, www.pogo.com, and on certain online services provided by America Online, Inc.

Competition

We consider ourselves to be part of the entertainment industry. At the most fundamental level, our products compete with other forms of entertainment, such as motion pictures, television and music, for the leisure time and discretionary spending of consumers. We believe that large software companies and media companies are increasing their focus in the interactive entertainment software market and, as a result, stand to become more direct competitors. Several large software companies and media companies (e.g., Microsoft and Sony) are already established competitors in the software games segment, and other diversified media/entertainment companies (e.g., Time Warner and Disney) have announced their intent to significantly expand their software game publishing efforts in the future. Therefore, we believe that the software games segment is best viewed as a segment of the overall entertainment market.

The software games business is highly competitive. It is characterized by the continuous introduction of new titles and the development of new technologies. Our competitors vary in size from very small companies with limited resources to very large, diversified corporations with greater financial and marketing resources than ours. Our business is driven by hit titles, which requires us to invest significantly in production and in marketing. Therefore, the availability of significant financial resources has become a major competitive factor in the software games segment, primarily as a result of the costs associated with the development and marketing of game software. Competition in the software games segment is also based on product quality and features, timing of product releases, brand-name recognition, access to distribution channels, effectiveness of marketing and price.

In the software games segment, we compete with Sony, Microsoft and Nintendo, each of which develop and publish software for their respective console platforms. We also compete with numerous companies which are, like us, licensed by the console manufacturers to develop and publish software games that operate on their consoles. These competitors include Acclaim Entertainment, Activision, Capcom, Eidos, Infogrames, Koei, Konami, Lucas Arts, Midway, Namco, Sega, Square Enix, Take-Two Interactive, THQ, Ubi Soft and Vivendi Universal Games, among others. As discussed above, diversified media companies such as Time Warner and Disney have also indicated their intent to significantly expand their software game publishing efforts in the future. In addition to competing for product sales, we face heavy competition from other software game companies to obtain license agreements which allow us the right to use intellectual property included in our products; and many of these content licenses are controlled by the diversified media companies, many of which intend to expand their software game publishing divisions.




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