Electronic Arts Financial Evaluation 2006

Table of Content

Executive Summary

Electronic Arts (EA) is an entertainment development company. EA revenue toped $2.951 Billion for its 2006 facial period.

Company

Electronic Arts (EA) (NASDAQ: ERTS)

Electronic Arts Inc. (EA) is one of the leading interactive software developers in the $60 billion industry. Incorporated in 1982, Electronic Arts Inc. began with an initial investment of $200,000. Electronic Arts Inc. went public in 1990 with an IPO of just $8, trading for the last 16 years the stock had soared to over $54.76.

EA has a talent for the craft of creating video games. EA is the #1 video game publisher in the US, with an excess of a hundred popular titles such as NFL Head Coach, Madden NFL 2006, The Sims, Need for Speed series, and Medal of Honor series. It develops games under such brand names as EA GAMES, EA SPORTS, and EA SPORTS BIG. It also distributes titles for third-party labels and publishes games based on Hollywood franchises, including The Lord of the Rings, The Godfather, Harry Potter, and Batman.

EA develops its games for PCs and console systems such as Sony's PlayStation 2, Nintendo's Game Cube, and Microsoft's Xbox, as well as for play online at EA Nation, Pogo.com. In addition, EA is expanding its base to mobile platforms, including handheld video game players, such as the PlayStation Portable (PSP), Nintendo DS and Game Boy Advance and cellular handsets.

EA makes investments in facilities and equipment that allow the Company to create and edit video and audio recordings that are used in its games. EA began to expand by acquiring several successful developers and, as of the early 2000s, EA has become the world's largest third-party publisher, with a net revenue of US$2.951 billion on its fiscal year March 31, 2005.

Products

EA has developed a wide range of products in the entertainment industry catering to almost everyone. EA has a well-established position over the Sports, combat simulations, strategy, and fantasy games. Ea has been leading the industry with its sports category since inception. EA's sports category dominates the market with 30 to 40 percent of sales.

EA franchises games and re-released, essentially the same game is produced year after year, adjusting its roster and adding a few upgraded features and mechanics to stay current. EA sells them for full price over and over, which created a whole new model for game publishing for both disposable and mass-market, buy it one year and like how it looks, you have to buy all of the upgrades year after year if you want to stay current. Examples of this are the popular EA Sports NHL 2006, NBA 2006, NFL 2006.

EA deploys its technology to help promote its products the way they are developed using actual movement from athletes in sports gaming to bring true to life gaming

EA's advantage over competition with its exclusive licensing with FIFA, Road & Track, NBA, Shaquille O'neal, PGA Tour and the NHL.

Ea also maintains its effort in the older technology by releasing their core franchise products for the older consoles during holiday season, in conjunction with aggressive marketing in the retail channel.

Ea has also taken the internet to new revenue creating strategies by introducing product upgrades with expansion packs, which enable the consumer to buy more levels and link players together for online gaming.

Following its acquisition of JAMDAT, the Company merged its existing cellular handset software game development and publishing business with JAMDAT to establish its EA Mobile business. Through EA Mobile, they can publish games for its customers to download onto their cellular handsets. The Company's customers typically purchase and download its games through a wireless carrier service accessed directly from their cellular handsets, which must be enabled by technologies and then customers are charged a one-time or monthly subscription fee on their cellular handset invoice for the game.

Electronic Arts publish games that are playable online by consumers. Online-only and casual games such as card games, puzzle games, and word games that it makes are available on their Pogo website. Another type of online-only games is called the massively multiplayer online games. The Company has two massively multiplayer online game products, Ultima Online and The Sims Online. In addition, online downloads are available for certain PC games either from its EA.com site or third-party sites, such as Gametap, and Microsoft's Xbox Live service.

Licensed Products

Electronic Arts also maintains a smaller business where it licenses to manufacturers of products in related industries. For example, EA will give right to makers of personal computers or computer accessories to include certain products with the manufacturer's product or offer the EA' products to consumers who have purchased the manufacturer's product. The Company calls these combined products OEM bundles.

Production and Distribution

EA uses a direct distribution channel worldwide allowing them to meet demands and keep a control over there inventory to respond to market trends.

The company characterizes its suppliers by three categories: manufacturing entities that press EA's games, entities that print the instruction booklets, and entities that package the pressed games and completed instruction booklets. The company is able to buy its materials with a volume-based discount. In addition, EA sustains significant relationships with companies such as Sony and Microsoft. This allows EA to easily purchase the appropriate hardware. The close connection with console manufacturers allows EA to maintain and grow its current market share.

Distribution and delivery of EA's products is done in two main forms, packaged goods and bundles. Packaged goods are either the specific game CDs or cartridges, which are sold online or at mass retailers such as Wal-Mart, Furtureshop, and EB games. Bundles allow manufacturers of related products to have the rights to offer EA's products to customers who have purchased the manufacturer's products.

Finance

To finance and develop EA titles typically requires large up front costs during the research and development stage. Typical