Earnings Labs

Electronic Arts Inc. (EA)

Q3 2007 Earnings Call· Thu, Feb 1, 2007

$202.12

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Transcript

Operator

Operator

Good day, everyone and welcome to the Electronic Arts Third Quarter Fiscal Year 2007 Earnings Call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Ms. Tricia Gugler, Director of Investor Relations. Please go ahead, ma'am.

Tricia Gugler

Management

Welcome to our third quarter fiscal 2007 earnings call. Today on the call we have Larry Probst, Chairman and Chief Executive Officer; Warren Jenson, Chief Financial and Administrative Officer; and Frank Gibeau, Executive Vice President and General Manager of North America Publishing. Before we begin, I'd like to remind you that you may find copies of our SEC filings, our earnings release, and a replay of the webcast on our website at investor.ea.com. Shortly after the call, we'll post a copy of Warren's remarks on our website. Throughout this call we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude charges and related income tax effects associated with acquired in-process technology, amortization of intangibles, certain litigation expenses, restructuring charges and stock-based compensation. In addition, the company's non-GAAP results exclude the impact of certain one-time income tax adjustments. Our earnings release provides a reconciliation of our GAAP to non-GAAP measures. Information regarding our use of non-GAAP measures along with a schedule demonstrating how we calculate return on invested capital will be included with a copy of Warren's remarks to be posted on our website. These non-GAAP measures are non-intended to be considered in isolation from, a substitute for, or superior to our GAAP results, and we encourage investors to consider all measures before making an investment decision. All comparisons made in the course of this call are against the same period for the prior year unless otherwise stated. We have included our trailing 12-month platform shares and our 2006 estimated market outlook in a supplemental scheduled on our website. During the course of this call, we may make forward-looking statements regarding future events and the future financial performance of the company. We caution you that actual events and results may differ materially. We refer you to our most recent…

Operator

Operator

(Operator Instructions). We will take our first question from Mike Hickey.

Mike Hickey - Janco Partners Inc.

Analyst

Thanks guys. Great job on a quarter.

Larry Probst

Analyst · Nollenberger

Thanks.

Mike Hickey - Janco Partners Inc.

Analyst

Could you please provide us with your initial observation for the PS3 launch and install-based growth, as well as maybe the 360 install-based growth?

Larry Probst

Analyst · Nollenberger

Sure, the PS -- the PS3 release in Q3 met expectations as per our earlier guidance on hardware quantity and the rollout was definitely successful from a demand generation standpoint. The one area that we saw a little bit of disappointment was in the tie ratio. It was lower than expected. On the 360, we are very pleased with the tie ratio that came in above expectation and while the hardware total didn't quite need guidance, it was very strong and when you combine that with the tie ratio been higher, we are largely right there.

Mike Hickey - Janco Partners Inc.

Analyst

Okay. And can you remind us the strategic importance for the aging gaming market. It looks like over the last several quarters you are experiencing negative year-over-year growth. Is that still as important as it used to be and what steps are you taking to accelerate growth in that region?

Warren Jenson

Analyst · Lazard Capital Markets

This is Warren. I think you have to look at it in two respects. One, you have to look at it in terms of the package goods business which flows down year-over-year, and as I mentioned in my prepared remarks, that was really is a result of the SKU plan. As we look at the online market going forward, we think it's very important. And as you know, we so far had we think really a strong launch and strong kick off with FIFA Online in Korea. And further as I mentioned, in my prepared remarks, this coming year we plan to roll FIFA Online out hopefully in both China and Japan. And also it's our intention that we begin the rollout of NBA Street into the Asian markets. So, longer term, we think it's very valuable. We think the learnings that we are getting from the micro transaction marketplace in Korea and other parts of Asia will also be invaluable to us in the western markets in the years ahead.

Larry Probst

Analyst · Nollenberger

And the one comment I would add to that is that we think there is significant opportunity on the mobile platform in Asia and we are just getting started in that respect as well.

Mike Hickey - Janco Partners Inc.

Analyst

Great, thanks guys.

Operator

Operator

Moving on, we’ll take our next question from Todd Greenwald with Nollenberger.

Todd Greenwald - Nollenberger

Analyst · Nollenberger

Hi, thanks. Just wondering going back to the PS3, I wondered if you are expecting a price cut this year, I was just wondering how [good] trend you are about to have for that installed base? And also any of your thoughts on the recent Xbox 360 forecast production?

Larry Probst

Analyst · Nollenberger

With regards to the price change that the question that we would refer to Sony, looking at the early January results, the trends on the PS3 are good, its selling through at a comfortable clip, again you have to recall that this is a price point, it is much higher than the PS2. So when you are setting expectations looking at a PS2 for example, you would expect that the PS3 would be a bit slower in terms of its ramp, but we were confident that on the full year number it will be good. And with regards to the Todd, in the 360 forecast, we see the strong lineup of software in 360 this coming year will drive strong demand for that platform and we don’t anticipate that there will be any big problems there.

Todd Greenwald - Nollenberger

Analyst · Nollenberger

Great, thank you.

Operator

Operator

Next we will hear from Colin Sebastian with Lazard Capital Markets.

Colin Sebastian - Lazard Capital Markets

Analyst · Lazard Capital Markets

Good afternoon, thanks for taking my questions. I have a couple, the first the significant increase in the support of the Nintendo platforms, that you referred to is that coming with the expense of any other platforms, that's the first question. And then secondly, excluding the impact of the accounting change is there anything on the competitive landscape you see that would make you think it might be difficult to maintain market share in 2007?

Warren Jenson

Analyst · Lazard Capital Markets

With regard to the first question the support for the Wii and NDS, platforms is not at the expense of the other platforms that we deems strategic, so you will continue to see us being very prolific on the PlayStation 3 and Xbox 360 platforms as well the PC. We are -- one of the things that we have done is acquired the Headgate Studio, in Salt Lake City, up to this point they have been exclusively developing titles for the Wii platforms so that will give us some additional development capacity on the Wii, and we are redirecting some other resources towards Wii and NDS. So, by the end of this fiscal year, we will have six titles in the market which other than Ubisoft, we will be most prolific publisher on the Wii Platform through March. And you can expect to see us ship a number in the low to mid-teens next year in fiscal '08 on both the Wii Platform and on NDS. So, we have very aggressive market share goals on both those platforms as well as PS3, Xbox 360 and the PC.

Larry Probst

Analyst · Lazard Capital Markets

Your final question on competition next year, it certainly will increase. However, if you look at the lineup that we have planed for calendar year, it's pretty impressive in terms of lineup of the blockbusters. We are very confident on the lineup that we have. If you listen to the list that was read off earlier in the script, things ranging from Medal of Honor Airborne to Army of Two, SKATE, Burnout 5, Spore, SimCity, The Simpsons, Harry Potter, Warhammer, Hellgate, Crisis, Mercenaries 2, it's quite an impressive list in the non-sports categories, and obviously next year we will be back with a very strong lineup in EA Sports.

Warren Jenson

Analyst · Lazard Capital Markets

And let me just clarify one thing, the online deferral will not impact how segment shares are measured, as that's being done on a sell through basis. So, this is purely a GAAP measurement. So, no one should walk away with any level of confusion that segment shares would be negatively impacted as a result of 97-2.

Colin Sebastian - Lazard Capital Markets

Analyst · Lazard Capital Markets

Okay. And that's helpful. And I guess just following up on this lead quickly, The Lord of the Rings title I think that was originally planned for next year. I am just curious if you can provide any color on what happened to that title and what was behind the decision to cancel it? Thank you.

Larry Probst

Analyst · Lazard Capital Markets

The Lord of the Rings product is back in development in terms of being on hold and we were looking at the creative positioning and features set on the Lord of the Rings franchise. We do not sight to move forward with releasing it this year for those reasons.

Colin Sebastian - Lazard Capital Markets

Analyst · Lazard Capital Markets

Okay. Thank you very much.

Operator

Operator

Next, we will hear from Chris Clark with SIG.

Chris Clark - SIG

Analyst · SIG

Great, just a couple of questions. On the first one, when you look at the online business, you projected it to be around $200 million, including ads and digital downloads and micro transactions and MMOs. What's your expectation for gross margins? It's hard to I know understand that from a blended basis, but what do you think the general idea of the gross margin should be? Should it be higher than the corporate average today?

Warren Jenson

Analyst · SIG

By and large, I would say, yes, higher than the corporate average. You have to take a look at a couple of things. For example, on micro transactions, you have to look at, are you starting after the platforms splits with say Microsoft for example. So, on a micro transaction, it just started with absolute gross, you might be lower than our averages. But if you look at the net proceeds coming to us then you could very easily be higher. Overall, when I take a look at the whole mix, it's between in-game advertising subscription, what's going on in micro transactions and why I would expect higher gross margin.

Chris Clark - SIG

Analyst · SIG

How would you -- as of this moment, would you be leaning towards the gross for the net revenues recognition for things like micro transactions?

Warren Jenson

Analyst · SIG

Micro transaction is a little bit easier. We will play it as we go, but pretty much net.

Chris Clark - SIG

Analyst · SIG

Okay. And then, just looking at the gross margins, obviously very strong this quarter, it looks like it was largely a revenue mix issue with PC being higher and the co-pub and distribution being lower. But overall, the console gross margins did that change markedly this quarter?

Warren Jenson

Analyst · SIG

The only thing that I would correct there is, I mentioned that the principal driver of our higher gross margins was lower sales returns charges. So, as oppose to just console mix, which had a factor and lower royalty rates which was a factor, roughly two points of the increase came as a result of lower sales return charges.

Chris Clark - SIG

Analyst · SIG

Okay.

Warren Jenson

Analyst · SIG

That said again, let me clarify, as I mentioned in my prepared remarks, we think the channel is in great shape.

Chris Clark - SIG

Analyst · SIG

Okay.

Warren Jenson

Analyst · SIG

It's in great shape both in North America and in Europe.

Chris Clark - SIG

Analyst · SIG

Okay. Just a final question. You mentioned on the online business, given that PS3, PS2, PSP and the PC being deferred, it sounds like all of its going to be on the balance sheet as short-term deferred revenue. But you also gave us $400 million number, if I have not mistaken, as I recall. Is that the ending balance number for the fiscal year or is that sort of the volume of deferred revenue you expect to generate?

Warren Jenson

Analyst · SIG

That would be the ending balance. But again, let me remind everybody that with online deferral, this is tricky. So, depending upon the month of shipment that can impact what that ending number would be. So, this number could easily go down and it could easily go up. So, that gives a little bit weight, but what we are talking about is the $400 million being an ending balance.

Chris Clark - SIG

Analyst · SIG

And…

Warren Jenson

Analyst · SIG

I am sorry?

Chris Clark - SIG

Analyst · SIG

And that's on the top of the 75 you currently have as of today?

Warren Jenson

Analyst · SIG

That is correct.

Chris Clark - SIG

Analyst · SIG

Great. Thank you very much.

Warren Jenson

Analyst · SIG

Yeah.

Operator

Operator

Moving on, we will take John Taylor with Arcadia Investments Company.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Hi. I've got a couple of questions too. First, could you give us what catalog was in the December quarter, and what do you expect it to be in March? Second question is, Larry, I wondered if you could talk a little bit about, may be market share goals on the Nintendo platforms, given that Nintendo tends to kind of have the primary share on their own. So, may be, give us a sense of kind of how you're thinking about that? And then, on this deferred revenue issue; one, may be talk a little bit about -- okay, I understand the development cost and support cost and all that, hosting costs are going to be absorbed real time, what are you going to do with advertising and allocating that over six months and G&A load and the other pieces of operating on that? Thanks.

Larry Probst

Analyst · Nollenberger

With regard to the split between frontline and catalog in Q3, it was 51% frontline and 38% catalog. With regard to market share goals, it's always our goal to have a leading market share on the platforms that we believe are strategic. So, clearly we have number one market share goals on all of platforms where we're currently number one and that would include PS2, PS3, PSP, Xbox 360 and the PC platform. On the Nintendo platforms, we think that we can be a very strong number two. Clearly, Nintendo is going to always be number one on the Wii platform on the NDS platform. We believe that we can be number two and our market share goals would be in the 15% to 20% range on those platforms.

Warren Jenson

Analyst · Lazard Capital Markets

And then, J.T., on revenue deferral, what would be deferred is in essence net revenue. So, for example, if we had a sale of call it $40 million versus inventory and we had an SRA reserve of say $4 million, we would then over the period, we would put $36 million on the balance sheet and amortize that into revenue over the following six months. And what I mean by the following six month if that sale were to occur in December, we will begin amortizing that revenue into -- that deferred revenue into revenue beginning in January. Relative to all other costs, product cost, as well as G&A, R&D, everything else that will all be expensed currently as really try work it past on the sale of the packaged goods. Therefore, we feel that the obligation is out there and it's more appropriate for us just to go ahead and recognize the expense. The silver lining of all of that, as I mentioned, is that now when our non-GAAP measures is a result of adding that one line in terms of the change in deferred revenue, it completely normalizes our results. So, while this can have a dramatic impact on our GAAP results, what it won't have is it will not change our non-GAAP results to where you should have complete comparability in all material respects year-over-year.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Okay. So, let me try this one. On the 400 additional, how should we think about the cost side of that which is going to be recognized in fiscal '08, which the revenue piece is going to get pushed out? In other words, should we assume that costs are going to take up, say 80% of that or 70% of that revenue amount because that will be reported in your -- captured in your fiscal '08, right?

Warren Jenson

Analyst · Lazard Capital Markets

So, I think you have to -- first, let me tell you focus on cash and the pattern for expense recognition and/or cash receipt will be exactly what it is today. So, the economics of this business have not changed in any way. Now, on the GAAP results, the cost for all of those products consistent with your sort of non GAAP margin forecast would be recognized currently without the revenue. So, that would increase the expense -- would increase the expense relative to the revenue in a quarter where there is the deferral. So, GAAP results, you will see expense without the revenue and then as the revenue is amortized then that will tend to offset each other. But in that let me come to the macro point, through our non-GAAP measures, you will have complete comparability. The economics of the business have not changed. So, the cash flows incoming to EA will be no different than and the outflows will be no different. But given the dynamics of 97-2, the revenue will be have to be amortized over the length of our service obligation.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Yeah, so I think it's great that you guys are doing this simply so that we can just add the revenue back and see what that delta is. I guess maybe to ask it one final way. So, on the 400, what do you think EPS difference is going to be between the reported GAAP in '08 and between GAAP and non-GAAP, on that 400?

Warren Jenson

Analyst · Lazard Capital Markets

It would be 400.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

No, no, no. The revenue would be 400, but the EPS -- the delta between GAAP EPS and non-GAAP based on that 400 will be roughly what?

Warren Jenson

Analyst · Lazard Capital Markets

We'll give specific guidance at year-end, J.T.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Yeah.

Warren Jenson

Analyst · Lazard Capital Markets

But in the hypothetical, what you can assume is that if $400 million of revenue is deferred and given the fact that we currently expense everything, in effect if you were to, that will fall directly to operating margin. Do you follow me? So, in other words, if $400 million of revenue leads fiscal '08 that will indirectly impact our operating margin.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Yeah, when it's added back on a non-GAAP basis. Okay. All right, we can go over this later. Thank you.

Operator

Operator

Next, we'll hear from Jeetil Patel with Deutsche Bank.

Jeetil Patel - Deutsche Bank

Analyst · Deutsche Bank

Great, thank you. Going back to the 400 million question -- $400 million question. Can you just give us a sense I guess what percentage of the Sony and PC titles will have that online component versus just a peer package software play? And I have a quick follow-up.

Warren Jenson

Analyst · Deutsche Bank

We will give you that guidance as we get into our call. The next quarter we'll talk more specifically about FY '08. You can sort of figure it today where give or take roughly 50%. So, it will depend upon our exact plans which will go through when we get to our call here in three months, but today it's roughly 50%.

Jeetil Patel - Deutsche Bank

Analyst · Deutsche Bank

Okay. And as it relates to the R&D spending, you've talked about I think 5% core and then when you add in online you get to the mid to high single-digits, is that kind of what you said about fiscal -- kind of going forward into the upcoming year?

Warren Jenson

Analyst · Deutsche Bank

Yes.

Jeetil Patel - Deutsche Bank

Analyst · Deutsche Bank

Okay. And there won't be any sort of amortization of R&D expense. It will all hit the P&L in the upcoming year.

Warren Jenson

Analyst · Deutsche Bank

That is correct.

Jeetil Patel - Deutsche Bank

Analyst · Deutsche Bank

Excellent. Thanks.

Operator

Operator

Lowell Singer with Cowen & Company will have our next question. Lowell Singer - Cowen & Company: Hi, it's a Lowell Singer. I have a couple of questions. First, in your 13% to 18% category growth assumption, Warren, for calendar '07, can you talk about your assumptions for pricing on both PS2 and next-gen titles, what's embedded in that forecast? And second, there has been a lot of discussion on the Wii whether there is success this early on is sort of fattish or whether they have a favorable platform that's going to challenge for a much bigger share throughout this cycle than they had last cycle on the hardware side. And I am wondering, how you think the sort of three to five-year forecast on console sales is shaping up? Whether you think that Microsoft and Nintendo are going to be much more competitive with Sony, and potentially even past Sony this time around compared to the last generation? Thanks.

Warren Jenson

Analyst · Lazard Capital Markets

With regards to the pricing question, we were looking at the current trends and front line pricing about next-gen and current-gen and moving those assumptions forward. There doesn't appear to be a lot of resistant for the $59 price point for frontline next-gen titles. On the current-gen, it's becoming more of a $39 market, but there still is room for premiere title to come in at $49 price point. So, in our forecast assumptions, we have a mix based on these assumptions.

Larry Probst

Analyst · Nollenberger

With the regard to the Wii platform at least initially it seems like its expanding the overall market and expanding the demographic of users and people who purchase software. So, we think that's a good think. And we will have to see whether that's sustainable over time, but certainly they have gotten off to a very encouraging start. And over the next cycle whether it's three to five year's or longer. It appears as though both Microsoft and Nintendo are positioned to gain some share. So, we think that Sony will continue to do extremely well. They are very strong, in particular in Europe. And so, we think that there are three viable hardware platforms out there and we are going to be very proactively supporting all of them. Lowell Singer - Cowen & Company: Okay. Thank you.

Operator

Operator

Moving on, we will hear from Heath Terry with Credit Suisse.

Heath Terry - Credit Suisse

Analyst · Credit Suisse

Great. Thank you. Warren, I was just hoping that -- or Larry, you could maybe look out a little bit, when you think about, what you are seeing right now in terms of the attached rate for the incremental revenues from both advertising and from the digital downloads that you are doing on a per title basis, is there a number that you feel like is appropriate for us to be thinking about in terms of the incremental revenue from those two opportunities?

Warren Jenson

Analyst · Credit Suisse

Heath this is Warren. I think it's just too early to tell. I think some of the more interesting things that we are clearly seeing is that take people online in Korea, these models really work and people like playing mid-session online games like FIFA Online. I think the numbers that we've seen just this quarter in Pogo by introducing the Jump as sort of a payment model are fascinating. Need for Speed in the quarter in game advertising was roughly 5 million bucks. So, we'll see, but I think there are a lot of very positive things that we are seeing. And most importantly, they are things that are making games better and if we can continue to come up with ways to make the games better these revenue streams will just continue to grow in importance.

Heath Terry - Credit Suisse

Analyst · Credit Suisse

So, you said that Need for Speed that $5 million in the quarter in incremental advertising revenue or…?

Warren Jenson

Analyst · Credit Suisse

In game advertising, both static and dynamic.

Heath Terry - Credit Suisse

Analyst · Credit Suisse

So, when you mention the other titles that you have got that are going to having game advertising in this March quarter, should we be thinking that those are able to do similar type numbers, of course, adjusted for the size of the installed base on the game?

Larry Probst

Analyst · Credit Suisse

That's a fair assumption.

Heath Terry - Credit Suisse

Analyst · Credit Suisse

Okay, great. And at our conference back in December you have talked about Need for Speed having done at that point roughly $1 million in incremental downloads, is there an update to that number that you can provide us with?

Warren Jenson

Analyst · Credit Suisse

Hold on and I will grab you when I'll come back with that Heath.

Heath Terry - Credit Suisse

Analyst · Credit Suisse

Great, thanks a lot.

Operator

Operator

[Ed Irwin] with Bear Stearns will have our next question.

Ed Irwin - Bear Stearns

Analyst

Thanks. I was wondering if you could provide a little more detail on the increase in R&D in the quarter, excluding stock compensation. R&D was still somewhat ahead of expectations. Was that primarily the Wii?

Warren Jenson

Analyst · Lazard Capital Markets

The R&D is really -- the growth is a function of several things. Obviously, the stock-based compensation 123R, second thing is overall incentive compensation, which last year we did not meet in our operating plan objective. This year, so far we're meeting them, now we thought to bring the [quarter home]. So, this is not a done deal yet. But that resulted in an overall significant increase in the expense stage. The third thing would be overall acquisition. If I were looking at kind of normalizing all those things, and looking at kind of a run-rate expense, I would put the growth in R&D in the quarter around 10ish, slightly higher but not a lot more.

Ed Irwin - Bear Stearns

Analyst

Okay. Great, that's helpful. And then, I was wondering if you could comment on how the co-development of SKUs for the PS3 and Xbox 360 is going and what sort of benchmarks are you looking for during the coming year?

Larry Probst

Analyst · Nollenberger

In terms of co-development, can you describe what do you mean by that?

Ed Irwin - Bear Stearns

Analyst

Well in terms of currently, co-development of SKUs on separate teams or together. Just trying to get a sense of how that's progressing as you look for sort of efficiencies as that process goes on?

Warren Jenson

Analyst · Lazard Capital Markets

I can speak about it generally -- we have single franchise teams that are approaching each of these businesses. And when we look at the PS3 and the 360, the development of those two platforms is more alike and has more asset sharing than when you look your current genre or the Wii, for example. Just given the architecture, the systems, the multiple processors, the high definition graphics etcetera. So we do see that that will continue in the future where there will continue to be 360, PS3 development being mostly the same. We will do some things on one versus the other to optimize and to make them better, but on the Wii and the current-gen stuff that still continues to be a different type of development.

Ed Irwin - Bear Stearns

Analyst

Okay.

Larry Probst

Analyst · Nollenberger

And while we are waiting for the next question, let me just come back Heath, to your question. Need for Speed in Q3 and micro transactions, our average revenue per person purchasing content was about $11. In total retail revenue that amounted to roughly three quarters of $1 million, the average purchase per item was about $2.50.

Operator

Operator

Moving on, we will take our next question from Tony Gikas with Piper Jaffray.

Tony Gikas - Piper Jaffray

Analyst · Piper Jaffray

Hi. Good afternoon guys, few quick questions for you. As we enter a period here of improving cash flows over the next couple of years; could you just comment on your thoughts for additional share repurchase? Second question, I have heard from a couple of retailers here recently that sales during the month of January were particularly strong and gift cards continue to increase each year. Do you have a view on what tie ratios have been for the PS3, have they picked up now that, most of that hardware is in the hands of the ultimate owner. And then the third question, any update on China opportunities and growth there, any partnerships or potential partnerships that you see in that market?

Frank Gibeau

Analyst · Piper Jaffray

This is Frank. I'll take the second question first. January has been a very good month and in terms of the tie ratio on the PS3, we have seen a great improvement on that. The interesting thing to note about December was that, weeks 4 and 5 were historically high as a percentage of the business. Lot of that is fueled by the increase in gift card consumer behavior, and also I think the PS3 tie ratio was depressed a little bit at the initial release because of the eBay effect. Lot of people were out there by buying them and then flipping them to other people for a premium. As this ended up, as you stated, in the end users' hands, we have seen the tie ratio really go up appreciably.

Warren Jenson

Analyst · Piper Jaffray

And Tony, I will take the second question, and that has left Larry for the third. On the share repurchase, this is something we talk about in terms of returning capital to the shareholders all the time with our Board and we will continue to do so. Our priority is to stay strategically flexible, but as cash continues to increase depending upon our other cash needs, it's something that is front-end centered with our Board of Directors all the time and will continue to be.

Larry Probst

Analyst · Piper Jaffray

And with regard to China, we're continuing to develop our local development capability in that market and we are exploring potential partnerships with multiple people as we speak.

Tony Gikas - Piper Jaffray

Analyst · Piper Jaffray

Okay. Great job

Larry Probst

Analyst · Piper Jaffray

Thanks Tony. Operator we'll take one more question.

Operator

Operator

Okay. Our last question will come from John Taylor with Arcadia Investments.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Hi. I am -- I was going to ask about the reported story that this too was going to block online gaming and I wonder if -- its sounds like as that gets setup people are going to have to make a bunch of choices in terms of panel controls and stuff. I wonder if you could talk about that in relation to Pogo and give some assurance or tell us what they told you on that front?

Warren Jenson

Analyst · Arcadia Investments

You will be able to play Pogo going forward on Vista as you can't on XP. We don’t consider -- we don’t anticipate that there are any problems. Obviously we are constantly talking with Microsoft about their future plans and from our perspective we don't see any of it materially changing in Pogo going forward.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Does it -- is it going to impact anybody's ability to download games in case you move to that kind of a format?

Warren Jenson

Analyst · Arcadia Investments

We don't believe that's the case.

John Taylor - Arcadia Investments Company

Analyst · Arcadia Investments

Okay. Great thank you.

Warren Jenson

Analyst · Arcadia Investments

Alright, thanks everyone for joining us.

Operator

Operator

Thank you, ladies and gentleman this does concludes today's Electronic Arts conference call. We would like to thank everyone for their participation. Have a wonderful rest of your day.