1. Video Game Industry Analyst Report to Fidelity Magellan Fund Manager November 20, 2001

2. Agenda Market History: Ainsley Quiohilag Market History: Ainsley Quiohilag Platform v. Software: Bei Wei Li Platform v. Software: Bei Wei Li Current Market Conditions: Henry Steinberg Current Market Conditions: Henry Steinberg Conclusions & Recommendation: Dana Kelman Conclusions & Recommendation: Dana Kelman

3. Market History Periods Defined by Two Major Platforms Periods Defined by Two Major Platforms Atari v. Colecovision Atari v. Colecovision Nintendo v. Sega Nintendo v. Sega Sony v. Nintendo Sony v. Nintendo X-Box new entry X-Box new entry Atari, Sega, & Colecovision failures Atari, Sega, & Colecovision failures

4. Market History Software Maker Sustainability Software Maker Sustainability Electronic Arts Electronic Arts Activision Activision Sega Sega

5. Platform v. Software Platforms Platforms Loss Leaders Loss Leaders MSFT expects to lose $150 per unit MSFT expects to lose $150 per unit Gillette business model analogy Gillette business model analogy Profits derived from software Profits derived from software Platform makers develop software for their consoles Platform makers develop software for their consoles Royalties from third party software developers Royalties from third party software developers

6. Platform v. Software Software Only Companies Software Only Companies Ability to make software for all platforms Ability to make software for all platforms No losses to recover No losses to recover High profit margins/low marginal cost High profit margins/low marginal cost Lower fixed costs than companies that make both consoles and software Lower fixed costs than companies that make both consoles and software

7. Current Market Conditions Major Platform Makers Major Platform Makers Sony Playstation 2 debuted last year Sony Playstation 2 debuted last year Microsoft Xbox and Nintendo Gamecube new introductions November 2001 Microsoft Xbox and Nintendo Gamecube new introductions November 2001 Intense competition Intense competition More platforms more players More platforms more players $1 billion marketing blitz for video game industry $1 billion marketing blitz for video game industry Increased size of market (44 million consoles today to 70 million by 2003) Increased size of market (44 million consoles today to 70 million by 2003) New platform technology facilitates improved game quality New platform technology facilitates improved game quality

8. Conclusion Who wins battle of platforms? Who wins battle of platforms? Who cares? Who cares? Value added comes from games Value added comes from games Examples: Movie theaters, Sega Dreamcast Examples: Movie theaters, Sega Dreamcast Real winners are software makers Real winners are software makers Capture whole market regardless of platform Capture whole market regardless of platform

9. Recommendation Electronic Arts Electronic Arts Industry leader Industry leader Use clout to negotiate deals with celebrities & sports figures Use clout to negotiate deals with celebrities & sports figures Hedged against platform standard problem – make software for all platforms Hedged against platform standard problem – make software for all platforms Stability Stability Survived past industry shakeouts Survived past industry shakeouts