718877--5/30/2008--ACTIVISION_INC

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Risks Factors Relating to the Interactive Entertainment Industry and Our Business We depend on a relatively small number of franchises for a significant portion of our revenues and profits. Our future success depends on our ability to release popular products. Our business is "hit" driven. If we do not deliver "hit" titles, or if consumers prefer competing products, our sales could suffer. If we are unable to maintain or acquire licenses to intellectual property, we may publish fewer "hit" titles and our revenue may decline. Our business is highly dependent on the success, timely release and availability of new video game platforms, on the continued availability of existing video game platforms, as well as our ability to develop commercially successful products for these platforms. Transitions in console platforms could have a material impact on the market for interactive entertainment software. We must make significant expenditures to develop products for new platforms which may not be successful. If the average price of prior-generation titles continues to decline or if we are unable to sustain launch pricing on next-generation titles, our operating results will suffer. The interactive entertainment industry is highly competitive and our competitors may succeed in narrowing our market share and reducing our sales. Our platform licensors are our chief competitors and frequently control the manufacturing of and have broad approval rights over our console and handheld video game products. Our platform licensors set the royalty rates and other fees that we must pay to publish games for their platforms, and therefore have significant influence on our costs. We rely on independent third parties to develop some of our software products. If our products contain defects, our business could be harmed significantly. We may permit our customers to return products and to receive pricing concessions which could reduce our net revenues and results of operations. Sales of certain titles such as Guitar Hero are affected by hardware peripheral availability. We may face difficulty obtaining access to retail shelf space necessary to market and sell our products effectively. Our sales may decline substantially without warning and in a brief period of time because a majority of our sales are made to a relatively small number of key customers and because we do not have long-term contracts for the sale of our products. We may be burdened with payment defaults and uncollectible accounts if our distributors or retailers cannot honor their existing credit arrangements. We may not be able to maintain our distribution relationships with key vendors and customers. Our business is subject to risks generally associated with the entertainment industry, any of which could significantly harm our operating results. As online functionality becomes an increasingly important feature of our software products, we may need to defer the recognition of an increasing amount of revenue, which may adversely affect the net revenue, net income and earnings per share that we will report under GAAP. We are exposed to seasonality in the sale of our products. We may not be able to adequately adjust our cost structure in a timely fashion in response to a sudden decrease in demand. If we do not continue to attract and retain key personnel, we will be unable to effectively conduct our business. Our products are subject to the threat of piracy and unauthorized copying, and inadequate intellectual property laws and other protections could prevent us from enforcing or defending our proprietary technologies. We may also face legal risks arising out of user-generated content. Data breaches involving the source code for our products or customer or employee data we store could adversely affect our reputation and revenue. We may be subject to intellectual property claims. Our products are subject to ratings by the Entertainment Software Rating Board and similar agencies. Failure to obtain our target ratings for our products could negatively impact our sales. Our business, products, and distribution are subject to increasing regulation of content in key territories. If we do not successfully respond to these regulations, our business may suffer. If one or more of our titles were found to contain objectionable undisclosed content, our business could suffer. Our products may be subject to legal claims. Our business is subject to risks and uncertainties of international trade. Fluctuations in currency exchange rates may have a negative impact on our business. Other Risks Relating to Our Business and Ownership of Our Stock We seek to manage our business with a view to achieving long-term results, and this could have a negative effect on short-term trading. We may face limitations on our ability to find suitable acquisition opportunities or to integrate additional acquired businesses. Our shareholder rights plan, charter documents, and other agreements may make it more difficult to acquire us without the approval of our Board of Directors. Historically, our stock price has been highly volatile. Changes in our tax rates or exposure to additional tax liabilities could adversely affect our operating results and financial condition. SEC investigation and litigation relating to stock options remain pending and may adversely affect our business and results of operations. Our investments in auction rate securities are subject to risks that may have an adverse effect on our liquidity.

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718877--5/30/2008--ACTIVISION_INC_/NY