718877--6/14/2007--ACTIVISION_INC

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Risks Factors Relating to the Interactive Entertainment Software Industry and Our Business We depend on a relatively small number of brands 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 or released when anticipated. 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. Our industry is highly competitive and our competition 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 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 our products and to receive pricing concessions which could reduce our net revenues and results of operations. Sales of certain titles such as Guitar Hero TM 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 credit arrangement with us. 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. 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 technology. Data breaches involving the source code for our products or customer or employee data stored by us could adversely affect our reputation and revenue. We may be subject to intellectual property claims. We are subject to the rating of our content 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, pertinent content, our business could suffer. Our products may be subject to legal claims. 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. Limitations on our capacity or ability to issue stock and options may require us to use more cash in our employee compensation packages. Our stock price is highly volatile. In our fiscal year 2007, we began recognizing stock-based compensation expense in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, related to our employee equity compensation and employee stock purchase programs. The recognition of this expense has a significant impact in lowering our reported net income (or increase our reported net loss). Changes in our tax rates or exposure to additional tax liabilities could adversely affect our operating results and financial condition. Our international revenues may be affected by regulatory requirements and barriers, cultural differences and currency fluctuations. Risk Factors Relating to Results of the Special Subcommittee Review of our Stock Option Granting Practices SEC investigation and litigation relating to stock options remain pending and may adversely affect our business and results of operations. We had a material weakness in internal control over financial reporting and cannot assure you that additional material weaknesses will not be identified in the future. If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings may not be timely and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price. As a result of the delayed filing of certain of our periodic reports, we will be ineligible to use Form S-3 or Form S-4 for a period of time. This may adversely affect our ability to engage in certain types of corporate acquisition and capital-raising transactions.

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718877--6/14/2007--ACTIVISION_INC_/NY