Activision, Inc. — 2004 Annual Report We added resources to our internal development studios through the acquisition of Infinity Ward which created  Call of Duty, the #1 best-selling PC game in the U.S. during the holiday season. Additionally, we expanded our relationships with retailers and increased our shelf space around the world. Earlier this year, we announced a strategic alliance with Nielsen Entertainment to work together to create a reliable measurement of the effectiveness of in-game advertising. We believe that there will be exciting opportunities in the future to leverage the billions of hours that consumers spend playing games annually into advertising revenues. The first step in this initiative is a Nielsen research study to better understand the demographic makeup of U.S. households with a video game console and/or PC gaming system;  an analysis of the relationship between video gaming and television viewing; and an investigation into how the video game playing community perceives in-game advertising. Nielsen will be developing a standardized methodology to measure advertising metrics in video games, in the same manner that they have created standardized measurement metrics for other forms of media including television and in-theater advertising. Nielsen will be able to provide advertisers with the tools to gauge effectively everything from in-game ad exposure, reach and frequency, to audience recall. They will develop these metrics in a language that makes it possible for media buyers to evaluate in-game advertising the same way they evaluate other media opportunities. We also announced our support for two new hand-held platforms—the Nintendo DS and Sony’s PlayStation GLYPH<H23006> Portable (PSP GLYPH<H23008> ). We expect to have games available at the launch of these systems. Hand-held gaming has been a popular form of entertainment since the introduction of the Game Boy GLYPH<H23006> in 1989 and we expect that these new devices will continue to broaden its appeal. While our primary focus is increasing the sales of our titles, there are new and exciting opportunities for growth in the future. We are especially enthusiastic about three developments—online interaction, broadband penetration and increased production values. Online interaction will create more personal interest and engagement. Today, the majority of console game playing takes place alone. The second most popular way to play is in the same room with a sibling or friend. Playing with others over the Internet through Xbox GLYPH<H23008> Live or the PlayStation GLYPH<H23006> 2 is a relatively new concept, but it is a big part of the future. The maturity of broadband will make this interaction possible. The telecom industry con- tinues to provide substantial incentives for investment in broadband meaning critical infra- structure growth is on the way. We believe the tipping point for industry-changing player interaction could occur when broadband reaches 50 to 60 percent of households. Penetration today is about 45 percent, so we are getting closer. And as the presence of broadband increases, especially wireless broadband, we will deliver games to more platforms and more devices including cell phones, tablet computers and even PDAs. page 2