I might have a tough assignment here, as I get to duel with a lawyer this time. But like my last duel on eBay (NASDAQ:EBAY) -- in which my bull case took 76% of the votes, dominating the bear case by a 5:1 margin -- I'm pretty sure that my opponent and colleague Rich Smith has the short end of the stick. The key difference is that last time, I had a pretty good idea of what the bear case would be. This time, any perceived weakness that Rich might choose to attack in Motley Fool Stock Advisor selection Electronic Arts (NASDAQ:ERTS) is far less obvious.

Simply put, EA is the game.

EA Sports titles -- including the Madden NFL, NBA Live, Tiger Woods Golf, and FIFA franchises -- claimed a whopping 63% market share among sports games in the company's fiscal year 2005 (ended March 31), and represent one of the industry's few recurring revenue streams. At the same time, EA's $504 million in fiscal 2005 bottom-line profit far surpassed the combined $333 million generated by Activision (NASDAQ:ATVI), Take-Two Interactive (NASDAQ:TTWO), and THQ (NASDAQ:THQI), perhaps EA's three closest rivals. FY 2005 represented the first time those three companies' combined revenues surpassed EA's $3.13 billion.

FY 2005 Video Game Publisher Comparison





Net Revenues





Net Income





R&D Expense





Cash and Equivalents





*Twelve months ended April 30; all other companies' fiscal year ended March 31.

Despite EA's dominance in the sports video game arena, it also publishes one of the industry's most diverse lineups. During FY 2005, 31 EA titles sold more than 1 million units each. Only one title -- Need for Speed Underground 2 -- accounted for more than 10% of sales, while Activision had three titles in FY 2005 account for 37% of revenues, and Take-Two's Grand Theft Auto franchise made up almost one-third of revenues. EA's NFS Underground 2 and The Sims titles each sold 15 million units last year.

The company doesn't just rest on its laurels -- EA spends a greater percentage of its revenues on research and development than its competitors. In FY 2005, R&D expense equaled 20% of EA's revenues, whereas Activision spent only 6% of revenue on R&D, Take-Two spent 4%, and THQ spent just under 10%. In fact, the $633 million EA spent on R&D over that period is almost triple the amount the other three companies spent combined.

The company has expanded on its sports line with its EA Sports BIG arcade-style lineup, featuring relatively new franchises like NBA Street, NFL Street, and the hit snowboarding series SSX. Besides sports, the company has hit franchises in Need for Speed, The Sims, 007, and hit arcade racer Burnout. EA has also capitalized on movie franchises such as Time Warner's (NYSE:TWX) Lord of the Rings and Harry Potter, and recently signed a deal that will have Steven Spielberg aid in the production of at least three games.

As a result, the number of EA's million-unit "platinum" sellers has increased to the aforementioned 31 titles in FY 2005 from 27 in FY 2004 and 22 in FY 2003.

EA Snapshot

FY 2003

FY 2004

FY 2005

Net Revenues




Net Income




R&D Expenditure




Platinum Titles




If I were Rich, I would probably attack rising game development costs as a weak point. Games' increasing sophistication has made them more costly to produce. As you can see, EA's R&D expenditures have risen from $401 million in FY 2003 to $511 million in FY 2004 and $633 million in FY 2005. But this very fact also represents a significant barrier to entry in the industry, and it helps provide EA with a substantial business moat beyond its powerful portfolio of brands.

As small competitors face the difficulty of rising development costs, EA is there to purchase them and their promising franchises (EA acquired Criterion Games and the hit Burnout franchise last year, for example). EA is currently rumored to be in the hunt for London-based SCi Entertainment, which owns the once-vaunted Tomb Raider franchise.

EA is the surest bet in an increasingly relevant game. The next cycle of video game hardware is almost here, with Microsoft's (NASDAQ:MSFT) Xbox 360 debuting in November. The new wave of consoles should provide EA substantial profit growth over the next several years.

But, wait! You're not done. This is just a quarter of the Duel! Don't miss Rich Smith's bearish beginning, Rich's rebuttal, and Jeff's final word. When you're done, you're still not done. You can vote and let us know who you think won this Duel.

Fool contributor Jeff Hwang owns shares of Electronic Arts and eBay. EA, eBay, Time Warner, and Activision are Motley Fool Stock Advisor picks. The Fool has a disclosure policy.