Question-and-Answer Session
Operator
Thank you. (Operator instructions) And the first question comes from Jeetil Patel with Deutsche Bank.
Jeetil Patel – Deutsche Bank
Hi, guys. You have got 14% fewer SKUs coming out in fiscal ?10 versus fiscal ?09, I guess can you walk us through from the down 14% in the SKUs to the plus – flat to plus five – call it plus 5% on the revenue side? I guess what are you implying in terms of productivity versus change in FX et cetera, and then also just your pricing assumptions for the industry as a whole?
John Riccitiello
So, there is a lot pieces to your question there. I’ll do my level best to wrap them up in one answer. First off, your point-to-point comparisons on SKUs I think is a tad misleading because it incorporates the move of some SKUs relatively right from the end of fiscal ?09 to the beginning of fiscal ’10. So actually think your low teens estimate understates the shift in SKUs and the reduction in our investment in new R&D.
The second observation I would make is in terms of mapping that to revenue growth, I'll start at the strategic level and point out that we are very purposely reducing the number of SKUs, in particular our secondary and tertiary SKUs and/or titles that are too close to the breakeven point to justify being developed and launched. So we believe we are making a move to enhance our ability to focus, create bigger hits in the marketplace, and all things being equal, generate at least as much, if not more revenue.
Now things frankly are not all equal and I think you need to take this question apart carefully. If I were to do this from a modeling perspective from the outside and looking at Electronic Arts, I would probably start with the observation that we have highlighted today in the call that our distribution revenue is down approximately $300 million year over year. I think that's a very important starting point, and that's a lower margin business, and one of the reasons our gross margins were up so sharply is the reduction in that as a percentage of our revenue.
From there, there is half a dozen different ways you might want to cut it, but if you were to cut it like we did, you would look at it by label. And if you started with sports, you would see that our business is up approximately $100 million dollars year over year. Just over 100% of that are new titles we are launching in the year like Fight Night and EA Sports Active. We have actually developed a plan with our key sequel titles being down slightly.
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