Kristen Southey – VP Investor Relations Robert Kotick - Chairman and Chief Executive Officer Thomas Tippl - Chief Financial Officer Michael Griffith - President and Chief Executive Officer of Activision Publishing

Tony Gikas - Piper Jaffray Heath Terry - Credit Suisse Jeetil Patel - Deutsche Bank Patrick Anthony - Citigroup Joel Singer - Cowen and Co Ralph Schackart - William Blair Arvind Bhatia - Sterne Agee Colin Sebastian - Lazard Chris Clack – SIG John McPeake – Prudential Robert Haley - Gabelli Daniel Ernst - Hudson Square Research

Good day, ladies and gentlemen. Welcome to this Activision quarterly conference call. As a reminder, today's call is being recorded. At this time for opening remarks and instructions, I would like to turn the call over to Vice President of Investor Relations, Kristen Southey. Please go ahead, ma'am.

Good afternoon and thank you for joining us today for Activision's Q2 fiscal '07 conference call. As always, I will start today’s call with a review of our Safe Harbor disclosure, followed by comments from Robert Kotick, Chairman and Chief Executive Officer; Thomas Tippl, Chief Financial Officer; and Mike Griffith, President and CEO of Activision Publishing. With regard to our Safe Harbor disclosure, I would like to remind everyone that statements made during this call that are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. The company cautions that a number of important factors could cause Activision's actual future results and other future circumstances to differ materially from those expressed in any such forward-looking statements. Such factors include, without limitation, the company's ability to file timely required reports with the SEC; the possibility that the review of the company's historical stock option grant practices by the special sub-committee and the board and conclusions of that review will result in a change to, or restatement of, financial results provided by the company for historical and future periods; developments and related pending and potential future regulatory inquiries and litigation; direct and indirect expense and diversion of management time and attention relating to stock option matters; other litigation; sales of the company’s titles during fiscal '07; consumer spending trends; the seasonal and cyclical nature of the interactive game market; the company’s ability to predict consumer preferences among competing hardware platforms, including next-gen hardware; software pricing; product returns and price protection; product delays; retail acceptance of our product; delays in hardware launches; industry competition; rapid changes in technology and industry standards; protection of proprietary rights; maintenance of relationships with key personnel, vendors and third party developers; international, economic and political conditions; integration of recently acquired subsidiaries and identification of suitable future acquisition opportunities. These important factors and other factors that potentially could affect the company's financial results are described in our filings with the SEC, including the company’s most recent annual report on Form 10-K, most recently quarterly report on Form 10-Q and recent current reports on 8-K and the cautionary statements therein and in the exhibits thereto. The company may change its intensions, beliefs or expectations at any time and without notice based upon any change in such factors in the company's assumptions or otherwise. The company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflects events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Additionally, with regard to the status of the subcommittees review of our historical stock option grant practices, or the letter of informal inquiry from the SEC regarding such practices, or related legal matters, we refer you to our 8-K filings and the cautionary statements therein and the exhibits thereto. At this time we are unable to comment on any other financial results other than what we will discuss today until the board’s sub-committee completes its review of the company's historical option grant practices and the company determines what, if any, impact that review will have on the results. Also any comments made during this call with reference to our future outlook, excludes the impact of any adjustments that may be required once the sub-committee has concluded its review. Finally the subcommittee is working to complete its review in a timely manner and we will become current in our filings as soon as practicable and after that review has been completed. Now I would like to introduce Bobby Kotick, our Chairman and CEO.

Thank you, Kristen. We are pleased to share with you our second quarter highlights and our increased revenue outlook for the fiscal year. In Q2, net revenues exceeded our expectations and we ended the quarter with approximately $750 million in cash and short-term investments. Our revenue over-performance was driven by improving market conditions and the continued success of our franchises, including Call of Duty, Guitar Hero and World Series of Poker. During the quarter, Call of Duty 2 for the Xbox 360 crossed the 1 million unit mark in the U.S., making it the number one bestselling game to-date on the Xbox 360 according to NPD. Also during the quarter we confirmed that we will be releasing five launch titles for the Nintendo Wii, the largest launch lineup for new hardware in our company’s history. Guitar Hero, our newest wholly-owned intellectual property was a top ten bestselling title in the U.S. for the September quarter, ten months after its initial launch. We continue to make the organizational infrastructure changes necessary to ensure our long-term leadership, and in October we announced the appointment of Brian Hotis to newly created position of Chief Customer Officer, leading our global sales operations. Brian most recently served as group director and EVP of global sales at Cadbury Schweppes where he managed more than 16,000 sales professionals in 190 countries, delivering $12 billion in annual revenues. This month will mark a new era of gaming. The much-anticipated launches of the PlayStation 3 and the Nintendo Wii and the release of second-generation software on the Xbox 360 are upon us. All of which are expected to be supported by unprecedented levels of marketing investment. These new systems will offer new experiences likely to entice broader demographics than ever. In addition, the continued strength of the PS2 and the handhelds with new categories of software like Brain Age will bring video gaming to new audiences, and those consumers, more mindful of price, especially in international markets. We remain committed to delivering the very best interactive entertainment and our product lineup for the remainder of the fiscal year is strong, balanced and of extremely high quality. With better visibility into first party plans and now having completed development for all new platforms, we have far greater insight into the potential opportunities and costs as the installed base of next-generation video hardware begins to take hold. New sources of margin expansion are starting to materialize. Commercially viable downloadable game content on the consoles is now a reality. In fact, this quarter we more than doubled our revenues from this long-term growth driver. To take advantage of these future opportunities, we remain focused on expanding our balanced franchise portfolio, strengthening our next-generation development leadership, expanding our distribution reach and furthering our initiatives to reduce development expense, to organizational efficiencies. Our competitive advantage is derived from our ability to gain long-term control of valuable IP rights, successfully create new franchises, leverage our proprietary development resources and extend our broad distribution capabilities, all of which should lead to continued margin expansion and higher returns on invested capital in the future. While the future is exciting, realizing our growth and financial goals is not without risk. Development costs are higher. Business models may change and competition for talented employees remains fierce, especially at the caliber we have historically been so successful at recruiting and retaining. While increasing production costs and the volatility of transitioning to new hardware remains a challenge and a risk, there is much to be excited about as the installed base of next-generation hardware grows. We are commit to finding new ways to reduce rising development costs, including global outsourcing of artwork as well as quality assurance. Our competitive position continues to improve and the barriers to entry in our industry continue to rise. As we have over the past 15 years, we believe over the long term we can provide superior returns to our shareholders. Later in the call Mike will share more details of our plans for this fiscal year and next, but now Thomas will provide a brief review of our operations during the last quarter as well as the progress we are making with respect to our studio cost control. Thomas Tippl: Thank you, Bobby and good afternoon. As you know, given the ongoing internal review of the company's historical stock option grant practices, today’s announcement of second quarter results includes only selected financial information. For the September quarter, net revenues were $188 million. This is significantly higher than our prior outlook of $130 million, due to better than expected performance of our franchise portfolio across all segments. As expected, quarterly revenues were down versus the prior year as we had fewer product launches which we previously highlighted. In the September quarter, manufacturing and distribution expense was 68% of revenues, up versus our prior guidance of 65%, due mainly to mix shift. In terms of operating expenses, we continue to see the benefit of our cost optimization programs. During the quarter, we exceeded our revenue outlook by $58 million without making incremental investments versus our prior outlook, to drive demand. Turning to the balance sheet. On September 30, we had $747 million in cash and short-term investments. This is about in line with the prior year and a decrease of $45 million versus the prior quarter due to continued investment in our product slate ahead of the holiday season launches. The accounts receivable balance was $96 million. This is up $31 million versus the prior quarter as we secured a new customer for our distribution business and had strong demands for our affiliate titles late in the quarter. The AR reserve as a percentage of trailing nine months revenue was 14%. Activision inventories were at $71 million. This is up $7 million versus last quarter due to inventory build in front of the holidays, particularly for the worldwide launch of Hero 2 which is sourced from China and has a long supply lead time. On September 30, inventory for the publishing business was 46 million and 25 million for the distribution business. In terms of performance, there is one more area I would like to highlight. Last quarter we announced that we generated approximately $1 million in Xbox 360 online revenues net of Microsoft’s royalty. In Q2, our downloadable offerings included Call of Duty, Doom, Quake 4 and Tony Hawk’s AmericanWasteland and during the quarter we generated nearly 2 million in online revenues, net of Microsoft's royalty. Although it's still early, this is a critical first step in exploiting the long-term online potential. Not only are the downloads accretive, but the additional content helps extend the shelf life of our titles and provides pricing support to our catalog as the consumer must hold on to the game in order to experience the new content. Before turning to our financial outlook, I would like to begin by saying that our outlook represents our views as of today and there are a number of internal and external factors that could cause our actual results to differ materially, including but not limit to, a dramatic shift in retail demand, a rapid decline in software pricing, delay in the launch of new hardware or our software for the new hardware, or a sizeable reduction in hardware launch quantities. I refer you to our financial filings with the SEC for a full review of our risk factors. For the fiscal year, as was previously announced, we raised our revenue outlook to $1.15 billion. This is due to better than expected revenue performance in Q2 and an increase in our Q3 outlook for our distribution business. For the fiscal year, we expect manufacturing and distribution costs of approximately 52% of net revenues. For the third quarter, we expect revenues of approximately $600 million. This is down versus the prior year as we have fewer market platform releases and lower pricing for current gen and catalog titles. For the third quarter, we expect manufacturing and distribution costs of approximately 45% of net revenues. As previously announced, the operating contribution from the $75 million projected revenue increase for the full fiscal year 2007 will be fully realized in Q3 due mainly to higher [inaudible] expenses and the impact of the delay of the PS3 in Europe to March 2007. For the fourth quarter, we expect revenues of approximately $175 million. In summary, we continue to make progress with regard to our cost optimization program and are encouraged that revenues have been tracking ahead of our outlook which suggests that we are getting better returns on our consumer enhancements in a more receptive market. For Q3, we will continue to closely monitor product performance and will appropriately allocate funds to post launch activities as we did in the first half of the fiscal year. Going forward, we will build on our success to date and drive efficient media strategies that include a greater emphasis of online and direct communication programs with consumers. Today, more and more of our target consumers and not just the hardcore consumers, can be reached effectively through the Internet and we are using this lower cost medium to generate sales. For example, last quarter we launched our first Internet-based consumer relationship marketing program from which targeted a broad base of influences that helped generate pre-release buzz for the game. The outcome was a tripling of onsite traffic on Activision.com and a doubling of our preorders. Next, with regard to product creation costs, we are benefitting from our ability to ship on the next-gen and the knowledge base that has come from being one of the first companies to offer two second-generation Xbox 360 titles, like Call of Duty 3 and Tony Hawk’s Project 8. Today all of our next-generation titles are utilizing proprietary tools that enable us to more easily develop games across multiple platforms. In addition, we continue to drive efficiencies for increasing our development schedules to facilitate a longer pre-production phase and more predictable workflow times. Finally, we are increasing the amount of game development that is being outsourced to other parts of the world. For example, in China we are outsourcing art for characters, vehicles and environments for 360 and PS3 development. Additionally, we are starting to cultivate the co-development opportunities with local studios in those geographies. In Canada last year we acquired the Beenox Studios and since then we have expanded their capabilities. Today they are in development of the upcoming Dreamworks movie titles. Canada is a region that offers future opportunity for studio expansion given its highly talented and cost efficient development resources. Finally, we are outsourcing our quality assurance for handheld and current-gen SKUs to India. Fiscal '07 was our first year doing this and we are looking to double our outsource work in fiscal 2008. In summary, our cost optimization program is a step-by-step process and we are eoncouraged by the initial success we've had in developing relationships and partnerships worldwide to enhance our development capabilities while maintaining our very high quality standards. Now I would like to turn things over to Mike Griffith, President and CEO of Activision Publishing who will provide his thoughts on the balance of fiscal '07 and fiscal '08. Mike Griffith: Thank you, Thomas. Today, my comments will focus on two areas: first our market expectations; and second, what the company plans to deliver in fiscal '07 and '08. The market in general is gaining momentum and we think signaling the real start of the new cycle we've been planning for. Looking at the overall market on September 30, the installed base of hardware in North America for current and next-generation systems, including handheld, was about 108 million units, which provides a solid base going into this holiday quarter and is significantly higher than the installed base at this point in the last cycle. We are encouraged by consumer demand for the Xbox 360 and early enthusiasm for the PlayStation 3 and Nintendo Wii. This bodes well for continued acceleration in the installed base. We believe growth will also be fueled by continued strength in handheld platforms and eventually lower priced current-gen hardware. So in total, the hardware dynamics are coming together as expected. With respect to the hardware market, even though we have more information from the first parties than we did at our last call, there is still risk in the short term, primarily surrounding next-generation launch quantities and timing of hardware ramp-up in the marketplace. For now, we expect the following hardware increases in North America during the calendar year: we are estimating PlayStation 2 will be up 4 million to 5 million units, building on the robust demand it has experienced over the last few months. We are anticipating 600,000 to 800,000 PlayStation 3 units. We expect Xbox 360 growth of 4 million to 5 million units while we expect regular Xbox up 500,000 units. We also expect about 1 million units from the Nintendo Wii while GameCube should deliver about 800,000 units. Finally, we expect handhelds, which include the GDA, ES and PSP, will grow approximately 10 million units. In the near term, we've been pleased with hardware sales for the PlayStation 2 and the Nintendo ES in both the U.S. and Europe which have exceeded our expectations and reinforced the strengthening consumer dynamic. Moving to software, we define our market to include all major platforms in North America and Europe. Year-to-date through September, the software market in the U.S. and Europe has performed better than expected, driven by the strong attach rate to the Xbox 360 software and the continued strength of PlayStation 2 and Nintendo ES software sales. For calendar 2006, we now expect to combine North America and European software markets for current gen and next-generation consoles, handhelds and PCs to come in flat to slightly up year over year. With respect to software pricing, this still remains one of the major risks to our operating plans. We expect that software launch pricing for the Xbox 360 and PlayStation 3 will be $59.99 and for the Nintendo Wii, $49.99. Pricing decisions for front line current generation console titles will be made on a title-by-title basis, based on quality and other factors. This holiday, we are launching three PlayStation 2 titles at $49 or above: Tony Hawks Project 8, Call of Duty 3 and Guitar Hero 2. Turning now to the balance of fiscal 2007, our release schedule should align well to the challenging current-gen environment and slow but promising ramp of the next-generation platforms. Our slate for the back half of the fiscal year is well diversified across consumer genres and hardware platforms. The quality of our games is strong, we are launching a robust next-generation lineup. Activision’s third quarter slate will be driven by some of the company's largest and most proven franchises. Our first major launch of the holiday selling season, Marvel Ultimate Alliance, is already off to a positive start. This new action RPG lets gamers create the largest super hero army ever in a video game. It's a promise that resonates well in almost 50% of reviews for the 360 version on gamerankings.com are 90 or above, making this our highest-rated Marvel title ever. The game recently launched on all the major platforms with the exception of PS3 and Wii, which will follow with the new hardware. Although its still early, this title is gaining momentum behind strong game quality and marketing support. This holiday we will also look to further capitalized on the success of the number one next-generation title to date, Call of Duty 2. Call of Duty 3 takes the experience further with combat during the Normandy Break Out. The core promise, which again is resonating extremely well with Call of Duty fans, is to bring the combat closer than ever. The game’s intensity and hand-to-hand combat features deliver on the promise and early feedback has been very encouraging. Call of Duty 2 established itself as the number one online multi-player game on Xbox Live and we are especially excited about building on this strength with a very robust online experience that Call of Duty 3 will offer. The game lets 24 players play online both in vehicles and on foot. This means that three times as many people can play together online than in the previous game, and the vehicle game play adds an entirely new dimension. This is the kind of innovation that will allow Call of Duty to maintain its next-generation leadership. In addition to launching on all three next-generation platforms, we will launch Call of Duty 3 on the PlayStation 2 and the Xbox. Our strategy with Tony Hawk this holiday is to broaden the franchise. First of all, the board game, Tony Hawk’s Project 8, has been completely rebuilt for the PlayStation 3 and the Xbox 360 and delivers an incredibly authentic skateboarding experience. This is a substantial step forward for the Tony Hawk game in quality and story. It brings to life more realism that players have been craving, with a focused story line that's all about the skating experience. The title, which targets the core consumer, will also launch PlayStation 2 Xbox and PSP. Tony Hawks Project 8 demo recently debuted on Xbox 360 Live and following its release preorders for the product dramatically increased. The second leg in the Tony Hawk stool will come as we target the younger, more casual gamer with the release of Tony Hawk’s Downhill Jam, a new brand extension designed exclusively for the Wii and ES. Downhill Jam lets players experience the Breakneck Speed of Downhill skateboard racing while performing tricks and outmaneuvering opponents. The recent success of the Nintendo ES and the excitement around the Wii should benefit this exclusive launch. For the launch of the Nintendo Wii, Activision has one of the strongest line-ups available with five titles in total. In addition to Tony, Call of Duty and our Marvel title we will also release Rappella’s Tournament Fishing which let's players utilize a unique controller; and World Series of Poker Tournament of Champions, which puts players on the pro circuit. This holiday will also market the worldwide launch of Guitar Hero 2, our newest intellectual property. We are obviously very pleased with the performance of the original Guitar Hero that launched in the U.S. last November, and was a top ten title in the most recent September quarter. Guitar Hero is a tremendously fun music-based game targeted toward the mass market consumer. The easy to play formula is exceptionally well suited to drive broad success with its promise of unleashing everyone's inner rock star. Guitar Hero 2 features more songs and more venues, as well as additional multi-player modes in which two guitarists can play lead and rhythm or bass tracks together, bringing the social currency this game delivers a significant step forward, from even the original game. The PS2 game comes with a rare red Gibson guitar and will retail for about $79 U.S. dollars. In addition, we are launching a wireless guitar controller for $59.99. We will be supporting this title aggressively this holiday season, with a full suite of marketing elements, including aggressive in-store demonstrations. This is a game that responds particularly well to sampling and trial, and we have found that there is a dramatic uptick in Guitar Hero retail sales when there is an in-store demo or kiosk available. So far this holiday, we have secured over 7,500 demo stations and kiosks in almost every major retailer, including Wal-Mart. This is a good example of the advantage we are realizing from our strategic focus behind building our go to market capability and retail category management expertise. During the holiday quarter, we are also rounding out our release slate with several handheld-only titles to take advantage of the growing handheld demand. These titles include Gun Showdown, Hammy Goes Nuts and Spiderman, Battle for New York. Looking to Q4, we will launch Call of Duty 3 for PSP, and for planning purposes, we have Enemy Territory, Quake Wars, for PC slated for very late Q4. In March, we will also release our PlayStation 3 European launch titles, Call of Duty 3, Tony Hawk’s Project 8 and Marvel Ultimate Alliance. So in total, our fiscal 2007 execution is strong and meeting our expectations. However, there continues to be near-term uncertainty in market demand and hardware so fiscal 2007 continues to be a year of caution, investment and learning as we manage through the remainder of the transition to focus our resources to prepare for accelerating growth in the next few years. Looking forward, we continue to allocate more development resources against our strong fiscal '08 and fiscal '09 line-ups, when market conditions should continue to improve even more. Our early leadership position on the Xbox 360 has provided us with a strong knowledge base of next-gen development which we are able to leverage against our robust lineup for the PlayStation 3 and the Wii. In fiscal '08, we expect that we will begin to reap the benefits of leveraging next-generation development, a larger installed base of hardware and our deep, broad and growing franchise portfolio. We will start the first quarter of the fiscal year with three strong movie-supported franchises: Spiderman 3, Shrek 3, and Transformers. Spiderman 2 and Shrek 2 alone have generated $1.7 billion of worldwide box office sales and collectively the franchises have sold in excess of 30 million game units to date. Additionally, there is strong and growing excitement in Hollywood surrounding the Transformers movie and we are very excited about the potential of this proven toy property. In total, all three games are well into development and they will create a strong early foundation for the year. Also anchoring our slate will be new titles from a number of our core franchises, Tony Hawk, Call of Duty, Marvel in addition to significant advances of Guitar Hero as we broaden platform support. We will also have a new intellectual property based on Dreamworks Bee movie starring Jerry Seinfield. Our fiscal year '08 lineup is one of the strongest ever and we will share with you the specifics of our full line-up on future calls. But as of today, we continue to expect that fiscal '08 revenues will exceed $1.6 billion. We believe that our growth and results in fiscal '08 will be driven by double-digit market growth, our expanding, balanced franchise portfolio; growing our international presence; benefits of a more efficient cost structure and continued successful focus on winning big with winning customers around the world. We would like to thank you for your time and the opportunity to share our initiatives with you for future. I will now open up the call for your questions.

(Operator Instructions) Your first question comes from Tony Gikas - Piper Jaffray. Tony Gikas - Piper Jaffray: Hi, good afternoon, guys. Just maybe a little bit of an update on the Marvel license that you have. Do you have the opportunity to publish on all of these Marvel properties? I notice there's a couple of brands that recently went to a couple of other publishers. What specifically does your license look like? Do you have first right of refusal on this or do you have to bid on each brand individually? Do you think it's an issue if another publisher publishes on a Marvel property and doesn't put out a game that's perhaps as high quality as Activision properties are? Mike Griffith: Tony, several months ago when we extended our relationship with Marvel we made a choice to narrow our focus on what we consider the crown jewels of the portfolio, Spiderman and X-Men. So our franchise focus is really on those two intellectual properties. We think there's a lot to do with those. We've had enormous success with both of them. As we look towards the future, that's where our titles and development focus will be. We think the consumer segments into separate properties and so we are quite comfortable that our focus on X-Men and Spiderman is the right place for us to be.

Tony, we said a few conference calls ago that we would return the rights to Iron Man and Fantastic Four and we are really not interested right now in pursuing anything other than the Spiderman and X-Men rights that we control. Tony Gikas - Piper Jaffray: Thanks.

Your next question comes from Heath Terry - Credit Suisse. Heath Terry - Credit Suisse: When you look out at hardware availability as we move through this cycle, do you see the ramp being similar to what we saw last cycle, or are there some other limiting factors that we need to take into account?

In the aggregate, Heath? Heath Terry - Credit Suisse: In the aggregate.

I think in the aggregate you have a few things that are positively different than in prior cycles. I think these are better differentiated devices, and you are going to see more broad appeal than we've seen in the past, as a result. I think the fact that you have the PlayStation 3 launch coinciding with the launch of the first true high-def video device that consumers are now much more interested in high-def video, generally. I think the number was around 9 million households in the U.S. that had high-def either through satellite or through cable. I think the fact that this is the first hardware launch that actually coincides with the launch of a new video format is a positive. I think the challenges we've seen is that it's higher technology than in the past, particularly in the 360 and the PlayStation 3. So the yields are going to be lower up front, and it's going to take them a little bit while to get those yields to the point where they will be able to satisfy all the demand. I would say net, you have more positive dynamics going into this cycle than we've seen in any prior cycle. Heath Terry - Credit Suisse: Great. And when you look at the early metrics that we are seeing out of this cycle, whether it's the attach ratio for Xbox 360 or the early attach ratio that you are getting for your downloadable content, what kind of assumptions would you suggest making around that as we think about where this looks as we start to think about the peak of the cycle? Can the average that you are getting right now per piece of software, per downloadable content, how much can that expand as people get more used to that type of format?

We've always said that attach rates are hard things to calculate because you have to define the period of time; but I would say that the one thing that's been missing generally in the console as an opportunity for us is what welook at in the PC market as expansion packs; partly because of the cost of goods and partly because of a general lack of interest on the part of the first parties to support the notion of an expansion pack. It is an entirely new opportunity. I think what you are going to see is generally as we've seen with Xbox with Call of Duty that the higher quality products are going to provide for a greater attach rate. One of the things that we've seen is that it's been a great deterrent to recirculating products in the pre-played market. So Call of Duty is a good example. The supply of pre-played Call of Duty has dried up as we continue to exploit it with new content, and I think that's something we will continue to see and take advantage of. Heath Terry - Credit Suisse: Great. Thanks, Bobby.

Your next question comes from Jeetil Patel - Deutsche Bank. Analyst for Jeetil Patel - Deutsche Bank: Two questions. When you look out to fiscal '08 and also beyond that, how do you think about the number of owned IP games that you expect to put out such as Call of Duty, versus licensed content? Should we expect to see more internally created games or are you content with Call of Duty plus your additional content now? The second question is, what do you think are the risks associated with the PS3 launch in Europe in March? Is it going to come in below expectations, do you think they have missed the launch? I just want to hear your thoughts about that. Mike Griffith: Well, I think first of all, on the future slate in terms of owned intellectual property versus licensed, I think you will continue to see a balanced approach from us, a cross both pf wholly-owned and licensed intellectual property. We know that there is substantial risk with developing new intellectual property. This year we are focused on Guitar Hero, obviously, as our newest wholly-owned intellectual property and we are quite bullish and excited about that. We have a number of other titles in development, but overall you are going to see a continued balanced approach across licensed and wholly-owned from us. In terms of the risk, the PlayStation launch in Europe, we think that continues to be a risk but we are expecting, based on the last communication from Sony, that they will launch in March and that's what we are planning for.

Another thing, it is important to point out that in addition to the franchises we own and control like the Guitar Hero or Call of Duty, one of the things that we did over the last year was to extend out the rights that we have that are licensed that give us all the attributes of ownership. So you look at Spiderman and X-Men as examples through 2017, the ON deal that we recently did, the attributes of ownership are as important for these licensed properties as actual ownership. So that's something that we invested heavily against over the last year.

Your next question comes from Patrick Anthony - Citigroup. Patrick Anthony - Citigroup: You had talked about how you were able to have some efficiencies in the porting between platforms or in developing games for the next-gen platforms. Just how much can you port now when you develop a game for 360 to the PS3, since you have been able to do that, at least to some extent already? Mike Griffith: We are getting a lot more experience with that. Clearly they have different architectures and different requirements. But we are encouraged by our ability to find efficiencies across platforms, particularly the PS3 and Xbox 360, and more so with current-gen on PlayStation 2 and the Nintendo Wii. So we are finding commonalities and areas where we can drive efficiencies across this. So we are still in the early stages of development on these, and early stages of learning. But of course one of the key areas of efficiency is development of artwork which we are able to apply commonly across these platforms.

Your next question comes from Joel Singer - Cowen and Co. Joel Singer - Cowen and Co.: Thanks, good afternoon. I wanted to follow up on the cost issue. Bobby, I think you said earlier that you have got a greater sense now of cost in the cycle. So when you think about moving from old gen to next gen and you think about developing games for more platforms, do you have any feel yet for what the delta is going to be in development costs on a title that would have been released across every platform last cycle versus a title with which you will do the same this time around? Thanks.

Again, it's somewhat title-specific, but I think if you look at what the operating model is for this year, it's definitely reflective of the changes that we've seen. As we move deeper into the cycle we will continue to get more efficiencies. I couldn't tell you because we just are not comfortable giving out a specific percentage, and it is different by title. Joel Singer - Cowen and Co.: Thanks.

Your next question comes from Ralph Schackart - William Blair. Ralph Schackart - William Blair: Good afternoon. You talked a little bit about this on the call, but is there any way you can give us an update on preorder levels or interest levels by the retailers as we head into this holiday season versus last? Particularly given the positive NPD data. Additionally, just any sense on the retailer front in terms of allocation of shelf space to video games, the product category versus other entertainment categories? Thanks. Mike Griffith: Sure, let me start by characterizing it. The retailer outlook on the category, I think, is optimistic although cautious. If you look across the title support that we are getting from retailers, we are quite encouraged by the programs that are being put in place by the retailers. We are getting strong support on all of our titles; Call of Duty 2 of course remains the number one Xbox 360 title and there's a lot of support for the sequel on Call of Duty 3. In general, we are seeing more strength in our preorders this year than last year which we think is a real positive. We are seeing real enthusiasm from retailers in putting the right programs together to drive our titles through to consumers. At the same time, they are cautious about the hardware availability and they are managing inventories pretty tight. But from what we've seen on preorders, we are encouraged. Ralph Schackart - William Blair: Great. Is there anything at this point -- I know it's early in the cycle -- that you can see in terms of a mix shift heading more towards video games than DVD or any other entertainment categories?

The question is, are we seeing a mix shift towards video games away from other consumer electronics categories? Ralph Schackart - William Blair: Yes, Bobby.

I think what you are going to see is an unprecedented level of marketing spend from the first parties and not just this year. I mean, obviously next year you will see it continue. Next year, in addition to the spending that you are going to see for PlayStation 3, there's likely to be an even greater focus as there's hardware availability for PlayStation 3 as high-def video device, as well as Vista. So you are likely to see in calendar 2007 more marketing dollars spent against the category. Then, you add in handhelds and the possibility for upgraded or enhanced handheld devices. When you've seen what's happen with new categories like Brain Age, definitely what we are seeing looks like broader expansion of the demographic than ever before; a greater likelihood that the enhanced production values and things like multiplayer play, VoIP, the ability to add potentially video in some of the online experiences, what we are seeing in downloadable content extending the life of products, all of those seem to be catalysts for bringing newer users and more consumers into this category than ever before. You are starting to see retailers allocating greater amounts of shelf space. As the music business, for example, moved more towards an electronic downloads model and away from a packaged goods model, we think that shelf space has potential, we have access for that. You are not seeing a diminishing of the support for hardware. In fact, you are seeing an increase. As places like Wal-Mart and Target move towards live products when there's RFID, you can take the glass cases out, that will allocate more shelf space to the category. I would say all indications are that you are seeing both consumer interest and awareness increase and you are seeing retailer interest in the category and shelf space expanding as a consequence. Ralph Schackart - William Blair: Great. Thanks a lot.

Your next question comes from Arvind Bhatia - Sterne Agee. Arvind Bhatia - Sterne Agee: Good afternoon. A couple of questions. First, what was catalog for the quarter? I was wondering if you could speak to the outsourcing, what you are getting out of that – if you can give us some metrics on what the savings might be at this point as you go and outsource to places like India? Thomas Tippl: Catalog was about 47% of our Q2 revenue. So that is higher than what it has historically been as a function of the fact that we didn’t have any new releases in Q2. With regard to the cost savings that we are seeing from outsourcing, they are not untypical. What I would say you would see also in that industry that you look at your labor-intensive work that you can transfer to lower cost locations such as China and India. The good news there is it is a very talented pool of well-educated developers that are there and that we have started to build relationships with. We expect to build that out. I wouldn't want to put a percentage to it, but I would say it's a very significant savings and worth the effort.

One thing we found, we were a little concerned about how specialized the quality assurance capability is and whether or not we would be able to ramp up as quickly. But because we are getting access to such a well-educated workforce, we have actually been coming up to speed more quickly than we thought. Arvind Bhatia - Sterne Agee: Should we assume that you will do some outsourcing for a lot of your products or a lot of outsourcing for a couple of focused products? How does it work for you guys? Mike Griffith: Well, our outsourcing activity is fairly broad, touching a number of our products. We've outsourced quite a bit of art development, for example. It goes across most of our titles. We've had a lot of success with that in finding good quality output and as Thomas mentioned, strong economic justification for doing so. So that's the early success and we are building on it from there.

It is a relatively small percentage of the total product development today. We are just in the learning stages on a lot of it. So you really won’t see tangible -- I mean we've seen specific benefits on a product-by-product basis, but you are not going to see overall business model improvement for another couple of years. Arvind Bhatia - Sterne Agee: Got it. Guitar Hero, I know there was a supply issue in the past. Given the heavy marketing that you plan to do, I assume there is no supply issue at this point at all in terms of the guitar?

We feel very comfortable with our supply. Arvind Bhatia - Sterne Agee: Margins on this title versus your typical product? Thomas Tippl: The margins on Guitar Hero are very strong. It's an owned IP and the only thing we have to bear in mind is that we are amortizing intangibles against the title and therefore you won't see all of this flow through the bottom line this year. Arvind Bhatia - Sterne Agee: Great. Thanks, guys.

Your next question comes from Colin Sebastian - Lazard. Colin Sebastian – Lazard: Good afternoon and congratulations on the quarter. I just wanted to follow up first on the previous question on preorders, but more from perspective of demand and the market conditions thus far in the quarter. Are you expecting or seeing any slowdown ahead of the console launches October/November?

No, in fact, I would say the opposite. I think we have had a very good experience with our preorders going into the quarter. Our first title that launched this quarter is Marvel Ultimate Alliance which is doing extremely well and has been well received by consumers and the media. As we said, ranking on the Xbox 360 SKU was over a 90; strong across the board on other SKUs as well. We are launching many of our other holiday titles tomorrow, as a matter of fact and preorders are strong and continue to show strength. So we are seeing encouraging signs of market conditions that we expect to play out over the course of the holiday. Colin Sebastian – Lazard: Okay. Good. Regarding the quarter, specifically, can you break out the contribution from Lego, Star Wars or affiliate revenues? Thomas Tippl: For affiliate titles in total, they contributed more than 10% to our consolidated net revenues. Colin Sebastian – Lazard: Any update on plans to extend Guitar Hero to other platforms beyond PlayStation 2? Mike Griffith: Well, I think our strategy is to publish titles across multiple platforms and you will certainly see that play out on the Guitar Hero franchise as well. Colin Sebastian – Lazard: Thank you very much.

Your next question comes from Chris Clack – SIG. Chris Clack – SIG: Great. I just wanted to follow up on the Guitar Hero 2 question. What are you expecting to shift in terms of Guitar Hero 2, the mix with guitar and without guitar SKUs? Mike Griffith: Well, we think Guitar Hero 2, we are still in the early stages of establishing this franchise. Consumers need guitars to play this game and so we would expect the majority of the units that we sell still this year to come bundled with the guitar. Chris Clack – SIG: And then in terms of the wireless controller, what are your expectations for attach of the wireless controller, given that it's something new for Guitar Hero 2? Mike Griffith: Again, I think we are going to see people establishing a base of guitars in their household to support this game. The new feature in Guitar Hero 2 is co-op play where multiple guitars can be used to play cooperatively or competitively, the songs that are available in the game. I think we are going to continue to see increased demand for the guitars, which is why I think we will see, as I said, that the vast majority of the units are still going to be bundled with guitars and I think we will see further demand for the standalone guitars that we are selling as well. Chris Clack – SIG:

It's a relatively small number and I wouldn't say there's a specific attach rate through existing as much as it is to support co-op play. I think that's largely where you are going to see the units sold, but it's going to be a relatively small number for the holidays. Chris Clack – SIG: I just want to follow up on the sales and marketing side. Last year, in conjunction with the 360 launch, sales and marketing as a percent of sales was 19%. Should we expect a similar kind of sales and marketing as a percent of sales this time around? Or could it be even higher than that given the multi-platforms we are seeing launched in the Wii and the PS3? Thanks.

I think we've said on earlier calls that we had a pretty good fix now on what the successful level of sales and marketing support is; what's proven, what optimizes demand and returns. Last year we leaned a little bit too far over the hurdle and we brought it back to historical successful levels. That is what we will see this quarter as well as beyond. Chris Clack – SIG: Great, thank you.

Your next question comes from John McPeake - Prudential. John McPeake – Prudential: Thanks guys, good quarter. Questions about downloads and advertising generally. How should we think about how much value can accrue to a title going forward? $2, $3, $4 per title? What does the margin structure look like on that relative to the game itself? Thanks. Mike Griffith: Sure. I think you really have to look at both parts separately. In terms of the advertising revenue, in-game advertising revenue for a game, that's still a very small piece of revenue. Although we do believe it will grow over time, through both direct sponsorship and in terms of dynamic ad serving technology in the games. The revenue associated with that is still fairly modest. In terms of downloadable content, again, I think we've said earlier on the call that we had about $2 million in downloadable revenue this quarter and that was up from $1 million in last quarter; so growing. We are committed to staying on the forefront in that area, but again, quite small. So both of these are emerging opportunities that we are very interested in, we are staying on the forefront. But in terms of the actual revenue it contributes to a title, we are going to continue to see that small and growing over the course of the next cycle. John McPeake – Prudential: Right. What I'm getting at id as we look in the out years, is this something that can significantly, as you model your business, contribute to your operating margin? Or is it something that you are not really planning for and if it's good so be it? Mike Griffith: Well, in terms of its margin potential, so far it looks to be a very accretive and attractive part of the model. But the real question is how large it's going to get and how fast it's going to get there. It's really hard to say. So we are committed to helping drive it as fast and as hard as possible. But it's small today and I think it is going to remain small with a slow ramp up over the next cycle. John McPeake – Prudential: Thank you.

Your next question comes from Robert Haley - Gabelli. Robert Haley – Gabelli: Thanks for taking the question. It looks like international publishing did pretty well in the quarter, relative to North America. Could you talk about your progress there in terms of the goal of growing international publishing? Also, any updates on direct distribution and margin expansion? Thomas Tippl: The international performance was strong this quarter. As we mentioned earlier, part of the performance is our catalog is doing very well. But the other part of the performance is the strong performance of affiliate titles that we mentioned during the call. As you know, Lucas launched Legos Star Wars 3 and that did very well on the charts. Margin expansion strategies are really consistent across the geographies. So as we drive our cost optimization programs, we are not doing that just in North America but we are doing that across the board. Obviously all geographies share the same development resources and process so they will benefit from the progress we are making there. As we scale up the business, particularly in Europe where we are still underdeveloped compared to the U.S., we will also see some scale benefit in the G&A area there that are probably going to be disproportionate to North America.

Your final question comes from Daniel Ernst - Hudson Square Research. Daniel Ernst - Hudson Square Research: Good evening, thanks for taking the call. Just to follow up on the question on the online downloadable market, can you share a couple of metrics with us? What percentage of games sold took online offerings? What was the average ticket price of those transactions? What percentage of that was tied to Call of Duty? Secondly, as Sony has now laid out what they are calling their open platform strategy for their online initiative for the PS3, have you had a chance to look at that? Does that offer you anything new you can do with Sony Online that you can't do with Xbox online? Or is it pretty much the same? Thanks. Thomas Tippl: On the downloads, I think the performance was consistent in terms of the titles driving it with the first quarter, with Call of Duty still being the strongest title. Although we have added Doom this quarter and Doom also performed very well. In terms of the dollar per download, we talked about that last time, we are selling two maps for about 400 points which is basically the equivalent of about $5 for a two-map pack; and we are selling a five-map pack for 900 points, which is slightly above $11. The number of downloads on Call of Duty continues to be very strong so we haven't really seen a drop off there from what we talked about in the first quarter. We have added Doom to that and that has been driving the overall performance. On Sony I will hand it over to Mike. Mike Griffith: I think on the download expectation, we continue to see consumer demand and first-party support for this type of business model and it's accretive versus the base game. We've obviously had more successful experience on the 360, and just getting started with the Playstation. But we expect very similar programs across both.

Sony has said they are very committed to making sure that the opportunities for digital download are in the front of the consumer opportunities. Daniel Ernst - Hudson Square Research: Great. Thanks for the color.

I would like to turn things back over to Kristen Southey for any closing or additional comments.

On behalf of everyone at Activision we thank you for your time and consideration. Thank you, operator.

Ladies and gentlemen, we do thank you for your participation. That does conclude today's conference.