Even though Microsoft's (NASDAQ:MSFT) operating-system monopoly brings in loads of cash, the company knows that it can't tie its future solely to that one strategic advantage. That's why the Goliath of software companies has been investing in areas like Internet properties and ventures involving cable TV (MSNBC).
One of its biggest bets, however, now involves the world's love of video games. Microsoft issued a press release last week promoting its latest acquisition -- this time, a human. Hironobu Sakaguchi, creator of the famous Final Fantasy series of role-playing titles, will now be a team player for Microsoft Game Studios.
Things once looked grim in this sector, but then Nintendo came to be, and the electronic pastime has had a rigid staying power ever since. Nowadays, when Xbox has proved to be a worthy competitor to Sony's (NYSE:SNE) PlayStation 2 system, companies jumping into the video game fray know they need the best intellectual capital to push the creative and technical envelopes to their limits. That's where Sakaguchi comes in. He brings a lot of experience to the Xbox table. The Final Fantasy franchise has sold in excess of 60 million units worldwide, and the new games he develops will surely benefit from his involvement, in terms of quality and prestige. Microsoft, of course, is hoping that it will all translate into huge sales.
Although no financial terms of the deal were disclosed, it's safe to say Microsoft is paying Sakaguchi a pretty penny. All video game companies, Electronic Arts (NASDAQ:ERTS) and Activision (NASDAQ:ATVI) included, are in the same situation: Producing a top-notch product is getting costlier every year. If you want to make the next Resident Evil or Grand Theft Auto sequel, you have to shell out for the best programming and producing talent. Make no mistake -- hardcore video junkies demand fantastic software.
Of course, developing a game is sometimes only half the picture, in terms of expenditures. Consider all the license deals that companies need so they can differentiate their portfolios. (Here's a recent example.) This isn't to say that investors should be scared away from the stocks in this sector, since Electronic Arts and Activision are clear winners. But potential buyers should carefully study this part of the sector. Even with all the costs, the profits are still out there in the economic ether, waiting to be claimed.
Don't worry, though. In this case, Microsoft has the cash -- even after that special dividend. And the promise of bigger dividend payments over time is the biggest reason to buy the stock right now. It might not be the growth vehicle it once was, but it does have great income potential down the road. Put this Dow blue chip in a Roth IRA and just sit back and reinvest the payouts. Your retirement will thank you.
More articles on Microsoft:
- Microsoft's Search and Destroy
- Is Microsoft Infected?
- Microsoft Consumes Little Giant
- Microsoft's New Suit
Electronic Arts and Activision have both been highlighted as Motley Fool Stock Advisor recommendations. Subscribe today with a six-month money-back guarantee to learn more. In the meantime, don't forget to check out the Microsoft discussion board.
Fool contributor Steven Mallas owns none of the companies mentioned.
