The company tried to invest cash in Sega so that the Japanese video game publisher could rival game publisher Square.
Microsoft hasn"t bought any game publishers to bolster the fortunes of its Xbox video game console, but not through lack of trying.
This spring the Redmond, Washington, software giant almost struck a deal with Sega Enterprises to buy a controlling stake in the Japanese game publisher. But the deal turned out to be too complicated to pull off before the industry"s big trade show, the Electronic Entertainment Expo, which took place in May. The failed deal shows Microsoft"s dilemmas as it deals with the expected losses related to the Xbox. According to sources familiar with the matter, Microsoft planned to buy a controlling interest in Sega, which would in turn use the cash to acquire Japanese rival Square. Based on Sega"s current market capitalization, a controlling stake in the company would have cost Microsoft more than $1.8 billion.
Before Microsoft launched the console, others at Microsoft argued that the company should buy a large game publisher. Microsoft chairman Bill Gates held talks with Sega executives in late 1999 and early 2000, but they couldn"t reach a deal at the time because Sega wanted to keep investing in the Dreamcast.
Now Sega no longer has the encumbrance of a money-losing hardware division. It is in the midst of expanding its game production to make games for the PlayStation 2, Nintendo"s GameCube and Game Boy Advance, and the Xbox.
It isn"t entirely clear why the latest deal failed. One likely problem was that Microsoft wanted to get Square to convert from making games for all of the consoles to focusing exclusively on games for the Xbox, a move that would have cost Square too much in lost PlayStation 2 and GameCube revenue.