Market Overview

Microsoft Invested $300 Million in a Doomed Business

Last spring, Microsoft (NASDAQ: MSFT) announced that it would pour $300 million into Barnes & Noble's (NYSE: BKS) Nook business.

This was an unusual move for Microsoft, but it seemed like a sound investment for the firm to make. The Windows maker needed content and a potential partner in building a tablet and other devices. By signing with Barnes & Noble, Microsoft gained both.

Despite a plethora of rumors, Microsoft did not use this partnership to build the company's first tablet. Microsoft performed that task all on its own.

Thus far, Nook content has not become a huge part of the Windows 8 App Store. The e-reader app currently holds a 3.5 star rating from just 731 reviews. Comparatively, the iOS version has received nearly 30,000 reviews and holds a rating of 4.5 stars.

It is wholly possible that Microsoft invested in Barnes & Noble to reap the company's long-term benefits. That strategy worked quite well when Microsoft acquired Bungie in 2000.

The Windows maker paid $20 to $40 million for that acquisition, which gave Microsoft ownership of the Halo brand. Microsoft later sold Bungie but retained the prized franchise, which earned more than $200 million this year alone.

Not every investment has paid off, however. Microsoft paid nearly $400 million to acquire Rare Ltd. after Nintendo (OTC: NTDOY) announced that it wanted to sell its stake in the studio. Rare was responsible for creating the hugely popular Donkey Kong Country series and GoldenEye 007, among others. Microsoft hoped it could produce a game of similar value for Xbox.

Thus far, that has not been the case. Grabbed by the Ghoulies, Rare's first game for Microsoft, sold a mere 140,000 units. Perfect Dark Zero topped out at 740,000 units -- far below the 2.5 million units that the original Perfect Dark sold for Nintendo.

Viva Pinata was considered a hit for Microsoft after selling 1.5 million units, but it pales in comparison to the millions of games Rare sold with Nintendo.

Microsoft finally had a major hit on its hands when it sold more than 5.4 million copies of Kinect Sports. The sequel, however, declined heavily to just 2.1 million units.

While those games have sold far less than all of the Halo titles (except for the offshoot, Halo Wars, which sold 2.2 million units), they have provided Microsoft with some revenue. At this point it is unclear if the Nook investment has done the same.

That could be a problem if Barnes & Noble continues to deteriorate. This morning the company announced that Nook sales decreased 12.6 percent during the nine-week holiday period. The decrease is likely caused by the decline of Nook tablet and e-reader sales, which fell by an undisclosed amount. Meanwhile, digital content sales increased 13.1 percent.

If Microsoft came to Barnes & Noble simply to gain access to the firm's content and licensing deals, it might eventually earn a return on the investment. Investors can only hope that return is more fruitful than Grabbed by the Ghoulies.

Follow me @LouisBedigianBZ

Posted-In: Barnes & Noble Microsoft nook Rare Ltd.News Rumors Tech Best of Benzinga

 

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