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Microsoft eyeing Vivendi unit?

Reports mount that the software giant is negotiating to buy video game assets of financially troubled French media conglomerate Vivendi Universal.

Reports mounted Wednesday that Microsoft is negotiating to buy video game assets of financially troubled French media conglomerate Vivendi Universal.

The New York Times, citing unnamed sources, said the two companies are negotiating a buyout of some Vivendi game divisions. Investment bank Investec, citing unnamed Vivendi executives, painted a similar picture in a report released late last week, saying Microsoft could pay as much as $2 billion for all of Vivendi's game-related businesses.

Microsoft and Vivendi representatives declined to comment on the reports to CNET

Faced with more than $20 billion in debt, Vivendi last year ousted CEO Jean-Marie Messier in favor of Jean-Rene Fourtou, who said the company would sell off $13 billion in assets by the end of 2004.

The company's games business has been seen as a prime sell-off target. Vivendi has three major game publishers: Sierra Entertainment, Blizzard Entertainment and Universal Interactive. The studios have produced major PC hits, such as the Warcraft series and the Diablo series, but they've produced few hits for the more lucrative game-console business.

Microsoft executives have said the company will continue to look at acquisitions that could help beef up its roster of exclusive games for its Xbox console. Microsoft last year paid $375 million to buy British game developer Rare, the creator of several hit franchises for Nintendo game systems.

Analysts said a Vivendi acquisition could make sense if Microsoft buys the right assets. While franchises such as Warcraft would help bolster Microsoft's already successful PC games business, the company really needs to focus on driving Xbox sales, said Schelley Olhava, an analyst for research firm IDC.

"The biggest question is whether the content Vivendi brings is really going to be a platform-driver for the Xbox," Olhava said. "Microsoft needs to really improve their first-party content."

The most attractive target could be Vivendi Universal, which owns the rights to publish games based on the "Lord of the Rings" books.

Matt Rosoff, an analyst for research firm Directions on Microsoft, was skeptical of a Vivendi buyout, since any deal would come with publishing infrastructure Microsoft doesn't really need. The company instead is likely to focus on content creators, he said.

Microsoft CEO Steve Ballmer "has said their intent is to buy talent--small developers with good ideas," Rosoff said. "With Vivendi, it seems like they'd be spending an awful lot of money on something that's not in their core area."