Why Microsoft should acquire Sony's gaming division

As I was thinking of something to discuss today, I peered beneath my HDTV and saw my Wii sitting next to my Playstation 3 and Xbox 360. And as soon as I looked at all three, it had me thinking: the Wii is a wildly successful platform, but the Playstation 3 and Xbox 360 are still limping along in the hope that they'll compete with Nintendo's platform at some time in the future.

But when we objectively consider the state of the industry, it becomes blatantly clear that Sony and Microsoft simply don't have what it takes right now to compete and more consumers are more excited about Nintendo's platform than anything Sony or Microsoft can dole out.

Realizing that, why wouldn't Microsoft acquire Sony's gaming division and consolidate its power and influence in the gaming space? I know, it may sound radical and at first glance you would think that Sony would never agree to such a deal, but keep an open mind for a minute and hear me out.

Sony's gaming division is quickly becoming a drain on its financial stability and shareholder confidence, while Microsoft is chugging along at a pretty good clip even though it has little influence in Asia. And although neither company can beat Nintendo alone, don't you think it's entirely possible that Microsoft and Sony could become a powerhouse in the industry if the former acquires the latter, thus making it a valuable idea?

Why Sony?

Undoubtedly some are wondering why I think Microsoft should acquire Sony and not the other way around. Well, Microsoft is the company with more money in the bank than Sony ever dreamed of having. On top of that, Sony is in no position to acquire a gaming division from a company that's enjoying record profits with its online platform and has finally turned things around after years of losing money.

Even though Sony enjoyed a small profit of about $51 million from its game division last quarter, it's still far behind previous generations and is quickly becoming a thorn in the company's side. Earlier this year, Sony announced that its games division posted a $276 million loss and over the course of its availability, things have been even worse.

Sony has blamed its gaming division's financial problems on high manufacturing costs and slow sales, but it's probably easier to blame it on poor management. Either way, it's not in a position to acquire a small developer, let alone Microsoft's gaming division, and to be honest, I'm not so sure Sony would mind doing just that.

The gaming division is still an important component in Sony's broad strategy, but it's simply not as important as it once was. With huge losses that may or may not turn to profits, Sony is in an awkward position. Should it simply wait and see what happens or should it go to Microsoft now and see if the company is interested?

And why wouldn't it be? By acquiring Sony's games division, Microsoft effectively eliminates the major competitor in its space and can increase its presence overseas -- a major sticking point for the company.

Right now, Microsoft is a major force in the US and Europe, but it's practically nonexistent in Asia. On the other hand, Japan has always been a Playstation 3 stronghold and even now, it far outpaces the Xbox 360 on almost every measure of performance.

But by acquiring Sony's games division, all those troubles are behind Microsoft. After the ink dries, it'll have a full-fledged customer base in Asia and together with its US and Europe customers, it can expand its Xbox Live platform to more people than ever before and truly become a fearful competitor to Nintendo.

Surely some are thinking that the deal breaker here is Blu-ray. Sony relies on the Playstation 3 more because of its Blu-ray capability right now than anything else. The company is so inexorably tied to Blu-ray that if the Playstation 3 fails, the high-def format will as well.

But I don't think that's a problem here at all. Microsoft would be more than happy to bring Blu-ray to its platform as long as people want to use it, and Sony would make out in the long-run anyway: both the Xbox 360 and Playstation 3 would undoubtedly offer Blu-ray drives, thus increasing its penetration rate.

Lest we forget, the only thing stopping Microsoft from offering Blu-ray now is that Sony is behind it and it doesn't want to pay off its competitors. But by acquiring the games division, it's eliminating that competitor and offering Blu-ray seems like an even smarter move.

Now is the prime moment for both of these companies to come together, strike a deal, and see Microsoft acquire Sony's games division. Microsoft is not only capable of writing a check for the division, it's fully aware that by acquiring Sony's third-party agreements, Blu-ray capability, and its worldwide presence, it can become an incredibly powerful force in the video game industry and solidify itself as a feared player going forward.

From Sony's side, the deal is a no-brainer. Over the last few years, the company has presided over the worst degradation in value the games division has ever seen and it's limping along trying desperately to turn things around. And now that its focus is squarely planted on Blu-ray above all else, why wouldn't it take the hefty price Microsoft would be willing to pay, right its wrongs, and make Blu-ray available on two gaming platforms?

It may sound radical, but a consolidated video game industry would be best for two of the big three. And now, we wait to see if they agree.

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