Electronic Arts (NASDAQ: EA) showed solid performance yet again when it reported its fourth-quarter earnings. One important announcement during the investor conference call was management's decision to go all-in with share repurchases instead of initiating a regular dividend.

Management had previously hinted the company might start a dividend, but the explanation of why it chose not to go that route highlighted an area where it sees a lucrative opportunity to build a sizable cloud-based subscription service over the long term.

EA sees the video game industry moving to a subscription-based model. Image source: Getty Images.

Why EA doesn't want to commit to dividends

EA already has its toes in the water in subscription services with EA Access and EA Origin Access, which both allow gamers unlimited access to the game maker's titles across PC or console. But the cloud-based service management wants to build would significantly broaden this to include third-party original content, which may require acquisitions (and, naturally, a lot of cash).

EA generated $1.6 billion in free cash flow in fiscal 2018 and has $5.3 billion of cash and investments on its balance sheet. As part of its plan to return cash to shareholders, management opted for share repurchases over dividends because, as CFO Blake Jorgensen explained, "we felt if we started a dividend it would be much harder to stop it if there was some reason to flex up to do [a large acquisition]. And that's the reason we decided to stay with the buyback."

EA is shopping for more deals

In order to bolster its content library for this new cloud-based service, EA is looking to do more acquisitions like the recent one of Respawn Entertainment for $455 million.

Here's how Jorgensen described management's thinking on the fourth-quarter conference call:

[R]unning a broad subscription service requires great content. And so we're always looking for great content and really great studios that can build that content. ... And so it's great studios and great partners that we can bring to the table in both mobile and console and PC, but also technology that will help us either in subscriptions or streaming.

Jorgensen's comment offers a broad view of the kinds of companies EA may acquire. One thing that jumps out from his remark is that the acquisition search may not be limited to games, but instead could include technology that enhances the company's streaming capability.

Keep in mind, EA doesn't have to rely solely on acquisitions to add to its content offering. For example, EA and Warner Bros. Interactive Entertainment recently announced a deal that will let members of EA Origin Access have access to six titles, including the popular Batman: Arkham series and LEGO Batman games, from the Warner Bros. catalog, as part of their subscription.