Forget the old business models of enterprise software and services, Vivendi's video games branch just posted one of its best margins ever, all thanks to a bunch of druids, goblins, orcs, elves, and fairies.

The company whose parent owns Universal Music Group said Friday that its net profit rose 8% in 2007 to $4.27 billion and it expected sales to rise by as much as 40% between 2007 and 2009.

One of the central factors, according to a Reuters assessment of the French telecoms and media group, is its games business, which includes Activision (makers of Guitar Hero) and Blizzard (the brains behind World of Warcraft).

"Between 2003 and 2007, Vivendi Games said it doubled its sales to more than 1 billion euros ($1.52 billion) and turned an underlying operating loss of about 200 million euros into a profit of 181 million euros," Reuters reported Friday. Vivendi brass indicated that there will be more acquisitions in the future to support its games group.

Vivendi has a huge cash cow in WoW. The MMOG supports 10 million gamers with very little overhead. It's an all-encompassing game and if you are not playing it yourself, surely some of your employees are. They may even be sapping your servers (more on that in a later post).

"I think there is a very, very big market that is opening up out there," Vivendi Games chairman Rene Penisson told Reuters in an interview. "It is changing the way people play video games."

The game's next expansion "Wrath of the Lich King", is expected to launch in the second half of 2008.

To their credit, WoW citizens have created their own economy, language, pornography, and even entertainment. The video methodology called machinima has allowed even nongamers to get involved and create videos based on WoW's same graphics engine.

And while a large portion of the fan-inspired movies are simply lip synched to music or boorish conversations between Level 8 Blood Elf mages (you should never trust an elf, BTW), there are some really inspired exchanges.

The videos range from the very funny to the classically tragic. Here are my two favorite examples:

And a How-To Video (Just in case you want to try it)

Do I think WoW has the same enterprise potential as Second Life? Probably not. But if Europe's biggest entertainment company is looking to invest more time and money into its gaming group, we may see executives learning to speak Tauren and put on anti-Elf spray.