Anyone else supprised to see that Rare will develop exclusivly for the XBox, when Nintendo's insitance that they were exclusive developers for the GC was seen to be the reason they split?

It also seems a lot to pay ($375m) for a company like Rare, granted its games are great but a game can only be as good as the programmers who make it, not the company that employs them...?

LOS ANGELES, Sept 24 (Reuters) - Software giant Microsoft Corp. on Tuesday said it has acquired British video game developer Rare Ltd. for $375 million in cash to bolster its internal game development.

Xbox executives said the acquisition addresses the company's need for innovative releases to play on its Xbox game console.

"The best way to look at it is, we need content on the platform," Sandy Duncan, who oversees the Xbox platform in Europe, told Reuters. "If that means we need to buy a company then that will always be a possibility."

The announcement was expected, as Nintendo Co. Ltd. <7974.OS> said last week it had sold its 49 percent stake in Rare to Microsoft, but did not disclose details. The remainder of Rare had been privately held, and Microsoft had repeatedly declined to comment or even confirm the sale.

"We're already number two in the U.S. and we expect to be number two in Europe," Microsoft Chief Executive Steve Ballmer said at a media event in Vienna.

"I'm not going to tell you any bold prediction when we're going to be number one. We're going to keep at it, at it and at it," said Ballmer, who is on a European tour to promote the company's .NET services business.

Microsoft said Rare will now develop games exclusively for its Xbox video game console. The developer will remain in Warwickshire, England, where it was founded in 1985.

Robbie Bach, Microsoft's "Chief Xbox Officer," told Reuters that Rare already has five games in development for the Xbox, including "Kameo," an action role-playing game scheduled for release in spring 2003.

"(Rare) brings a level of creativity and focus on great gameplay" to Microsoft's game studios, he said.

Microsoft shares were initially up slightly on the news in after-hours trade on Instinet but then fell, trading at $45.51, down from a close of $45.68 on the Nasdaq.

Nintendo said last week that even though it has sold its Rare stake, it retains all intellectual property rights to the titles developed for its platforms by Rare, including well-known franchises like "Donkey Kong" and "Star Fox."

Sales of Rare games accounted for 9.5 percent of Nintendo's fiscal 2001 total software unit sales, but only 1.5 percent in fiscal 2002.

Rare has developed something of a cult following among avid gamers for developing games with top-of-the-line graphics. The company said in a statement it has averaged sales of 1.4 million units for each game it has released, "hit" status by industry standards.

Financial analysts have long suspected Microsoft would be in the market to acquire game developers to strengthen its internal game lineup, which has thus far had only one breakout hit, the military action game "Halo."

"They certainly have the cash to invest," said Matt Rostoff, an analyst at independent research firm Directions on Microsoft. "They're really focusing on (their) core business, which is selling software, and they'll continue to do this until they have a viable list of titles."

Rostoff also called the size of the deal "a significant amount, even for Microsoft."