Microsoft considers Rare acquisition

Microsoft is considering acquiring Rare in a bid to internally develop more games for the Xbox, a source close to the discussions said Wednesday. Meanwhile, another source close to Nintendo, which owns 49 percent of Rare, said the Japanese game and console maker had the opportunity to buy Rare outright and passed, clearing the way for a possible Microsoft acquisition. The source familiar with the discussions said Microsoft is "definitely looking at [Rare] as an acquisition target." He said Microsoft had approached Rare recently, but said he was unaware of the status of the talks.

Microsoft is facing increasing pressure to publish more exclusive titles for its Xbox game console. The first-person shooter Halo was a breakthrough hit for the console, but Microsoft needs fresh titles as the holiday shopping season approaches. Calls to Rare were not immediately returned Wednesday. A spokeswoman for Microsoft declined to comment.

Based in Warwickshire, England, Rare is a privately held, 20-year-old development studio best known for its James Bond action game GoldenEye 007 and GoldenEye 007 . The company has long had an exclusive relationship with Nintendo, which acquired 25 percent of Rare in the 1990s and now owns 49 percent of the company.

Nintendo, however, decided not to buy Rare in large part because of the company's declining contribution to overall software sales and Nintendo's decision not to commission any further exclusive titles from Rare, the source said.

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

For a smaller operation, Rare has developed something of a cult following among avid gamers for developing games with top-of-the-line graphics. A Rare source said the game studio's reputation and its ties to Nintendo make it a coveted asset for Microsoft, which needs to build up its library of exclusive Xbox game titles.

Ever since Microsoft announced its plan to get into the games business and publish its own games, speculation has run rampant on potential acquisition targets. Financial analysts have long expected that the acquisition of game companies by Microsoft was not a question of "if" but "when."

Among the names most recently suggested as potential targets are the 6023285games business of struggling media giant Vivendi Universal, which is rumored to be on the block for as much as $2 billion, and Japanese publisher Sega. Microsoft has declined to comment on all such reports. Vivendi Universal has been tight-lipped about its games plans, while Sega has flatly denied that it is on the block.

Successful games are crucial to console makers, who tend to sustain sometimes steep losses on their hardware, which they make up through healthy profit margins on software sales. Microsoft, for example, is believed to be losing anywhere from $76 to $150 on each Xbox, which retails in the United States for $199. Nintendo and Sony, maker of the market-dominating PlayStation 2 console, both have relatively stronger first-party lineups, in particular Nintendo, which has made billions of dollars off franchises like Mario.