By Alfred Hermida
Technology editor, BBC News website
Microsoft has snapped up one of the UK's leading figures from the world of video games, Peter Molyneux.
Molyneux invented the god game genre
The veteran game maker is best known for inventing the god game genre, where players control all that happens.
The purchase of Mr Molyneux's Lionhead Studios is part of Microsoft's efforts to secure exclusive titles for its new console, the Xbox 360.
"What we love about Peter is the innovation he brings," said Microsoft gaming division head Peter Moore.
The news brings to an end speculation about the future of Lionhead Studios in Surrey.
Last month, Mr Molyneux laid off 50 people, a fifth of the staff, and scaled back future projects.
The cuts followed disappointing sales of his two most recent games, Black and White 2 and The Movies.
"We are excited that we are going to be in a position to create incredible games," said Mr Molyneux of the deal with Microsoft.
He declined to say how much the software firm was paying for Lionhead, but described it as "a fair figure".
Some of the giants of the games industry, such as Electronic Arts and Ubisoft, were reported to have been interested in acquiring Lionhead.
But Microsoft has emerged as the victor, adding the studio to its roster of British gaming talent. In 2002, it acquired developers Rare in a $375m deal.
"We are delighted about this," Mr Moore told the BBC News website. "Not least is the fact the Peter Molyneux is probably one of the most accomplished game developers in the world.
"What we were looking for is a developer that can touch the nerve of a gamer.
"We are not afraid to take a risk. With Peter Molyneux you have someone who is able to push the boundaries."
No details are available about the games Lionhead will make for Microsoft.
But it seems likely that one of them will be a sequel to the role-playing game Fable, which Lionhead produced for the original Xbox and has sold more than two million copies worldwide.
As well as making games for the Xbox 360, Lionhead games are also expected to appear for the next version of Windows, called Vista.
Mr Molyneux brings considerable kudos to Microsoft as the software giant seeks to compete against Sony and Nintendo in the world of game consoles.
Microsoft released its next generation console, the Xbox 360, late last year. Sony's PlayStation 3 is due out by the end of the year, as is Nintendo's Revolution games machine.
A sequel to Fable could be in the works for the Xbox 360
Mr Molyneux has been a pivotal figure in the British computer games industry for almost 20 years, and was made an OBE last year.
His career started at Bullfrog Studios which in 1989 produced Populous, one of the first god games.
The title gave players control over the lives of a small population of computerised people.
He left Bullfrog in 1997 to set up Lionhead Studios which was behind the ambitious and widely acclaimed game Black & White.
His most recent games were a sequel to Black and White, as well as The Movies, which let players run a Hollywood studio and create their own films.
But both PC games sold poorly, despite widespread critical acclaim for The Movies.
Mr Moore explained how Microsoft was not going to put pressure on Lionhead to play it safe when it came to future games.
"We are not going to try to bracket them into churning out a shooter," he said.
"Peter is willing to take a risk and do things differently. We will support that."