Microsoft's Rare buy pits Xbox 2 against PS3

Analysts believe that buying the UK games developer will be of little short-term benefit to Microsoft, but will help when the second version of the Xbox goes up against the PlayStation 3

Microsoft's purchase of UK games developer Rare will help the console maker to compete against Sony when the next-generation Xbox console goes up against the PlayStation 3, according to analysts.

Research group Datamonitor believes that the deal, under which Microsoft has paid $375m for the British games firm, will only have a limited impact on Xbox sales in the short term. The real benefit, Datamonitor thinks, will come when Microsoft launches Xbox 2.

"Microsoft is paying a high price for UK games firm Rare, and won't get key titles such as Donkey Kong; the short-term impact on sales of Microsoft's Xbox console will be limited. Unless the move starts a round of acquisitions now (which is possible but not likely), the real impact is likely to come in the next console battle -- Xbox 2 versus Sony's PlayStation 3," wrote Datamonitor analyst Frederic Diot in a research note published on Tuesday.

Rare has created a number of successful computer games, including Donkey Kong 64, Star Fox and GoldenEye 007.

Nintendo, which previously owned a 49 percent stake in Rare, is retaining the rights to some Rare-affiliated franchises including Donkey Kong and Star Fox. Microsoft has rights to produce sequels to more recent Rare games such as "Banjo-Kazooie," "Conker's Bad Fur Day" and "Perfect Dark."

The price of the Xbox has been cut twice in the UK since the console was launched in March this year, fuelling the belief that it is not performing well against Sony's PS2.

According to Datamonitor, the purchase of Rare shows how much of its resources Microsoft is willing to dedicate to securing the Xbox's position in the console market.

"Looking at this move alongside the recent Xbox price cut, it seems that short-term console profitability simply isn't a consideration," Diot wrote. "Effectively, the move strengthens the Xbox 2 against the PS3, but at a high price."

In the long term, Diot said, Microsoft needs to create compelling and exclusive games if it is to be a winner in the gaming sector.'s David Becker contributed to this story.

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