Microsoft buys 'Fable' developer's game studio (thanks Mike Martinez) has word that the long-rumored acquisition of Lionhead Studios is finally underway:

NEW YORK (Reuters) - Microsoft Corp. (Nasdaq:MSFT - news) on Thursday said its in-house video game studio acquired Lionhead Studios, the British developer started by the famed game maker Peter Molyneux.

Most recently, Lionhead was responsible for "Fable." Released on Microsoft's Xbox platform, the game has sold more than 2 million units worldwide.

Molyneux is also known for innovative "God games" like "Black & White" that give players omnipotent power over a world.

Microsoft Game Studios said Lionhead would now develop exclusively for the Xbox 360 and Windows-based PCs.

Video game publishers frequently acquire the external developers that are responsible for their hit franchises, not only to increase their own in-house development talent but also to cut down on milestone and royalty payments that independent developers command as part of making a game.

Microsoft had previously acquired high-profile developers like Bungie Studios, maker of the "Halo" franchise, and Rare Ltd., which made some of Nintendo's most popular games of the 1990s.

This press release (thanks Frans) on the acquisition offers quotes from Microsoft and Lionhead expressing their enthusiasm over their nuptials.