Of the two, Microsoft has the most history with the studio - the software giant published one of Lionhead's most successful titles to date, Fable, and is believed to be working with the firm on a next-generation sequel to the game for Xbox 360.

Credence is also lent to Microsoft's involvement in the deal by the close relationship Lionhead boss Peter Molyneux has enjoyed with the firm and its top executives since the launch of the Xbox, with the well-known designer often appearing to sing the praises of the Xbox platform in public.

Microsoft would indeed seem a likely choice, given the publisher's propensity to buy out high end established studios (Bungie and Rare being the prime examples) as well as its previously mentioned success with the publishing of Big Blue Box and Lionhead's Fable (Xbox, PC). With Microsoft putting so much effort into aggressively courting developer support for Xbox 360, a studio like Lionhead, which has arguably more potential than its recent sales figures may indicate, would be a good investment.

Of course, Peter Molyneux saw his prior studio become owned by a large publisher. Bullfrog--where Molyneux made his career-defining titles such as Populous, Magic Carpet, Syndicate, Theme Hospital, Dungeon Keeper, and others--was fully acquired by EA in 1995; two years later, he left the company out of frustration in order to found Lionhead. Molyneux's current studio has been approached multiple times in the past with buyout offers.

This rumor comes just after Activision's announcement that it has cancelled the console versions of Lionhead's The Movies (PC), followed by the somewhat surprising news that the studio may very well be continuing work on the console versions without Activision's funding. It was also revealed that a PC expansion pack is in the works.