The official story: "Microsoft does not comment on rumors or speculation." -- Microsoft rep. As for Capcom...see below
What we heard: It's no secret that Microsoft wants to break into the Japanese game market--badly. When the Xbox 360 launched in late 2005, it allocated a third of its launch stock to the island nation--where half of it gathered dust on store shelves while bored shopkeepers stood by picking their noses.
Microsoft has also tried the software approach, hiring Japanese game-design legends such as Final Fantasy creator Hironobu Sakaguchi and Space Channel mastermind Tetsuya Mizuguchi to make Xbox 360 exclusives. Unfortunately, the latter's first effort, Ninety-Nine Nights, fizzled on both sides of the Pacific. However, the former's debut, Blue Dragon, fared as well as an Xbox 360 game can in Japan, given the platform's limited base. It sold more than 80,000 units in its first four days on the Japanese market last fall.
Still, Microsoft hasn't spent tens of millions in Japan to eke out modest hits. So the fact that it might opt to acquire a major Japanese publisher seems perfectly plausible, given its near-bottomless bank account. Thus was spawned this week's top rumor, which had Microsoft buying Capcom, the developer-publisher behind the Resident Evil series, outright.
Sure, it makes sense. Capcom has made two critically acclaimed Xbox 360 games, Dead Rising and Lost Planet: Extreme Condition. (Look for the latter's review on GameSpot later today.) And Microsoft is flush with cash--$35 billion in reserves as of last summer, according to Reuters. So why not drop a relatively small chunk of change to take on Sony and Nintendo on their home turf?
However, plausibility does not equal reality. And in this case, the reality is that, for the time being, Microsoft is not buying Capcom. Apparently this latest orgy of speculation is an ancient rumor, resurrected by a Japanese blog promising a "On January 11th in game industry large announcement," according to a clunky Babel Fish translation. That, in turn, prompted a huge forum thread on the new Gaming Age forums, the Star Wars cantina of game gossip, which led to another post on the EvilAvatar forums, a top virtual water cooler for the overexcited gamer. Then came RSS feeds, rampant content poaching and...well, you do the math.
While Microsoft quickly raised its boilerplate defense shields (Q: "Is the world flat?" A: "Microsoft does not comment on rumors or speculation."), Capcom was more forthcoming. "It's a 3-year-old rumor, most likely refueled by our recent spate of 360 titles," a rep told GameSpot.
Bogus or not bogus?: BOGUS. "No soup for you! You come back, one year!"