Microsoft is acquiring BigPark, an interactive online gaming company based in Vancouver, B.C., according to a news release.

BigPark will be folded into Microsoft Game Studios to develop a game for Xbox 360. The two have been working on the game together for the past year.

The Vancouver company was founded by executives from Distinctive Software and Electronic Arts Canada who oversaw games such as "Need for Speed," "FIFA Soccer," "NBA Street" and "SSX," the release said.

The chief executive and co-founder Hanno Lemke will report to the general manager of Microsoft Game Studios, Phil Spencer.

The release did not include any details about how much Microsoft is paying for the company.

Update 1:41 p.m.: Microsoft does not expect to relocate workers from Vancouver to Redmond.

According to a statement from the company, the company will release details on their Xbox 360 project at this year's gaming conference E3.

Also interesting to note: Don Mattrick, Microsoft's senior vice president for Interactive Games, is chairman of BigPark, as well as one of its founders and investors. According to the news release, he disclosed his investment in BigPark before he was hired at Microsoft, and his involvement with BigPark is kosher according to Microsoft's code of conduct.

If anyone is looking for a job, it looks like BigPark is hiring. Check out their Web site.

• AllThingsD reports Microsoft and Yahoo partnership talks are intensifying down in Silicon Valley.

• Silicon Alley Insider reports Xbox is bundling two free games with the video game console.

• LiveSide says Web instant messaging is finally coming to Hotmail.

In the end, Microsoft's customer service reps came through, though not with out a lot of haranguing on the part of the Gallehers of Nome, Alaska.

The family's quest to get their Xbox 360 console repaired under warranty -- which I first wrote about last week -- ended Thursday after a full two months of frustrating calls, e-mails and a letter to the company's top executives. A repaired console arrived at their home in the small town where the Iditarod Sled Dog Race ends via UPS delivery man Al Burgo (pictured).

Despite mounting job losses and under-water mortgages, Americans kept buying video games last month. Total spending on the category was $1.47 billion in February, up 10 percent from a year earlier, according to data from NPD Group this afternoon.

Kim Galleher's nightmare may be coming to an end. The Nome, Alaska, mother has been trying since mid-February to get Microsoft to send her a shipping box so she could return her 13-year-old son's Xbox 360, which died of the Red Ring of Death in the depths of winter when going outside to play wasn't really an option. Microsoft extended the warranty on the Xbox 360, including shipping costs, in summer 2007, responding to what it called an "unacceptable" rate of hardware failures. But representatives at the company's repair center could not find a way to ship an empty box to Nome for the Gallehers to send back the game console for repair. Their address wasn't recognized, probably because the town of about 3,500 people on the remote Seward Peninsula has only post office boxes. And so began a month-long back-and-forth with Microsoft agents, nearing a dozen contacts, that starts to read like an Abbott and Costello routine, or an episode of the Twilight Zone, as Galleher put it.

With Microsoft's Redmond campus largely emptied out for the winter holidays, CEO Steve Ballmer crunched the numbers on the proper level of spending for his company against the current economic climate, which he has repeatedly referred to as a "reset" rather than just a recession. Ballmer said his own estimates for the weakness and duration of the downturn tend to be more severe than those of other business leaders he meets.

With that in mind, he settled on $27.5 billion of operating expenses -- a level the company aims to hold relatively steady through the current fiscal year, which ends June 30, and during its 2010 fiscal year. Ballmer made clear to financial analysts meeting in New York this morning for the company's annual strategic update that cutting back even more significantly -- say to $20 billion -- would be "imprudent."

"I think this is right," Ballmer said.

That should give some comfort to those wondering if the modest layoffs Microsoft announced last month were the beginning of a more significant reduction. Wall Street analysts and investors are pressuring companies in every industry to continue cutting costs as sales and profits slow dramatically.

The strategic update call just came to an end. Ballmer gave a detailed look at seven major business areas for the company. Check back here later this morning for more details.

Update, 7:50 a.m.: As he told Congressional Democrats earlier this month, Ballmer said Microsoft's corporate strategists have been evaluating past downturns -- particularly those driven by "deleveraging." The team read company annual reports from 1927 to 1938 to determine who did a good job managing through the Great Depression. "RCA, God rest them in peace, became our role model," Ballmer said. The company was able to dominate the television business because it continued to invest during bad times, he said.

Then he broke down how Microsoft plans to invest.

Microsoft on Sunday launched Elevate America, a multi-part work force training effort starting in partnership with three states, including Washington. The program, billed as an expansion of existing job-training efforts, "provides immediate support in response to the current economic crisis," the company said in a statement. Starting immediately, job seekers can learn what skills they need for technology jobs and how to get them at a new Web site that starts with the basics, such as sending e-mail, and moves up to specific Microsoft programs. The three-year effort also includes vouchers for access to the company's eLearning courses and selected certification exams. See this story by my Seattle Times colleague Linda Shaw for more details.

LAS VEGAS -- Robbie Bach, president of Microsoft's Entertainment and Devices Division, talked about layoffs ("you won't hear us comment"), the great 2008 for Xbox and its impact on profitability, Microsoft's deal with Verizon Wireless (creating a good mobile search experience is the key), where entertainment fits in Microsoft's mobile strategy and more. Read on for a condensed transcript of my conversation with him Wednesday afternoon.

Microsoft has closed the books on what it's calling the biggest sales year in the history of its game console business. The company has sold 28 million Xbox 360 consoles globally and now counts more than 17 million members to its Xbox Live service, which has become a highlight of the business.

Microsoft's blockbuster first-party title for the holidays, "Gears of War 2," was the best-selling game last month, helping the company's Xbox 360 business turn in its best November yet. Microsoft moved 836,000 consoles in the U.S. compared with Sony, which sold 378,000 PlayStation 3s. But the big winner, according to NPD Group data released this afternoon, was Nintendo and its 2.04 million Wiis sold.

Microsoft is adding to its stable of independent and original online video with a deal to distribute "The Guild," a popular Web-only show about a band of online gamers. Its second season will be available exclusively on Xbox Live, MSN and Zune, according to The Hollywood Reporter (via Reuters).

Microsoft's games unit made several significant announcements at the Tokyo Games Show yesterday including the confirmation of two new "Halo" titles.

A hardware industry news and reviews site reported today that Microsoft is readying an external Blu-ray disc player for the Xbox 360. X-bit Laboratories, citing unnamed "market sources," reported that "Toshiba-Samsung Storage Technology Corp., a joint venture between Samsung Electronics and Toshiba Corp., has been contracted to manufacture external Blu-ray disc drives for Microsoft Xbox 360 game console."

(Update, 8:53 p.m.: A Microsoft statement shuts the door on this pretty hard. "As we've said before, Microsoft has no plans to introduce an Xbox 360 Blu-ray add-on.")

File this under strange bedfellows: PBS, the national public broadcasting network, has struck a deal with Microsoft to distribute select content to Microsoft's audience of 12 million-plus gamers on Xbox Live. The deal, announced today, follows higher-profile content partnerships between Xbox Live and Netflix, among others.

Microsoft's big advertising push this fall extends beyond its Windows franchise. The company launched "the single largest marketing investment ever made in Xbox history" over the weekend.

We reported on a partnership between Microsoft's online gaming service Xbox Live and Rock the Vote in August. Part of the effort was a presidential poll, conducted Sept. 12 to 19. So, where do gamers come down on the race?

Of "nearly 100,000" Americans who participated in what Microsoft described as "one of the nation's largest unofficial election polls," it broke down like this:

Obama \ Biden: 43 percent

McCain \ Palin: 31 percent
Undecided: 13 percent
Other: 13 percent

Also of note, more than 55,000 voter registration forms were downloaded through the service. Xbox Live has more than 12 million members around the world. The majority are in the United States, but Microsoft did not provide data on how many are old enough to vote.

By way of background, recall last week's Pew Internet & American Life Project report on teen gamers that noted, "some particular qualities of game play have a strong and consistent positive relationship to a range of civic outcomes."

A few buzzworthy video games items out of the U.K. press this morning.

As my colleague Brier Dudley has noted, the Inquirer is reporting that Google is going to buy Kirkland-based Valve "any second now." Valve is a video game company with an industry leading distribution platform called Steam. (Update, 12:53 p.m.: Turns out that it ain't happening, according to MTV Multiplayer, which quoted a Valve spokesman saying, "complete fabrication." Oh, and Valve is now in Bellevue, not Kirkland.)

The U.K. Guardian Games blog has an interesting interview with former Microsoft Xbox boss Peter Moore, who left the company last summer to head EA Sports. Moore, who started at the Redmond company in January 2003, provides some candid assessments of life inside the Microsoft games business. Here are the bits I found most interesting.

The best-selling video game in August, according to The NPD Group, was Madden NFL '09. Nearly 2.2 million units were sold in the U.S. After reading a great essay on the game's namesake, John Madden, I'm wondering how many were purchased by aspiring (or actual) NFL defensive coordinators.

Microsoft will cut the price of the Xbox 360 by $50 to $80 on Friday in a bid to woo more mainstream audiences to its games and entertainment system during the upcoming holiday shopping season.

The company announced the price cuts this afternoon, noting that its lowest-price Xbox 360 Arcade model, which will sell for $199.99 on Friday, will be the cheapest current-generation system, undercutting the market-leading Nintendo Wii.

Add civic engagement to the ever-growing list of video, gaming and communication offerings on Microsoft's Xbox Live network. As the Democratic National Convention continues this week, the company is ramping up a partnership with Rock the Vote that gives Xbox Live members information about the presidential candidates and help registering to vote.

Video-game news site Joystiq reported yesterday that the October issue of the Official Xbox Magazine (which is "official" in the sense that it has a licensing agreement with the company, not in that it speaks for the company) will carry an item suggesting a game studio other than Kirkland-based Bungie is at work on a fourth installment in the blockbuster "Halo" series for the next-generation Xbox, i.e., whatever follows the 360.

Microsoft Entertainment and Devices Division President Robbie Bach was just asked about pricing for the Xbox 360 at Microsoft's Financial Analyst Meeting.

How does he evaluate the need to drive share this year and maybe lower prices versus your profitability goals, and do you want to increase your share as the cycle progresses or are you more intent on profitability?

Microsoft is co-producing a series of digital short films for distribution over the Xbox Live in another sign that online gaming networks are becoming more like all-in-one digital content distribution channels. Meanwhile, Sony is eyeing its own exclusive video offerings for distribution over the PlayStation Network, possibly in partnership with the company's formidable movie and television studios.

Updated, 4:03 p.m.: New comments from Microsoft after the jump.

My colleague Brier Dudley is covering Gamefest, where Microsoft has announced a revenue-sharing arrangement for amateur video game developers. The company announced it will sell amateur-created Community Games over Xbox Live and give developers up to 70 percent of the proceeds, Dudley reported.

NPD Group just released data confirming what Nintendo of America President Reggie Fils-Aime predicted in February. His company's Wii console sold 666,700 units in the U.S. in June, bringing its total install base to 10.9 million, taking the lead from Microsoft's Xbox 360.

LOS ANGELES -- Microsoft is spending a major chunk of its press conference at the video game industry's big annual conference here describing new television and video distribution deals for the Xbox Live network, which has more than 12 million members.

The company is distributing television shows from NBC, movies from Universal Studios, and in probably the biggest piece of news: adding a huge library of movies through Netflix.

Speculation about whether Microsoft would do a deal with Netflix has swirled since at least March of last year, when Reed Hastings, founder, chairman and chief executive of the DVD-by-mail video-rental service, joined Microsoft's board of directors.

The details of the partnership and how Xbox Live subscribers will get access to the Netflix library weren't fully fleshed out. I'll update when I learn more.

See this post for more from Microsoft's E3 press conference.

Update, 12:59 p.m.: The partnership will allow consumers to "instantly stream movies and TV episodes from Netflix to the television via the Xbox 360 video game and entertainment system," according to a more detailed statement from Microsoft.

The music is thumping, Xbox-green lights flashing over a stage set up in the Los Angeles Convention Center. About 1,200 games industry press, armed with cameras, laptops and Internet connections, are taking seats and waiting to hear what Microsoft's Interactive Entertainment Business has in store.

Don Mattrick, the new senior vice president of Microsoft's Interactive Entertainment Business, framed the fundamental question facing the games industry.

"Can we deliver to our fiercely loyal fans and at the same time continue to transform the industry by delivering to everyone?" he said. "Yes."

Now the company is showing some of the upcoming titles, which Mattrick said will generate $500 million in projected sales and drive additional console sales. Right now, we're watching a demonstration of "Fallout 3," a gruesome first-person shooter set in a post-nuclear-attack Washington, D.C. It's due out this fall.

Update, 10:54 a.m.: Microsoft is clearly putting its content for hard core gamers first. Following the "Fallout 3" trailer and demo, another game developer, Capcom, demonstrated "Resident Evil 5," another installment in another violent, first-person shooting series. It's coming out Friday, March 13, 2009, simultaneously in North America, Europe and Japan.

Update, 11:13 a.m.: Mattrick is back on stage and is pledging that Microsoft Xbox 360 will sell more consoles worldwide than Sony's PlayStation 3 during the current console generation.

He touted Xbox Live, the online network for gaming and downloading videos and announced that there are now 12 million Live subscribers. Collectively, subscribers have spent more than $1 billion on Xbox Live content since Live was launched in November 2005.

Mattrick announced that Microsoft is partnering with NBC and Universal Studios to distribute movies and television shows through Xbox Live.

Update, 11:25 a.m. John Schappert, corporate vice president of Xbox Live, software and services, just announced an exclusive partnership with Netflix, allowing members who are already subscribers to Xbox Live subscribers to get access to an additional 10,000 titles through the Netflix library.

Microsoft today announced the Xbox 360 price cut that had been expected, but also announced a new 60-gigabyte model to hit stores in August.