Microsoft will spend a staggering half a billion dollars marketing its new Xbox games console.

Ed Fries, Microsoft's vice president of games publishing who will outline the software giant's vision of an interactive world later today at the European Computer Trade Show in London, told The Observer: 'We have very aggressive forecasts and we'll be spending more than half a billion dollars in the first 18 months to promote the product worldwide. We're going to put a huge push behind Xbox.'

Fries hinted that Microsoft was preparing to take a massive hit on the Xbox to steal market share from Sony, maker of Playstation II. 'We understand that price is crucial to any consumer market. Traditionally, the way a console business works is that you sell the hardware for less than it costs you to produce it and charge a royalty on the software. We believe we'll be very competitive on price.'

Later today Microsoft will announce that it has signed up 18 software development studios to write exclusive content for the Xbox, which will be launched late next year. Included in the line-up is the UK's Lionhead Studios, founded by Peter Molyneux, who made millions when he sold his original company, Bullfrog, to the world's largest games publisher, Electronic Arts.

Some console manufacturers have suffered from a shortage of good games. However, Molyneux said today's announcement meant Microsoft's commitment to the video game market was serious. 'It's a very important step forward. Without world class video game talent you're going to flounder.'