Microsoft to sell Bungie?

Microsoft may be selling ´Halo´ developer Bungie Studios, according to an anonymous source. Jacob Metcalf, a multimedia designer, broke the story on his blog, rather unfortunately citing the anonymous source as "a friend of mine who has someone close to them that works at Bungie."

Of course Microsoft gets to keep all rights to the Halo franchise, but as today Bungie no longer part of Microsoft. Ask anyone who works there to search the global address book, they're no longer in there. Microsoft was supposed to release the press release today but if they wait till the 10/6 the impact wont effect the quarterly results. However today is the actual official date and the day the NDAs expire, however you still didn't hear this from me.

However, both Jacob´s and his source´s writing skills and particularly their grammar are so poor that it draws the entire story into question. Also, one aspect does not add up.

Microsoft was supposed to release the press release today but if they wait till the 10/6 the impact wont effect the quarterly results.

The reason for delaying the announcement is apparently the quarterly earnings call. Now, this seems very unlikely. The earnings call is pencilled in for the 25th of October. How delaying the announcement until the 6th would prevent the news from having an impact on the call is beyond me. There would still be 19 days between the news announcement and the earnings call. This makes no sense whatsoever. Which is unfortunate, since Microsoft selling Bungie is not out of the question.




The promise to shareholders

Microsoft has committed itself to a positive result within this financial year for the Home and Entertainment division after nothing but substantial, multi-billion losses so far. Shane Kim, head of Microsoft Game Studios, told the BBC: "If we can't make a profit in the year Halo 3 comes out, then when will we?"

And considering that last financial year the division cost Microsoft more than two billion dollars while the lowest losses ever incurred were still half a billion in 2005, it seems unlikely that even a ´Halo 3´ would be enough to get them out of the reds. $170 million on its first day is a phenomenal result, but those numbers are sure to drop sharply on the days to come.

Also, that figure is revenue. Operating profits would be substantially lower, given the development costs and the larger-than-life marketing budget (estimated at more than 10 million dollars) would have to be deducted. So this one game will not be enough for Microsoft to make good on their promise. Also, if they ever wanted to sell the company, now would be the time, after the most successful launch in entertainment history. In fact, selling Bungie might be the only way for Microsoft´s troubled games division to slide into the blacks this year.

Bungie worth a billion dollars?

Just how much could Bungie sell for? Rare cost Microsoft 375 million dollars and Microsoft only bought 51%. So all of Bungie might rake in the better part of a billion, if not more so. And seeing that selling an internal studio has no costs involved, that money would be operating profit, not just revenue.

Microsoft would retain the Halo franchise, which is what counts. The investors would be happy about the division being in the blacks. And Bungie would be happy to prove that they are more than a one-trick-pony. It seems that such a move would make perfect sense for everyone involved.

Who could be buying?

One question remains, though. Who would buy the studio? Of course, theoretically, Bungie could buy itself. In fact, the rumourmonger speaks of the studio becoming independent. But I question whether they have that amount of money available and would be willing to take this risk.

On his own site, Metcalf has posted a number of comments in support of his story. One raises the possibility of a retention agreement ending soon, effectively allowing Bungie top brass to leave the company without penalty.

This theory (if such agreements do legally exist) would be incompatible with Bungie becoming independent, though. Why buy the studio name when all of the staff are free to leave anyway? A studio name is not worth that much.

It really would have to be a company of the likes of Electronic Arts, Ubisoft or, indeed, Nintendo and Sony. If Bungie has any say in this, they might favour a third-party publisher. After all, they must be tired of exclusivity.

Conclusion

The source is as unreliable as it gets: someone (and no, Metcalf is not a journalist, as some would have you believe) quoting a friend who quotes a friend. And they all sent one another mails, riddled with spelling mistakes and containing rumours of April Fool´s joke proportions.

However, it is all too easy to dismiss the possibility of Microsoft looking to sell Bungie. After all, as many have pointed out already, Microsoft recently failed to snap up one of the Xbox360´s most important third party studios, Bizarre Creations (´Project Gotham Racing´, ´Geometry Wars´), before Activision bought it. And the ´Shadowrun´ developer FASA closed shop. Those two incidents prove that Microsoft is no longer throwing money at the Xbox problem. Instead, they are resolute on earning some for a change.

EDIT TeamXbox have joined the fun and appear to be validating at least part of the rumour. Under an intriguing sub-heading ("You know we don't report crazy rumors here unless..."), they write:

We can't provide further info now (we'd put our sources in trouble) but we're going to tell you that it is more complex than simply Bungie leaving Microsoft or Microsoft letting Bungie go.

There will be an official announcement this week, definitely before October 12th.

EDIT On his blog, IGN Wii editor Matt Casamassina has just released footage of ´Halo DS´. This may be unrelated to the rumours about Microsoft letting go of Bungie, but perhaps not entirely.

While IGN divulges little detail about the game (saying only that it was "created by a real development studio and with a very big publisher"), I can add some info to that myself. At the recent European ´Halo 3´ launch event, I had lunch with Frank O´Connor and asked him about the ´Halo DS´ IGN had reported about. He said that it must have been an unwarranted pitch - essentially a demo used for securing business deals - and they often received them.

So O´Connor confirmed that pitches for ´Halo DS´ were in existence and circulation. But they were neither developed by Bungie, nor sanctioned or endorsed by Microsoft, he said. How IGN got hold of one remains a mystery, as pitches are never really shown to the press. But it certainly paid off for the undisclosed studio and publisher behind the pitch, with Matt advertising the demo so well.

EDIT The big boys have entered the debate. Game Informer is validating the story:

From a source close to Bungie, Game Informer has learned this rumor has some merit. It looks like with Halo 3, Bungie really is finishing the fight.

Our source stated that Bungie is “tired of Making Halo, and didn’t want to do future Halo games.” For an unstated, but significant amount of money, Bungie shareholders bought the studio name back from Microsoft. Our source also revealed that even though Microsoft will retain the rights to Halo, Microsoft also has “the right of first refusal on future games.” This means that Microsoft has the first shot at publishing Bungie’s future titles. How this will come into play if Bungie decides they want future game X to appear on the PlayStation 3 and Wii alongside an Xbox 360 release will make things quite interesting.

This type of agreement might be what TeamXbox meant by the deal being "more complex than simply Bungie leaving Microsoft or Microsoft letting Bungie go." The story certainly appears to be emerging as true.

EDIT I can finally add the fruits of my own investigations to this story. I have not been able to confirm any details, but the general story is true. My contacts told me that they were aware of the story through internal channels. So Microsoft must have circulated memos to some key staff already.

EDIT CNBC lends some more credence to the emerging story:

From the two people I'm talking to inside Bungie, I'm expecting a new kind of partnership between the two and not a wholesale break-up.

Sources: Jacob Metcalf´s blog , TeamXbox, Game Informer
Thanks to: Rumor Reporter, Nintentom, Sangreal, HereticPB, MaxConsole