Microsoft Corp. said Friday that it would move forward with a movie adaptation based on its popular video game "Halo" after financial backers Universal Pictures and 20th Century Fox backed out of the project.
The studios quietly cut their ties to "Halo" this month because of costs associated with the movie, which had a preliminary budget of $145 million, said sources involved in the project who declined to be named. Tensions heightened after the studios failed to persuade the filmmakers, including executive producer Peter Jackson, director of the "Lord of the Rings" trilogy, to renegotiate their contracts.
"We are disappointed that Universal wanted to significantly renegotiate the financial points of the deal," Microsoft said in a statement Friday. "We are already in discussions with potential partners who recognize the value of the 'Halo' brand."
The Redmond, Wash.-based software giant had also refused to take a pay cut demanded by the studios. In the summer of 2005, when the studios signed on to the project amid great fanfare, they agreed to pay Microsoft $5 million upfront for the rights as well as 7.5% of revenue they received from theaters.
The deal guaranteed Microsoft and other key talent payment before either studio made a penny on the movie, scheduled for a summer 2008 release.
One source reported a power struggle between Fox and Universal over control of the movie. Both studios declined to comment.
The production will move ahead under the direction of producer Mary Parent, a former co-head of production at the studio who still has a deal there. Jackson and Fran Walsh will remain executive producers of the project.
The studios' decision is another example of Hollywood's sensitivity to skyrocketing budgets. Facing increasing pressure to rein in production and marketing costs as box-office receipts and DVD sales have flattened, several studios have abandoned expensive movies in recent months and in some cases renegotiated talent deals to reduce their risks. For instance, Fox recently jettisoned "Used Guys," starring Jim Carrey, because of its high cost and the actor's expensive "profit participation."
Struggling to bring down the estimated $175-million budget of its summer comedy "Evan Almighty," Universal renegotiated profit-participation deals so the studio could recoup its expenses.
Universal is in the hot seat with its parent company, General Electric Corp., largely because of its mediocre year at the box office. On Thursday, GE's NBC Universal unit announced a $750-million cost-cutting program.
For Universal and Fox, the "Halo" deal was risky from the start. Although video games are popular with young boys, they have not translated well to the big screen. "Lara Croft: Tomb Raider" has been the most successful of the genre, grossing $131 million domestically and $143 million abroad. However, its 2003 sequel "Lara Croft Tomb Raider: The Cradle of Life" did not do well, grossing only $65 million here and a similar amount overseas.
"People are still waiting for the first good movie that is based on a video game," said Brandon Gray, head of Box Office Mojo, which tracks ticket sales. "There hasn't been one yet. Story is not a forte of video games, and that is why they have not translated well."
Released in 2001, "Halo" is a Mature-rated shooting game in which players embody a character called Master Chief to kill space aliens. The original is one of the 10 bestselling video games ever, with an estimated 5 million copies sold. "Halo 2" has sold 14.5 million units.
But the story has not been easy to adapt to the big screen. The script was initially written by Alex Garland, the British novelist and screenwriter behind Danny Boyle's zombie thriller, "28 Days Later." Garland's version was re-written by D.B. Weiss, who has few listed credits.
Other key players also are inexperienced. This large production replete with complicated special effects will be directed by a 27-year-old first-time feature director, Neill Blomkamp.
Hoping to create a bidding frenzy in Hollywood, Microsoft hired costumed actors to shop the script last year. The "Master Chiefs" sat in the lobbies of the major studios as executives read the screenplay.
Only Fox and Universal were interested. They agreed to co- finance the movie, with Fox handling international distribution. At the time, other studios wondered why a multibillion-dollar corporation like Microsoft would not fund the movie itself.
Over the last year, producer Parent has made numerous trips to New Zealand, where the production will be filmed at Jackson's special effects facilities, Weta Digital and Weta Workshop. The project is entitled to financial concessions for shooting in that country.
News of the deal's souring had "Halo" fans predicting online that the studios would be sorry.
"Fox and Universal are so going to regret their move when Halo will hit theaters," read a post from AuthenticM. "This flick will rack in huge amounts of money."