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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

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October 2, 2007 4:50 PM

Is Microsoft divesting Bungie?

Posted by Brier Dudley

A provocative posting by a Seattle area blogger suggests Microsoft is spinning off one of the crown jewels of its Xbox business, Bungie Studios.

Based on an e-mail from an alleged insider, the post says Microsoft will retain the rights to the Halo franchise that Bungie developed and Bungie will presumably continue to develop Xbox games.

The post, which appears on the community site of another Seattle paper and is being recognized mostly for its appearance on the 8BitJoystick gaming e-zine, posted the e-mailed tip:

"So heres my big secret. You should google Bungie + Microsoft + separation this week. You know that big ol BILLION dollar franchise Bungie has created for Microsoft, to show their appreciate Microsoft is letting Bungie leave. 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."

"Apparently MS just wants Bungie to make Halo for the rest of their natural days, and Bungie doesn't like how MS is constantly trying to 'handle' everything they do; the way they market their games, the way they interact with their fans (basically the fact that they do appreciate their fans), and how stingie they are with the profits (comparable to the rest of the industry). So as of today they are their own independent entity. They'll probably make Halo 4 for Microsoft, however hey are also free to create new intellectual properties for whatever system they want. (Even though they prefer the xbox platform)"

"What a way to say thank you."

It's a shocker if true, especially since Bungie management has recently been talking about the studio's autonomy and positive relations with the mother ship.

But Microsoft's also pushing hard to make the Xbox business profitable so it's probably looking at all sorts of ways to shave costs. Running a studio is expensive, and Microsoft would still benefit from its creativity since Bungie would continue to develop Xbox games.

Microsoft did the same thing just after it released Halo 2, in late 2004. That's when it cut its sports game studio, laying off nearly 80 people, then sold a Utah studio that had made snowboarding games to Take-Two Interactive.

Here's what Xbox boss Robbie Bach said that year, back when he was expecting the division to be profitable in fiscal 2007:

"When we got to that point, we started looking around and started realizing, wait, we've got tons of third-party support. We shouldn't be the bulk game provider."

Maybe this was all part of a plan that would unfold as the Xbox hit critical mass. Microsoft's a platform company, not a content company.

What I'm wondering, though, is whether Microsoft would divest Bungie to be run as a standalone or selling it to a big game publisher like Electronic Arts.

The blog post by Jacob Metcalf prompted tons of chatter, including comments about locks being changed at Bungie's offices in Kirkland.

You wouldn't lock people out unless there were going to be big layoffs or a sale. Could it be routine maintenance? Or is it really bad planning/HR messaging on Microsoft's part?

Besides, can't Microsoft's IT people change the door's access codes with a few keystrokes in a directory server?

As for the timing, I wonder if Microsoft would make an announcement under the cover of the pending launch of new Zunes. Consumers would be more interested in the new digital media players than the gyrations in the Xbox business, especially if there's no interruption in the flow of Halo.

But what about the message a divestiture would send to other hustling teams at Microsoft? Halo, Xbox and Xbox Live are one of the best and most Applesque end-to-end consumer experiences to come out of Redmond.

How would Xbox game developers interpret the news that Microsoft is getting rid of the platform's most successful studio because it's not profitable enough? On the other hand, they may be relieved to not be competing anymore with a deep-pocketed insider.

I guess Bach has to figure out a way to make money with the Xbox or he could be the one divested.

I asked him for a comment and haven't heard back. Apparently his PR people told the blogger "There's been no such announcement," which isn't much of a denial.

Update: Jake pointed out in comments that the locks were indeed being changed as a maintenance thing, to make them ADA compliant. Still strange that employees would be jumpy about something like that.

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Posted by Bob

6:18 PM, Oct 02, 2007

It's symptomatic of the entire company's execution challenges that this rumor hasn't been either confirmed or conclusively squashed immediately.

Posted by Jake Metcalf

1:55 AM, Oct 03, 2007

On Monday there were some comments on my Seattle PI blog that locks being changed. There was a comment the next day about the locks on Bungie offices being upgraded to be more compliant with the Americans With Disabilities act. I don't think the locks being changed is a big deal. But something is still up and it is unfortunate timing that it was the day that they worked on the doors.

Also I am from Bremerton. Not Seattle.

Posted by Jake Metcalf

2:01 AM, Oct 03, 2007

Also I write both and Digital Joystick at the PI. It is sort of a cross blogging self syndication thing.

Posted by StickR

10:31 AM, Oct 03, 2007

Blogs are worth the paper they are written on....wait there is no paper.

Posted by Jake Metcalf

1:35 PM, Oct 03, 2007

My source has a position that puts them in a reliable chain of information directly out of the inner working at Bungie and has no reason or motive to be pulling my leg. I can't publicly talk about my sources inside Bungie/Microsoft because I don't want to compromise their relationship with their employer and the companies that they love. The more I say the easier it would be to point fingers so I am shutting up for their sake.

I am willing to look like a liar, rumor monger and crazy blogger to protect my source but I'll am sticking to what my source told me.

I know that Bungie is owned by Microsoft but they have kept a unique culture and were not directly assimilated back in 2000. Bungie employees are not typical "Blue Badges" and that is another reason why the idea of them wanting to separate from Microsoft is a realistic possibility.

I don't think that Microsoft wants Bungie to leave and I honestly think that the ink is not dry on what ever documents detail their future arrangement between the two groups. Also this week was the roll out of the new Zunes and people that would normally be dealing with stories like this were working on the Zune rollouts... (It still does not work on Mac OSX).

Either way Microsoft will either officially state their future relationship with Bungie... We just don't officially know what that is going to be but unofficial channels are saying some interesting things.

Posted by Jake Metcalf

1:00 PM, Oct 05, 2007


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Gadgets and games | Fun stuff I've written about lately includes Apple's iPhone, Hewlett-Packard's HDX laptop and Microsoft's Halo3. Also on the radar are new digital video boxes such as the Tivo HD and the Vudu.