Bungie Declares Independence

SketchFactor has posted a press release on Bungie.net that declares that Bungie Studios will become a privately held company. Bungie LLC will have Microsoft as a partner and a minority shareholder and will continue to make games for the Xbox.

"Working with Microsoft was great for us, it allowed us to grow as a team and make the ambitious, blockbuster games we all wanted to work on. And they will continue to be a great partner. But Bungie is like a shark. We have to keep moving to survive. We have to continually test ourselves, or we might as well be dolphins. Or manatees," said Jason Jones, Bungie founder and partner.

Certainly the only thing more shocking than Bungie selling itself to Microsoft in the first place is somehow managing to escape its embrace to assert independence again. One is given to wonder, after all but completely dismissing the possibility of this happening, why and how it has happened.

Part of the press release, as well as the mounting pressure on Bungie to keep the Halo juggernaut rolling and rumors swirling around the possibility of Bungie leaving Microsoft suggests the reason why:

"This exciting evolution of our relationship with Microsoft will enable us to expand both creatively and organizationally in our mission to create world-class games," said Harold Ryan, studio head for Bungie. "We will continue to develop with our primary focus on Microsoft's platforms; we greatly value our mutually prosperous relationship with our publisher, Microsoft Game Studios, and we look forward to continuing that affiliation through 'Halo' and beyond."

The "Halo and beyond" bit certainly hints what many Bungie watchers thought and desired for since Halo 2 and 3 were announced: a new Bungie intellectual property not based in the Halo universe. Then Phoenix was cancelled, and no non-Halo announcements were forthcoming.

Perhaps Microsoft did expect Bungie to continue with and endless series of Haloverse shooters, as well as getting Halo games from Wingnut and Ensemble.

If that's the reason why this happened, that Bungie wants to make non-Halo games even if they do continue to work on Halo related games, then the question becomes, why Microsoft was opposed to that. The answer to that probably explains the how as well.

In the end I can only guess that either the people at Microsoft who initiated the Bungie purchase, or the people who came into decision-making positions more recently began to look at that acquisition less in terms of personnel and creative vision and more in terms of a single intellectual property: Halo. Microsoft didn't buy a creative and inventive force for developing games, this train of thought runs, it bought the Master Chief and Cortana.

In that mode of thinking, what is Bungie worth if they're not developing a Halo game? What are they worth if only half of them are developing a Halo game? Is it worth the risk to find out if they can have a hit that doesn't have "Halo" in the title?

One may be forgiven for momentarily expressing some sympathy for this viewpoint. After all, Bungie's Halo games were their biggest sellers. The Halo games themselves are highly derivative of their earlier game, Marathon. Oni was not a terribly large success. Everything before Marathon was small-time even in the small Macintosh market, and while the Myth and Myth 2 RTS games sold well, there are other studios already working on games like that for the Xbox, including Ensemble Studio's Halo Wars project. Where was the incentive to let Bungie roll the dice on a new property, staked by Microsoft's fat wallet?

Somebody sure felt that was a good bet, though. The new deal says Microsoft will retain a minority stake. It also thanks one Don Leeds at B-Hive Global, LLC for structuring the deal and negotiating for Bungie. Interestingly enough, check the Team page at B-Hive and you'll find the name Nile Rodgers, about whom it says:

In 2005, he contributed to, executive produced, manufactured and distributed an original soundtrack to the Microsoft X-Box video game title "Halo 2: Original Soundtrack Vol. 1." This title has become the number one selling video game soundtrack of all time.

Having worked with Marty O'Donnell on the soundtracks, Rodgers would certainly be in a position to judge Bungie's possible worth as an independent entity able to continue to be creative and successful without being shackled to the Master Chief's heavy armor forever.

If Microsoft is a minority shareholder, who are the other shareholders now? Microsoft isn't altruistic, it's not going to let Bungie walk right out the door without compensation. Continuing to develop games for Microsoft platforms is fine well and good, but if Microsoft is going to go from owning an asset to owning only a non-controlling interest in an asset, I'm betting they get paid for that. Who paid them and how much?

Somebody out there thought it was worth shelling out some cash-- perhaps a large amount of cash, almost certainly more than Microsoft paid for Bungie in the first place-- to see what Bungie can do developing non-Halo games.

Somebody knows a good bet when they see one.

Oh, and give Bungie partial credit for Step Six in their plan for World Domination. They may not own Microsoft now, but certainly there is something to be said for getting them to buy you and reaping the rewards of that, having three megahit games promoted all over the world, and then regaining your independence. Start checking Google Earth for a giant slingshot in Bungie's backyard.

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SG's picture
SG
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Re: Bungie Declares Independence

Great article Narc. I really hope to see new Bungie games that aren't set in the Halo universe. I love the feel of their older games, and I hope they bring some of that back. Hopefully, with Bungie independent of Microsoft, this is a greater possibility.

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Re: Bungie Declares Independence

I'm also looking forward to new properties. In a way, though, I'm surprised that apparently MS was not.

Although I suppose it was a good thing that they didn't if it enables Bungie to have even greater freedom without losing access to critical resources and partnerships.

I'm also wondering-- would this have happened if Halo was not a game, but just any other very popular series of software titles?

Has any Microsoft acquisition ever been spun off in this way, rather than simply absorbed, remaindered, or shut down?

Are there only two ways an MS-owned gaming studio can go-- dissolution (FASA) or independence (Bungie)?


Rampant for over se7en years.

Anton P Nym's picture
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Mmm... crow. Yummy. (Pass the ketchup.)

I think I owe a few folks an "oops." I never saw that coming, and thought it was more of the usual Interwebular rumouring based on misunderstood snippets of garbled chit-chat... at most I thought we'd see a Pixar-like arrangement.

I was asking my father about the ramifications of the "LLC" component, and he said that the normal structure of the LLC was to limit the exposure of shareholders to liabilities in the event of debt or failure. Now, my understanding is that the new Bungie Studios LLC has only one external shareholder, Microsoft... unless I missed an IPO buried somewhere in the press release. So Bungie forming an LLC may be further evidence that your interpretation is correct, Narc, and that Microsoft is doing this while looking to its own interests as much as any "charitable" impulse towards Bungie.

-- Steve never thought that Microsoft would let the goose that lays golden eggs go free-range, but after your analysis sees that it actually makes sense by their lights.

PS: I totally think they're wrong on the "crash and burn" risk, but what the heck; even in the case that Pimps at Sea makes Halo look like Psychonauts MS shareholders stand to gain with a lot less investment. It actually does work both ways.

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Re: Mmm... crow. Yummy. (Pass the ketchup.)

Anton P Nym wrote:

I think I owe a few folks an "oops." I never saw that coming, and thought it was more of the usual Interwebular rumouring based on misunderstood snippets of garbled chit-chat... at most I thought we'd see a Pixar-like arrangement.

Yeah, I didn't either. Basically because all the rumors talked about "separation" and the end of a "partnership". In fact, most of the language couching this move presents it that way. Knowing that Microsoft and Bungie were not partners, but rather owner and property, made those rumors look naive in the extreme.

What is being hidden here is that were it almost any other company, the headline would read like this: Microsoft Sells Bungie.

That's what has been done here. Microsoft has sold a majority stake in Bungie. Who has bought it, for how much, they won't say. Yes, there is a publishing deal somehow relating to Halo, but the terms of that aren't likely to be made public, either.

If I were a Microsoft shareholder (which I'm not) I'd probably want answers to those questions.

Is this a stock swap? Cash? If so, how much?

Independence is also only of value if it allows you to do something you formerly could not. What did Bungie want to do that Microsoft would not bankroll? Merely a non-Halo title? Is Microsoft that convinced that a non-Halo Bungie title would not be profitable that they are willing to give up potential revenue?

Remember, Microsoft pays 100% of the costs related to a first party developer, but they retain 100% of the profits generated. What's the arrangement here? If Bungie retains a team to work on a Halo game, but also does other projects, and MGS publishes the Halo titles, what's the profit split? How much of the upside is Microsoft getting for being relieved of the responsibilities of paying Bungie's bills?

Anton P Nym wrote:

I was asking my father about the ramifications of the "LLC" component, and he said that the normal structure of the LLC was to limit the exposure of shareholders to liabilities in the event of debt or failure. Now, my understanding is that the new Bungie Studios LLC has only one external shareholder, Microsoft... unless I missed an IPO buried somewhere in the press release.

They're a privately held company, as opposed to a publicly held one like Microsoft. That doesn't mean there aren't other shareholders. It means they have not been named, and not being a public company, they don't have to expose who owns it. Even if they did, it would likely only lead to the name of a holding company. Who is really behind it we may never know. Was this a management buyout? Did Jones get the company back for himself? Did he bring in a team of investors, with the help of B-Hive, as part of a consortium?

Anton P Nym wrote:

So Bungie forming an LLC may be further evidence that your interpretation is correct, Narc, and that Microsoft is doing this while looking to its own interests as much as any "charitable" impulse towards Bungie.

Bill Gates, as an individual, has charitable impulses.

I don't believe Microsoft, or most companies for that matter, do. They did this because they believe it is in their best interests. Bungie did it because they believe it is in their best interests. A best case scenario works out for the benefit of both parties. I would say this is rare. If Bungie's next title were to tank and bankrupt the company, it's likely Microsoft would say "I told you so", proving that they were correct not to green-light whatever project it is Bungie wants to do that Microsoft doesn't want them to. If Bungie's next title is a smash hit, that's really good for Bungie, and pretty good for Microsoft-- but I'm betting there will be a bean-counter somewhere in the company who will be asked to tally exactly how much revenue lost this arrangement cost Microsoft, and that somebody will be blamed for it if it is high enough.

Perhaps some kind of compromise has been struck; a deal whereby Bungie gets nominal independence, pays its own bills, but gets less of the revenues that a completely independent developer would get, and Microsoft gets more than what it would from a typical third party developer, in exchange for letting a majority stake go at a reasonable price. That seems possible, if not likely.

Anton P Nym wrote:

-- Steve never thought that Microsoft would let the goose that lays golden eggs go free-range, but after your analysis sees that it actually makes sense by their lights.

That analogy keeps occurring to me, too. Unlike geese, however, you can't make people do things they don't want. Jones could quit and likely take a lot of people with him, probably key ones. Sure, he wouldn't get Halo or the Bungie brand, but those may be worth a lot less without him. And we still don't know, and may never know (thanks, Leela) what teeth were put into the original purchase agreement that assured Bungie of the degree of freedom that they achieve; something that I suspect is unprecedented amongst Microsoft acquisitions.

The cocktail napkin analysis said that between the two founders, Jones was the creative coder and Seropian was the business maven. Predictably, Seropian left to do another company because there's no room for that kind of entrepreneurship inside a large organization like Microsoft.

But I tend to think the acumen required to pull off this deal-- essentially, getting Microsoft to buy your company from you, increase its value several times while publishing three hit games, and then somehow get that company back-- is impressive indeed.

Anton P Nym wrote:

PS: I totally think they're wrong on the "crash and burn" risk, but what the heck; even in the case that Pimps at Sea makes Halo look like Psychonauts MS shareholders stand to gain with a lot less investment. It actually does work both ways.

Yes, but perhaps not as much, unless there is a unique revenue-sharing agreement in place. The more I think about it, the more I think this has to be a pretty interestingly-structured deal.


Rampant for over se7en years.

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