"Halo" creators to split from Microsoft

By Scott Hillis

SAN FRANCISCO (Reuters) - Microsoft Corp said on Friday that Bungie, the crown jewel of its video game unit behind the hit "Halo" franchise, will become a separate company, opening the possibility that it could make titles for Microsoft rivals.

Microsoft said it will retain a stake in the new company, to be called Bungie LLC, and will continue to publish future "Halo" games and other titles.

"Now that they're free they can come up with something else and address the whole market," Wedbush Morgan analyst Michael Pachter said, adding he expected Microsoft would have a window of exclusive rights to new Bungie games.

Microsoft declined to give any details of the separation, which follows days of speculation triggered by a reader blog on the Seattle Post-Intelligencer Web site that Bungie was set to split from its corporate parent.

It is common in the $30 billion video game industry for star developers or teams of people to leave a game publisher to work on new, unrelated projects.

Faced with losing key talent, Microsoft made sure the split was amicable, Pachter said.

"What's unusual is the umbilical cord, they kept a linkage. Credit Microsoft that they knew they were going to lose a super talented group of people," Pachter said. "They turned what could have a big loss into a manageable, fair split of labor."

Microsoft shares rose 0.8 percent to $29.95 in early afternoon trading on Nasdaq.