Hollywood balks at Microsoft's 'Halo' pitch

Hollywood does not like it when outsiders play certain games.

That was the message sent this week to Microsoft and its agents at the Creative Artists Agency by movie studios outraged at the aggressive proposal being shopped for the film version of the popular Xbox video game "Halo."

Even studio executives, known for their lavish spending, winced at Microsoft's demands, including a $10 million upfront fee for rights, approval over the cast and director, and 60 first-class plane tickets for Microsoft representatives and their guests to the movie's premiere.

As a result, the auction Microsoft had hoped for never materialized. Within 24 hours of reading the script, based on the game about an alien universe, five studios dropped out of the bidding, including DreamWorks and Paramount Pictures.

The two that remained, 20th Century Fox and Universal Pictures, balked at the price. But after intense negotiations, the two studios have agreed to a tentative deal. The intense, high-stakes talks that got them there indicate just how big the video game business has grown--and how attuned to its power Hollywood studios have become.

To many in Hollywood, it was a stunning display of hubris on behalf of Creative Artists and its client, Microsoft, which has a reputation for running roughshod over its rivals in the software business.

The "Halo" series is one of the most popular video game franchises; "Halo 2," released last year, sold 6.8 million copies globally. But few video game adaptations have proved popular at the domestic box office. Of the 19 adaptations tracked by Boxofficemojo.com, only one earned more than $100 million in the United States: "Lara Croft: Tomb Raider."

What irritated studio executives most was Microsoft's demands for broad creative control, even though the company was not spending a dime to make the film.

Creative issues remain
Ultimately, Microsoft, Universal and Fox tentatively agreed to a complex arrangement on reduced financial terms, though all parties involved say creative issues could still scuttle the deal. The talks were to continue through Friday.

"If you are going to play the toughest hand of the year, you better have the goods," said Bruce Berman, a former Warner Bros. Pictures executive who now runs Village Roadshow Pictures and was not involved in the bidding. "I think it's great that the studios didn't buy it on the terms first offered. It shows restraint."

Microsoft and its representatives see the matter differently. "No one in Seattle, or me, or anyone else wants a bad movie," said Peter Schlessel, a former Columbia Pictures studio executive who was hired by Microsoft to help manage the project and served as intermediary among the studios, the agents and Microsoft. "If you put a house up for sale, you need to put a price on it."

Added David O'Connor, a partner at Creative Artists who was involved in the negotiations, "Our job is to get the best deal for our client."

Nearly a dozen studio executives, talent agents and representatives of Microsoft who either read the script or were informed of the deal terms agreed to talk about the Halo auction process on the condition of anonymity, citing the sensitive nature of those discussions.

The process began at about 11:30 a.m. on Monday when several actors dressed as the Master Chief, a green-helmeted warrior from "Halo," walked into the lobbies of several Hollywood studios, scripts in hand. Microsoft had taken the unusual step of paying Alex Garland, the writer of the horror film "28 Days Later" and a Creative Artists client, about $1 million to write a script faithful to the "Halo" universe.

Studio executives were asked to read it while the Master Chiefs waited in the lobbies. At Paramount, one studio executive said,

the Master Chief held his helmet in his lap because he was hot. When executives were finished reading, each studio was given a proposal with Microsoft's terms and 24 hours to respond.

Aside from the $10 million upfront fee, Microsoft was asking for 15 percent of the studio's first-dollar box-office gross receipts. The budget could be no less than $75 million, not including the fees for the actors and director. If the studio did not make the movie, it would forfeit the $10 million fee.

Microsoft also wanted creative control, with the script and characters unchanged. The studio would have to pay to fly a Microsoft representative to watch all cuts of the movie, and the studio would forgo merchandising rights.

Such an approach was a gamble for Microsoft, given that it does not have a proven track record like the high-priced Hollywood actors and directors, like Tom Hanks and Steven Spielberg, who make similar demands. Schlessel described the proposal as a "framework for what people should be thinking about." Creative Artists, which had a team of agents working on the deal for a year, had a lot at stake, too. If even one studio agreed to the terms, the firm would be in a position to ask for the same deal for other video game clients.

Hollywood saw Microsoft's and Creative Artists' proposal as less of a framework than an ultimatum. By Monday night, both DreamWorks and New Line Cinema had dropped out. On Tuesday morning, Disney, Paramount Pictures and Warner Brothers Pictures were gone, too. Executives at the exiting studios argued that if Microsoft was so concerned about preserving the Halo universe, it could have financed the movie on its own, as the director George Lucas did with the "Star Wars" franchise.

"Microsoft does not want to be in the business of financing movies," Schlessel said.

Scrambling
That left Universal and Fox. Universal, according to three people who were involved with the talks, liked the idea but the price was too high. So Donna Langley, president of production at Universal Pictures, instructed the company's business affairs unit to begin negotiations with Schlessel and Creative Artists to see if they could find common ground.

On Tuesday, Universal began looking for a financing partner. Fox was interested but rigid about what creative rights it would cede to Microsoft, the three people said. Over the next 24 hours, the separate camps scrambled to come up with a deal.

Two of the people involved said that late Wednesday afternoon Schlessel, Universal and Fox tentatively agreed to complex financial terms: Microsoft would be paid no more than $5 million for Halo, half the original asking price. That amount was part of a deal to give Microsoft 10 percent of the first-dollar box-office gross receipts, less than before but still considerable given Microsoft's lack of a track record. Universal, in turn, would oversee production and get domestic distribution rights, while Fox would get the foreign rights and have a say in production.

Both studios declined to comment on Thursday. That is because the deal is contingent on Microsoft's agreeing to give up some creative control, the two people said.

All sides are sure to claim victory once a deal is announced. Microsoft can tell fans it preserved the integrity of the Halo games; Creative Artists will try to demand even more money for its clients; and Fox and Universal will lay claim to a hot video game title and a potential future partner in Microsoft. The other studios, for their part, will have to decide whether to go along when other eager video game makers come calling.

"The bottom line is, If you don't ask, you are not going to get it," said Tom Sherak, a veteran movie marketing executive at Revolution Studios. "But the one thing about Hollywood is that is very hard to bully anyone when you are asking for that kind of price."