The team behind the "Halo" series, one of the all-time top video game franchises, said Friday that it was splitting from parent Microsoft Corp. and eventually might develop titles for consoles that compete with Microsoft's Xbox.
Though both sides described the spinoff as amicable, it shows the difficulty faced by the 32-year-old software behemoth in fostering the creative environment necessary to keep innovative game designers and engineers in other hot areas happy.
Its Xbox venture has forced Microsoft to try to create an entertainment-company mentality inside the world's largest software maker.
"Any time you lose talented developers who are working exclusively for you, that's a negative," UBS Securities analyst Ben Schachter said. "The developers within the company wanted some more freedom and wanted to have their fortunes tied to something other than Microsoft."
Analysts said the more than 100 people from Bungie Studios, which Microsoft acquired in 2000 for an estimated $20 million to $40 million, were leaving because they wanted more creative freedom and the potentially far larger financial rewards of striking out on their own.
The announcement comes on the heels of the blockbuster release of "Halo 3," which Microsoft said racked up a record $300 million in first-week sales. The series has played a key role in establishing Xbox as a contender in the home gaming market despite Microsoft's late entrance with the Xbox in 2000.
Analysts said as many as 1 in 4 Xbox buyers chose the console so they could play "Halo," a first-person shooter game in which Master Chief tries to save the world from destruction by aliens.
Yet because Microsoft is so large and has other, more profitable divisions, the success of "Halo" hasn't necessarily translated into more valuable stock options for its creators.
Analysts said the separation wasn't a dramatic setback for Microsoft because it would keep an equity stake in Bungie, and Bungie would continue to make Xbox games. Financial terms were not disclosed.
Analysts said they believed Microsoft would get the right to bid on new titles before rivals Sony Corp. and Nintendo Co.
"The intent of both parties is to continue to work together, hopefully forever," said Microsoft Vice President Shane Kim, who heads its game studios.
Though "Halo 3" is the last in a trilogy, Kim said Microsoft would work with Bungie and "Lord of the Rings" director Peter Jackson on a game that "takes place in the 'Halo' universe."
Bungie studio head Harold Ryan said his team had no immediate plans to create games for Microsoft rivals, adding that the move was as much about attaining an emotional sense of independence as anything else.
Bungie is one of several Microsoft studios that make games, and though it had unusual independence, it isn't the largest. About a thousand people work at several other wholly owned studios or at the parent operation, Microsoft Game Studios. Microsoft also has exclusive deals with outside studios. Its shares rose 13 cents to $29.84.
In part because Microsoft shares have moved little in the last five years, the company has lost some desirable staffers to faster-moving companies including Google Inc. and some Silicon Valley start-ups.
Microsoft's gaming division has lost more than $6 billion to date. The company has told investors the division would begin earning money in the current fiscal year. That has stepped up pressure on the game developers, whose products are profitable, to make up for problems with the Xbox hardware. As independents, the Bungie developers would have no such worry.
Microsoft's Kim said its relations with Bungie's employees would improve now that the staffers have the structure they want. Analysts gave Microsoft credit for negotiating a friendly arrangement.
"Obviously, Microsoft owns 'Halo,' but they don't own those people," Wedbush Morgan Securities analyst Michael Pachter said.