Halo 3 cinematics storyboard

Microsoft, Bungie and Halo 3. As we all wait with baited breath to find out what will become of the once happy couple and their offspring--will the parents go the way of George and Martha, or are we talking Britney and K-Fed?--we've been wondering whether the Biggest Entertainment Day In History is enough to jumpstart progress on the stalled feature film adaptation of Halo. To answer that question, we turned to former Eidos Interactive president Keith Boesky, an agent whose Boesky & Company client list--includes the Robert Ludlum estate, Clive Barker, Spark Unlimited, Liquid Entertainment and GDH--sits at the nexus of Hollywood and videogames. We met Boesky at the DICE conference earlier this year, and were impressed by his thoughtful fluency in a wide variety of media. Here's what he had to say about Halo's prospects as a movie.

Videogames are in the mainstream news again. Thankfully, this time the coverage is positive. Stories, ranging from the E Channel to the New York Times correctly identify the launch of Halo 3 as the largest single day financial event in entertainment history. This is absolutely true. But the articles fail to address how much larger. The retail vs. box office numbers show revenue for first day sales of Halo was about 13 percent higher than "Spider-Man 3," this year's biggest movie opening weekend. This is pretty cool. However, when you compare the bottom lines, it is beyond pretty cool. It is really f'ing cool and cannot even be touched by the movie business. When you consider the nearly 50 percent audience growth over Halo 2 despite a nearly 50 percent smaller installed console base, it is even more incredible. Even Steve Jobs has to be eyeing those margins.

Thanks to the evolution of entertainment industry reporting, we all know the size of weekend box office for every major film released. We know that "Spider-Man 3" had an opening weekend of $151,116,516 and a total gross of $336,530,303. Considering the average price of $6.58 for the film, roughly 23 million tickets were sold opening weekend, or, roughly 5 and a half times the number of Halo 3 purchasers. This would render Halo very uninteresting if the Halo consumer didn't spend a little more than 9 times as much on the product.

Despite all our knowledge, studio receipts are rarely, if ever reported. This is because receipts are not predetermined or set in stone. After each opening weekend, the studios negotiate their split of the revenue with the exhibitors. Usually, the studio gets a very large percentage of the opening weekend revenue, and the percentage declines over the life of the run. By the time the theaters' cut rivals the studios, the audience is small, and the studio replaces the film with a new one, once again securing the larger percentage.

We can assume Sony received 90 percent of the rental from the opening weekend for "Spider-Man 3." This would equate to return of $136,004,864. Relative to the gross national product of many countries that is a lot of money, but relative to the $270 million production cost (that's if we accept Sony's number; some say it is well over $300 million) and $100 million plus of marketing, they have a long way to go before the investment is recouped. It is even longer when you consider the first-dollar gross participants who get a piece of the revenue even before the studio recoups. Sure, this is the launch of a 20 + year equity, and sure there are trailing revenue streams, but those revenue streams are now factored in to support the production cost. These ancillary revenue streams are no longer a windfall.

Now take a look at Halo 3. The projected retail revenue for the first week of release is $252,000,000. Microsoft will sell the game for a wholesale price of $49.99 (I know there are special editions out there, but I am not good at math so I am keeping the single price). They will likely not deduct the technology license fee, which is otherwise paid by third party publishers, and likely have some pretty good manufacturing discounts based on their scale. Moreover, they own Bungie, so there is likely no per unit royalty paid to the developer or for the IP (Does anyone remember that Microsoft bought Halo from Take Two for $4 million?) A generous characterization of manufacturing expenses, and factoring in a 15 percent return allowance, would indicate that Microsoft would take roughly $40 to the bottom line, roughly, $168,000,000. Even assuming a ridiculously expensive production and marketing budget, Microsoft is still more than $100 million into profit at launch. Realizing that Halo 3 sales will likely continue at full price for a long time, sales could easily hit 10 million units, or $400 million in revenue to Microsoft. After all, Halo 2 sold 7.5 million copies in the first six weeks. The Halo bottom line revenue and potentially profit, could exceed the box office of "Spider-Man 3"'s entire domestic run.

Oh yeah, and there are all those other opportunities for ancillary revenue like novelization, action figures, graphic novels, related merchandise, they are all there, contributing incremental revenue. There is even a film. Most of the articles are reporting the film is dead...but is it?

Hollywood cannot ignore something that makes this much money. They will not look at the audience size, they will see the numbers and immediately start discussing the Halo film. But it would be only marginally less relevant to discuss Halo's impact on the cure for cancer. The film died last year when the projected budget for the already expensive acquisition was much more than Fox and Universal were willing to spend. A film greenlighting decision is about risk mitigation, and the audience for Halo, even with Peter Jackson's involvement, is simply not big enough to justify the expenditure--especially when the lead character wears a mask most of the movie.

While the 4.2 million units equate to major profit for Microsoft, that same audience would amount to major failure for Fox and Universal. If each of the roughly 11 million Xbox 360 owners buys two tickets to the film, it is still a bust. Of course a film would be made to appeal to a larger audience, but despite best intentions, that rarely happens. Absent a significant leap of faith, or hubris, Halo may never be a film. For Halo fans, that could be a good thing. It could even be a good thing for Microsoft. Games are a stand-alone medium. Financially, compared to film, they are a much better one.