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Kirkland, Washington, USA. A short walk from their regular office, a ragtag bunch of game developers in the employ of Microsoft Game Studios fills an auditorium. Harold Ryan, the studio’s head, takes the stage, revealing a PowerPoint presentation. He clicks his clicker, and the first slide appears: ‘Bungie: a Microsoft Game Studio’. Smiling, he presses the clicker again, and almost instantly cheers erupt from the crowd as the throng jumps from its seats. The words that caused the commotion? ‘Bungie: an independent studio.’

It may be a picture covered in Hollywood schmaltz, but it’s nevertheless the true story of exactly how Bungie’s execs communicated their plans to the studio staff – and a very telling one at that. Because despite a huge range of achievements under their belts – creating one of the biggest gaming franchises of all time and almost single-handedly defining and supporting a console – the thing that matters most to Bungie’s staff is Bungie itself.

When the news trickled down to the rest of us, it caused more of a storm with consumer media than any studio deal of recent times, not to mention within the industry itself. Why would a studio want to leave the financial security blanket of a corporation like Microsoft? Why did Microsoft let them go when the Halo franchise (with global sales of Halo 3 at $200m and climbing) and Xbox 360 are at the top of their game?

To shed some light on the deal, as well as explore what the rest of the industry might learn from such an emancipation, we spoke to Bungie studio head Harold Ryan shortly after the announcement to discover the real reason behind the parting.

So why has Bungie divested from Microsoft?

Well, when Bungie was acquired into the games group at Microsoft, that group itself was evolving and growing. One of the first things they tried after acquiring Bungie, after first attempting to fully assimilate them, was to move Bungie into a standard Microsoft building with the rest of the game group.
But unlike the rest of the teams they’d brought in previously, Bungie didn’t move into Microsoft corporate offices – we tore all of the walls out of that section of the building and sat in a big open environment. Luckily Alex and Jason [Seriopian and Jones, Bungie’s founders] were pretty steadfast at the time about staying somewhat separate and isolated.

After we finished Halo 2 we moved out into our own building in Kirkland, which is culturally a more upbeat kind of place – it’s got a good variety of clubs and restaurants and things to do around it, less clean and ordered than Microsoft offices. Our studio is more of a chaotic organisation of disciplines as we shift around – we have all our desks on wheels, so we shift around as we need to during a project.

Was that move a first step towards independence, or did you come to realise when you were there that it was an environment that better suited Bungie?

We were growing beyond our space, and where we were wasn’t serving our needs properly, so they had to build us out a new space anyway. As an evolving step, it was sort of like ‘hey, people will be happier if we had an environment that felt more like ours’. Looking around for locations, it was clear that some place with restaurants and bars around it would be much better for our team.

But at that time we didn’t design the building quite right to be an independent company – we didn’t have things like HR and finance offices in the building. It was a step in that direction, I guess you could say that once we got a taste of our own building and our own space where we had more control of things, it was pretty evident at that point that what we were really looking for wasn’t just our own office building.

What do you think are the core things that Bungie gets from becoming an independent again?

It’s not motivation as such, but it’s about the team’s level of excitement and level of ownership of what they’re doing. Everyone knew about the deal during Halo 3’s development, and I think it really made an impact on how invested people were in working for themselves. First and foremost, the first thing Bungie gets out of the deal is that level of investment from the employees.

In addition, while Microsoft has been a great partner for us – and currently we’re planning on them being a great partner in the future too – should anything happen in that relationship down the road, we do have the flexibility to pick the best partner for the company.

As I’ve said in other interviews, though, the relationship with Microsoft and the Xbox team is really good, and obviously we’ve spent the last seven years developing for the Xbox so we know it really well and I don’t expect us to change any time soon.

It’s easy to say that Microsoft gains better work from Bungie through this new relationship, but surely Microsoft has lost something – they previously had a world-class studio that they could call ‘their own’, a huge asset, and now they don’t?

Yeah, they’ve definitely lost something, but their goal has always been to have the right relationship with their partners. So to that end, having the right relationship with Bungie means there are more opportunities for us to both evolve the Halo universe and create new ones. Not that we couldn’t do that with Microsoft – they’re certainly happy to fund us to do anything – it’s just a matter of how creatively motivated the artists and designers are. Their level of happiness has a direct impact on the quality and engagement of work they do.

Bungie made the first move, right? How did Microsoft react to the proposal?

Their initial reactions were: ‘Oh, you have things you want to change about profit sharing, and the way the office works, or your control over marketing.’ We were very open to the discussion and, to their credit, they put a lot of time into those talks.

But they are a large company, so it’s not the easiest place to change things like, say, compensation for employees. They met the discussions along the way with openness, but they’d say: ‘Hey, I don’t think we can change any of this, but we’ll work on it.’

When it came to the actual conversations about us divesting from Microsoft, certainly there are people in the organisation who were dead set against it because they do see – as you made the point – that they had an internal, world-class developer. For the most part that was people we didn’t work with as closely in development – they were just looking at it on paper.

The main thing that has made Halo work with Bungie and Microsoft, and will make our relationship work, is the relationship itself. Shane Kim and Phil Spencer, who manage and run the division, are great people to work with. There are lots of people inside the organisation, from operations to test, that are so good to work with that they are our reasons to keep working with them.

People that are close, or have been close to the relationship, realise what kind of relationship it is, and they realise it’s not really a loss – on paper it may be, but I expect it to be a win-win for both companies.

Some Bungie staff have previously publicly said that you were always focused on the game at hand and not defining the Xbox platform. Did that cause tensions with Microsoft Game Studios?

There was, certainly from their point of view, the view that the sooner we did Halo 3 the quicker Xbox sales would spike. There were some concerns, but Microsoft were completely behind us in making Halo 3 the game it needed to be – even all the way up to Bill Gates.

Some Microsoft execs were nervous at first about not having a Halo launch title for the 360, but there were things that helped: when the PlayStation slipped its dates, for example, that took some pressure off. But all in all, the studio at Microsoft was fully behind us making the quality game we had planned to make.

Tomb Raider is quite comparable with Halo in terms of public awareness and cross-market appeal, and developer Core Studio ended up doing sequels until most of the original staff had left. Did you want to avoid that sort of situation?

Obviously Microsoft wanted us to make more Halo games. Both I and some of the more senior guys from the original Halo game have deep piles of game designs for the Halo universe that we are excited to build at some point. If the stars align and motivations are good and the platforms are right we’ll do them.

But, on the other hand, a lot of the staff here are fans of the original game or fans of the studio. We shipped Halo with 45 people and now we’re 115, so two thirds of the studio have only shipped one or two games in the Halo series. For the most part they came here because they were really excited to work at Bungie and in the Halo universe.

So from that point of view we don’t have a shortage of people happy to make Halo games, but obviously there are guys that have shipped Halo games for ten years, and they are definitely ready to work on new IPs or create new things. We’re actively engaged with the senior staff here on a couple of new IPs right now, but the team that can generate cool Halo games is still running full-speed as well.

I’m sure those senior Bungie guys will sit in as advisors – on pre-production, design review and polishing the game as we build it – but they won’t have to get their hands as dirty in the bits of pieces of the next couple of Halo games.

Marty O’Donnell [Bungie’s audio director] once described the Bungie culture as “a slightly irreverent attitude, and not corporate, bureaucratic or business-focused”. Can you survive as an independent studio responsible for its finances with such a carefree attitude?

I think the primary culture of the studio will stay that way. Your CFO can’t be carefree with financing, for example, so we’ve chosen people to balance that out but who understand that the primary aim of the company is to make the best innovative, creative entertainment possible. And if that means we’re a break-even company instead of a massively profitable company, then that’s where we’ll go.

We’re going to make the games that both gamers and us ourselves would want to play. If that makes us successful from a financial point of view then awesome, but we’re not going to do it the other way – target being profitable and see what kind of game we could make to do that.

I think our biggest risk at this point is that so many people want to join the company. I feel for our recruiting staff, because as soon as the announcement went out, the number of applications went up a hundred fold that day. It’s so hard when you find somebody not to take them on, but now we have so many people applying that we could probably hire too many people. So the biggest risk to us is probably growing too fast.

Were you keen to distance yourselves from Microsoft Game Studios?

We want to be seen as different from the other developers that publish with Microsoft. As far as we believe it, we make better games and they are better quality in user experience across the board. So a lot of our process is focused on iterating and doing our best work and ultimately you want to be proud of anything you put the Bungie name on. We want people to know that, as soon as they put the game on and our name rolls up, the game will be awesome.

The Bungie name has always been pretty prominent, though – the whole Halo community is focused around Bungie.net, for example. Have you been working on differentiating yourselves all this time?

Yes, differentiating ourselves was always something we wanted to push, and when the potential came up a few years ago for divesting we put more of a focus into pushing brand recognition.

While there are fans that go to Bungie.net, I think that six months ago 50 per cent of fans wouldn’t have known who Bungie were – but if you said Halo, or Master Chief, they’d know what it was. Of course, you could have a worse life than be associated with Halo, because it’s been amazing across the board. But we don’t want to end up as one of those actors that has the one role everyone remembers, and they can never imagine you doing anything else.

So the real push and challenge for us now – and it was the same as the challenge with making Halo 2 and 3 in matching the success of the previous game – is to take all the pieces that convey us, such as quality and user experience, and put that in the next games and new IPs we work on.

But surely being an independent means that it’s even riskier to try new IP?

Yeah, you have to be responsible for how you plan and model your funding. If you have one success and two failures, you’re dragging pennies out of the bank.

When this discussion started a few years ago, I sat down and came up with a cash flow model for the studio through the next five to ten years. What we are looking at is, well, our costs going up, planning where we invest in tools, and whether we’d look to better leverage outsourcing or downloadable content for a game, or other avenues to at least ensure you remain break-even in the off months between when you ship a hit. That’s definitely the first task for the studio: to get to a point where we are getting recurring revenue that keeps us break even.

But that’s part of responsible or solid planning. While we­­’re investing in new IP from a business point of view, we’ll definitely be focused on keeping the studio afloat, even if
we go two to three years without doing something great.

I’d really like to see more independent developers push the limits on what they do. I think we’ve set up a good model and I hope that 20 years from now people will look at Bungie as an independent developer as a goal for what they want to be.

So this move will see you exploring more avenues than you would have otherwise, because you need to keep afloat?

Absolutely. Part of what we get out of this, and what Microsoft gets out of this, is that it doesn’t let us get fat and lazy on Halo. Before, we could have just been the internal team in Microsoft that worked on Halo 3 and then said ‘Yeah, we’re working on Halo 4 and it’s out in a couple of years’. Just sat back, not worried on the progress made. But now it’s our company, it’s our dime, so keeping that loop of development on ideas and concepts, keeping the group that does that small, and not taking three months off because we’ve just shipped a game – that’s the creative energy now.

We’ve gone up a notch. People see the company as theirs to build and theirs to drive. It’s that level of excitement – there’s a business need for it, but the reality is also now people care about the finances. One of the blessings and curses of being at Microsoft is that we made a lot of money, but we were still just a drop in the ocean for Microsoft Corporation. There was no downside, other than being chastised or getting a bad review. People weren’t really afraid of what would happen if they failed inside Microsoft.

So, what’s next for Bungie?

It’s not like we’re worried about a bunch of doors are closing, but we’ll have tighter loops with our prototyping. During the development of Halo and Halo 2, we had other, non-Halo IPs in development and we killed those projects both times. Both teams were swallowed whole by the Halo team. With Halo 3, that was the first time we know that we couldn’t let that happen – it’s not an acceptable way out to add 20 people to the project by killing that prototype.

We kept that prototype running throughout the development of Halo 3 and now we have a creative team which feels like they own that.

We also have Halo DLC on the way, and a new IP prototype that we are very excited about. Then we have other Halo games that are cranking along also. So the end result so far has been exactly as it should have been – we’re happy, excited, and doing our best work on a path that lets us grow.

For more on the Bungie divestment and the studio's approach to audio, check out the two-part Marty O'Donnell interview here and here.

This article originally appeared in issue 78 of Develop, which will be available to download in PDF form until mid-December from here.