Microsoft will own part of the new company and will continue its publishing arrangement for Halo and other titles.

The announcement comes on the heels of news that Halo 3, the latest in the Halo series, took in $300 million in global sales through its first week. Microsoft said that this makes Halo "the fastest-selling video game ever and already one of the most successful entertainment properties in history."

Split Instigated by Bungie

Bungie Studios head Harold Ryan said that his company will continue to develop titles "with a primary focus on Microsoft platforms," although Bungie has also reportedly said it would, at some point, have the right to develop for other platforms. Microsoft corporate vice president Shane Kim said the company would continue to invest in Bungie projects, such as a new Halo-based interactive series involving director Peter Jackson.

Bungie's Ryan, in an interview with the New York Times, addressed the question of why Bungie and Microsoft would split apart exactly at the point of their greatest collaborative success. He told the newspaper that Bungie employees had an "emotionally creative point of view" and wanted to work for themselves.

Microsoft's Kim told the Times that it was in Microsoft's "best interest" to support Bungie in its desire to become independent once again.

Michael Gartenberg, an analyst with industry research firm Jupiter Research, said that good creative people "are hard to keep," so, when Bungie decided to split off, Microsoft made the decision to keep them happy.

"A lot of folks, like Bungie, prefer to be part of a smaller company," he said, adding that it is a loss for Microsoft because the studio has been "really good at creating great titles" for the Xbox. But he predicted that, at least in the short term, there will not be much impact on the Halo franchise.

'Total World Domination'

Founded in 1991 and purchased by Microsoft in 2000, the Kirkland, Washington-based Bungie has said that since its inception, it has had two simple goals. The first is to create games that "combine brilliant technology, beautiful art, intelligent stories, and deep gameplay." The second is to sell enough of those games to achieve "its real goal of total world domination."

Bungie's success in reaching the first goal is dependent, of course, on personal taste and critical assessment, but the second goal is apparently within reach. The Halo series alone has sold nearly 15 million units worldwide, has caused players to log about a billion hours hunting the Covenant on Xbox Live, and has given birth to action figures, clothing, books, and a rumored upcoming feature film.

In addition to creating Halo, Bungie produced the well-received Marathon game trilogy and the first two Myth games.