Microsoft Corp.’s full-length, Hollywood-style movie based on the next “Halo” video game will skip the big screen, streaming instead on Google Inc.’s YouTube before heading to store shelves as a DVD.

The Redmond, Washington-based maker of the Xbox console, promoting the November release of “Halo 4,” has taken the unusual step of creating its own 90-minute movie, at a cost of almost $10 million.

Microsoft (Nasdaq: MSFT) plans to release weekly installments of “Halo 4: Forward Unto Dawn” on the Web before offering the game and DVD, a move that highlights the influence of new media, including promotional options and the ability to cut out traditional channels like theaters. The film airs starting tomorrow in five 15-minute segments on the YouTube channel Machinima Prime, leading up to the game’s debut on Nov. 6.

“We’re either the best-funded Web series of all time, a sort of mid-road healthy TV pilot, or a super-low budget movie,” director Stewart Hendler said in an interview.

The clips of “Forward Unto Dawn” will stay online through Nov. 23, then disappear until Dec. 4, when a Blu-ray disc goes on sale that includes an added 15 minutes, for a suggested $28.99. The film will also be available for download from Apple Inc.’s iTunes, Microsoft’s Zune Marketplace and other online movie stores.

Microsoft almost didn’t make a “Halo” movie. In 2006, the company shelved plans for a live-action theatrical release with Universal Pictures and Twentieth Century Fox over financial concerns, Variety reported at the time. The trade publication put the budget at $135 million.

Seasoned Director

After the stumbles in Hollywood, Microsoft began financing and distributing short videos and animated films online, while selling rights to make novels and comic books based on “Halo.” For “Forward Unto Dawn,” the company hired Hendler, whose directing credits include the horror movies “Sorority Row” and “Whisper,” and developed a script based on one of the novels and tied to the pending game.

While the production team hired the actors, Microsoft retained final say, including the decision not to use Steve Downes, according to Matt McCloskey, a Microsoft business director who manages Halo’s development. Downes’ distinctive voice as Master Chief in the games is known to legions of “Halo” fans.

By self-producing a movie and then releasing it both online and through traditional home-video outlets, Microsoft has carved a new distribution path, Laura Martin, a media analyst at Needham & Co., said in an interview. YouTube and other streaming sites traditionally show short-form video.

New Window?

“They’re basically replicating the traditional film-window strategy of movie to home video, but they’re releasing it on the Web,” Martin said. “With this experiment, they’ve now given us another window into, ‘What does the premium online content market look like?’”

At least two movies, “Girl Walks Into a Bar” and “The Princess of Nebraska,” made their debuts online before moving to home video, according to Chris Dale, a spokesman for Mountain view, California-based Google. Consumers who buy a limited edition of the video game will receive a free Blu-ray, McCloskey said, a tie-in that highlights the marketing possibilities for other videos tied to games.

Produced over five weeks last spring in Vancouver, the movie tells the story of an alien invasion that occurs 25 years before the original “Halo” video game, with a new hero called Thomas Lasky and appearances by Master Chief, the protagonist in previous games. Actor Daniel Cudmore, who played Colossus in two “X-Men” movies, dons the armored suit of Master Chief.

“The Web world is making everybody that works within it think outside the normal pattern of film development,” Hendler said.

New Studio

Microsoft released the first “Halo” title in November 2001.

“Halo,” exclusive to the Xbox, ranks among the 10 largest-grossing video-game franchises of all time, selling tens of millions of copies, according to Michael Pachter, an analyst at Wedbush Securities. The franchise has generated more than $3 billion in revenue, according to Microsoft.

Microsoft has a lot at stake with the next installment, said Pachter, who is based in Los Angeles. “Halo 4” is the first title in the franchise to be developed by 343 Industries, the Microsoft-owned studio that was tapped in 2007 to oversee the property after its creator, Bungie Studios, became independent and signed a 10-year publishing deal with Activision Blizzard Inc.

With “Halo 4” and the accompanying movie, 343 Industries aims to draw a broader science-fiction audience, Microsoft’s McCloskey said.
“You see something that looks like a video game, you’re going to get the same crowd you always get,” McCloskey said. The movie is “not simply a marketing vehicle, though. It is in and of itself a standalone property.”