The film, whose budget was rumored to be heading toward the $200 million mark, had the studios demanding a pay cut from the producers and from Microsoft. Ken Kamins, who is the rep for both executive producers Peter Jackson and Fran Walsh explained in detail:
"What happened was this: Universal, on behalf of both studios, asked for a meeting with the filmmakers just prior to the due date of a significant payment. Basically, they said that in order to move forward with the film, the filmmakers had to significantly reduce their deals. They waited until the last minute to have this conversation. Peter and Fran, after speaking with their producing partners and with Microsoft and Bungee (the studio that designed the original game), respectfully declined."However, fear not little soldiers, because Variety claims that Microsoft is already in talks with other distribution partners and that pre-production on the film continues at Jackson's Weta Digital and Weta Workshop in New Zealand. The film is also rumored to have Denzel Washington attached to play the part of Master Chief, as the AP reported in July that Washington met with Jackson in New Zealand to discuss working on an undisclosed film.
There have been some successes with video games turned into feature films (the Tomb Raider series is a good example) and with Peter Jackson and his substantial creative clout, we rather expect that this film will not only see the light of day but be a HUGE success. If that happens, expect the video game to film genre to really take off as Hollywood scrambles to cash in on the trend.