Halo movie, a new book by Jamie Russell, Generation Xbox: How Videogames Invaded Hollywood, revealed why the film was never produced. In short, Microsoft refused to play ball with Hollywood, due to their "unfamiliarity" with the studio system.
Microsoft had a screenplay written by Alex Garland, best known in the genre for 28 Days Later. According to Russell, “Next, it was a case of setting up the auction. Peter Schlessel, the former president of production at Columbia Pictures, was one of the main negotiators in the Halo movie deal and served as Microsoft’s Hollywood liaison."
Things moved forward from there, as Microsoft looked for the most lucrative rights deal in film history, pre-Harry Potter. However, Microsoft's hardheadedness doomed the deal.
“Microsoft, a global software giant used to getting its own way, wasn’t about to kowtow to Hollywood," reported the book "It knew Halo was the jewel of videogame movies, the one that could be a true blockbuster hit. According to Variety, Microsoft wanted $10 million against 15% of the box office gross, in addition to a $75 million below-the-line budget and fast-tracked production.”
Microsoft's “unwillingness to reduce their gross in the deal meant it got too top-heavy," stated Larry Shapiro, who was involved with the failed deal."
"That movie could have been Avatar," he added.