Just like any game, a it would make a mediocre movie at best. It'd probably be the highest grossing VG movie ever, but also the most expensive VG movie ever. To make a decent profit on it the studio who finances the movie will need a cut of the merchandise and DVD sales.
O'connor is a bit ignorant here. There are plenty of movies that don't bomb at the box office, but are totally reliant on the DVD, lisencing and and mechandising to make a profit. Prince of Persia did very well at the box office (world-wide gross of $335 million) but fell about 20 million short of turning a profit at the box office. So merchandising and DVD/BD sales are going to be essential for the movie to make a profit. I'd say it will make a profit in the end, but only just.
The problem with the bean counters and lawyers was that they looked at the numbers and they came up short at projected box office takings, meaning the studios couldn't take up the movie unless MS was willing to cut them a decent deal on the merchandising. MS was probably wanting all the mechandising for themselves. After all there's no sense for MS in making any movie unless MS profits decently from it (and rightly so).
Because everyone wants to profit and no one wants to lose, getting ink on a contract is going to be tricky.
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