Sep 24, 2010 17:21 GMT  ·  By

Sources that are close to Lionehad have reported that Project Milo, the first piece of software which was originally linked with Kinect, aka Project Natal, has now been canceled with 19 contractors at the developer having been let go as a result of the decision.

Eurogamer has reported the news, saying that the team which was working on virtual companions Milo and Kate would now move on to the Fable franchise and would create a new title, using the Kinect motion tracking system for the Xbox 360, which will be published exclusively on the Xbox Live service.

Both Lionhead and publisher Microsoft have responded in their usual manner, stating, “Microsoft does not comment on rumour or speculation.”

Development on Milo and Kate seems to have started soon after the first Black & White was finished, at some point in 2001, with the idea being to create a more real and emotional Artificial Intelligence.

The demonstrations of Milo and Kate made when Project Natal was initially announced involved a lot of interaction with the character, who was able to introduce itself to gamers, recognize differences between them and interact with virtual objects that were drawn and then scanned with the Natal camera.

Initial signs of trouble linked to Milo and Kate appeared in June, when the game was not present at Microsoft's extensive E3 presentation.

Then a Microsoft executive said that it saw the Lionhead project more as a demo of the possibilities being introduced by Kinect, with the main draw being the range of interaction options introduced.

Peter Molyneux, the leader of Lionhead, then appeared at a TED conference mentioning that the game was still in development and would be launched on the Xbox 360.

Still the developer admitted that it was hard for him to actually convince marketing minded executives about the fact that Milo and Kate could actually draw in an audience that otherwise is not interested in video games.