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One of video game’s pioneers, Brian Fargo went into exile as the longtime company he created foundered earlier this decade. But he’s back with his own game studio, inXile Entertainment, and is announcing today a major new fantasy role-playing game.

Fargo is announcing Hunted: The Demon’s Forge, which he calls the “re-imagining of the classic dungeon crawl.” The game uses high-end graphics and lets players explore a dungeon cooperatively, playing alternatively a big brawling swordsman or an elf-like archer woman.

“The idea is to get lost in a classic dungeon world built with the latest graphics technology,” Fargo said in an interview last week at the Game Developers Conference.

The ambitious new “dark fantasy” game will be published by Bethesda Softworks on the PlayStation 3, Xbox 360 and the PC. It brings Fargo full circle to the fantasy RPGs that he and his teammates have been known for.

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In 1983, Fargo started Interplay Productions in Orange County, Calif. The company published classic fantasy games such as The Bard’s Tale and Wasteland through Electronic Arts and then became a publisher in its own right. From 1988 to 1997, the company had a long streak of hits, from the Star Trek series to Baldur’s Gate and Descent. But as game budgets rose, so did some of the risks. One of the company’s failures was Stonekeep, a pioneering fantasy game that took five years to make but never lived up to the original expectations. Fargo managed to take the company public in 1998, but ran into trouble on some ambitious games.

In 2001, a French company, Titus Interactive, took majority control and Fargo left in 2002. That’s when he started inXile Entertainment. By 2004, Interplay had collapsed. Its game franchise properties are still being published or shopped around. The biggest of those is Fallout, which Bethesda took over to great success.

Meanwhile, inXile has built itself up into a big studio. It has worked on smaller titles such as web and iPhone games to get a feel for the new age of gaming. But it has also published titles such as a remake of The Bard’s Tale. The company has 70 employees, 50 of whom are working on the new game. Bethesda has bankrolled the game, which has been in the works for two years.

But with Hunted: The Demon’s Forge, inXile hopes to establish itself as a major player in the third-person action-adventure role-playing game space. The game uses the Unreal 3 engine for its graphics and has high-end game features such as physics, dynamic lighting and movie-like cut scenes that today’s audiences expect.

Kaufman describes the game as a story of sacrifice and addiction, with two bantering heroes at its center. One level starts in the ruined town of Diford, where you find evil creatures have killed or enslaved the population. The elf woman, E’Lara, says the “air is thick with death” as they enter the town. And then, of course, it gets thicker. E’Lara shoots arrows and casts spells from afar, while her colleague Caddoc closes in for melee. One of the characters is controlled by the player, while the other is controlled by the computer. You can switch between them in between levels. And you can play cooperatively online if you want. The action is fast and furious, and it has movie-like production values. As such, it should be competitive in a market full of big fantasy role-playing games.

In each level, the duo seeks out crystals which they can trade in for different skills, such as the ability to levitate enemies above the ground while the other attacks them. The game terrain isn’t restricted to dungeons. There are giant outdoor vistas where you fight gigantic enemies. All the while, you are solving puzzles like figuring out how to take out an enemy by knocking down stone towers on them.

“Our goal is to push the experience on the next-generation consoles and the PC as far as we can,” Fargo said.

Fargo said the company has been thinking about the game for more than a decade.

“It’s sort of like what we wanted to do with Stonekeep, only in 3-D,” he said. Check out our video interview with Fargo below.

[youtube=http://www.youtube.com/watch?v=IlWQ7oPRl-E&w=480&h=385]

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