Mo, your theory is unlikely because both parties say the negotiations were unsuccessful - and without a contract there cannot be milestone payments.
Here is my guess.
I think PB started development on the add-on in good faith because it was the original plan. You need a stable code base for an add-on, so the bug fixing and some new patch content (or rather completed unfinished G3 content
) could have been budgeted together with the add-on. So far, so normal.
Suddenly JoWooD refuses to simply order an add-on because one year for the add-on and another 2.5 for the next game would get them too far into the current console cycle. They insist on speeding console development up: Forget the add-on, make a multi-platform G4 now. PB´s engine is PC-only? Ups. Okay, then license some middleware? No, PB has their own technology which is stable after another 6 months of improvement. PB knows it and has already made every possible mistake, which makes them optimistic to quickly finish the next game.
Possible compromize: PB makes the add-on and simultaneously co-produces an external console Gothic. Sell their baby? Unacceptable.
Last straw: 2 projects: add-on and G4. Maybe multi-platform is possible then, but PB needs to hire another 20 developers. This increases the budget to a level JoWooD thinks is impossible to recover. Eastern Europe is so much cheaper.
As it becomes clearer that the negotiations lead nowhere, PB phases out patch development and even stops all specialized work on the G3 add-on. Instead they do general things like improving the engine, creating better tools and concentrate on assets they can certainly use for their next project. In the background they establish contacts to other publishers and think about their exit strategy.
Today the bomb drops and both parties try to draw the fan base to their side because it´s an asset in the upcoming negotiations. JoWooD will probably try to buy the Gothic brand and the source code, if they don´t already own it. That´s necessary to avoid a lawsuit and to make sure PB doesn´t release Gothic 5 before JoWooD can finish Gothic 4 - or do they seriously believe, a 3rd party can create a new Gothic faster than PB?