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Understanding the Legal Impact of Publishing Your Game

May 8, 2012 Article Start Page 1 of 3 Next
 

[Jovan Johnson, a California attorney and partner at Johnson & Moo, examines the important legal issues that may arise when you sign your mobile game up with a publisher for distribution, and explains how you can take steps to insulate yourself from negative outcomes.]

You're a developer with a fun game and a publisher is showing interest. You presume this publisher knows the market's pulse and has resources you don't. Signing a publishing agreement seems like a no brainer -- and it is. Or is it? Not so fast! There are a number of things you must understand before moving forward.

What is the Publisher Offering?

The publisher's main goal is to promote your game and sell units. To accomplish this goal, the publisher may provide tips to improve your game. Many developers might have a negative reaction, but this advice should be considered. The publisher may not share your creative aspirations, but it does share your financial aspirations.

The publisher should also generate media coverage and consumer interest in your game. You can probably count on a PR campaign. If marketing dollars are promised, the contract should make clear the amount of money being spent and authorized marketing channels.

The publisher should not promise a particular sales figure because results cannot be guaranteed. Anything beyond a promise to work hard to promote your game would raise red flags for me.

What Do You Give Up?

You and the publisher will split revenue and you also give it control over marketing. Your revenue split will probably cover all variations of your game, including ports and sequels. While I wouldn't normally be comfortable with one of my clients giving the publisher more than 40 percent of the income, there are circumstances where going beyond 40 percent makes sense. Ideally, I like to see the publisher agree to take no more than 25 percent of the income.

Example: I was counsel on a deal that involved a new mobile publisher who proposed splitting revenues 50 / 50 with the developer. The developer was not yet established, and so was comfortable with that split. Luckily, it turns out the publisher planned to spend $40k marketing the game! In that case, a 50 / 50 deal made a lot of sense. Not only did the publisher's ample marketing budget allow the game to be marketed properly, it also provided vital corporate PR for the game studio.

Your revenue split with the publisher is based on net income, which is gross income minus expenses. The app store's 30 percent is an expense that will be included in all net income formulas. What other expenses should be included? Record companies typically recoup all of their expenses before paying recording artists. Mobile game publishers cannot function that way because game studios need operating capital for patches and other updates. Net income must be defined so that your studio has adequate operating cash while accounting for the publisher's need to recover out-of-pocket expenses.

Unless you have leverage, the publisher makes final decisions on media outlets, marketing agency, and maybe even the footage used in the trailer. Regardless of decision-making authority, your contract should state that you own all slogans, images, and trailers created to market your game.


Article Start Page 1 of 3 Next

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Comments


Andrew Grapsas
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I'm more interested in how one would structure contracts when no money is changing hands -- as happens with indie development, frequently. How do you say to the artist, "Hey, you're not going to make as much as the programmer, if we make any money... ever."

Douglas Gregory
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If you can't pay them (starting immediately), don't offer them a contract. If you're not ready to pay, you're not ready to hire.

Free work now with the remote possibility of profit in the future is not a business model.
(Speaking as a former, paid, employee of an indie studio)

Andrew Grapsas
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Sure, it's not a business model; but, collaboration happens, and it happens when the group can't afford to pay the individuals. Not everyone can have an equal stake in the product, that's the reality.

Saying, "Don't do it!" isn't going to stop people from having side projects that can and will become successful. This isn't necessarily not offering them a contract or offering them a contract, I'm not talking about hiring someone. I'm talking about managing the results of success before success occurs without having anyone be employed by the company.

Not having a contract, I'd think, would be just as bad as having a poorly written contract.

Damien Ivan
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You don't have a contract unless there is an offer and an acceptance. If you don't offer your artist anything (doesn't have to be money), there is no contract.

http://en.wikipedia.org/wiki/Offer_and_acceptance

Kenneth Blaney
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Only way to work that is to establish a salary for everyone and then used the owed salary as shares of the project's revenue. You can also include initial outlays with this model also. That said, doing this without proper legal advice is not a good idea. The alternative is you offer someone a fixed price, but they get paid before you would as the owner. (Being incorporated helps in that case.)

Bisse Mayrakoira
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I agree that is interesting. If you have a small team of people working on something for fun for a year, with no clear division of labor or ownership of particular parts of the product, then a part of the team wants to go further with it and make money, how would that work?

Jeffrey Crenshaw
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"The publisher's main goal is to promote your game and sell units."

False. The publisher's main goal is to make money. For themselves and their shareholders. They may hinder sales of your game after agreeing to publish it if they feel it could cannibalize sales of another game that is more important to them. They may even cancel your game (or at least the funding/marketing of it) if the economic climate at a later date decides it is in their best interest. That selling your game is generally aligned with the publisher's interests is absolutely noteworthy, but it is also noteworthy to point out the hyperbole in calling that the publisher's main goal.

"The publisher may not share your creative aspirations, but it does share your financial aspirations."

Absolutely false. The publisher does not share your financial aspirations. The publisher wants 100% of the money for the product. You do too. Your aspirations are polar opposites. You are by the very nature of business direct competitors. Sure you will settle on a contract that seeks to balance these two desires, but viewing publishers as "sharing your financial aspirations" is incredibly optimistic. Go through studio shutdowns and project cancellations where the publisher feels it would be better off financially by courting another of its harem and you will see this first hand.

"Instead, arbitration should be THE ONLY acceptable venue for resolving disputes."

Are you sure? Research has shown that binding arbitration helps the larger player as they have more money and thus the arbitration party (which is generally a for-profit organization) has financial incentive to side with whoever has the most money to keep them coming back. Here is a short hand article about the study: http://arstechnica.com/tech-policy/news/2007/09/consumer-group-bl
asts-binding-arbitration-clauses.ars, and here is the study's full results: http://www.citizen.org/documents/Final_wcover.pdf. The study is talking about consumers versus large companies, so maybe the imbalance isn't as bad as a small developer versus a small publisher, but it seems like something to look out for since the publisher's relationship to developers is many to one, so they are likely to be the returning customer that the arbitrator wants to please.

Thanks for the article though, it was informative and a good broad introduction to various aspects of contracts. I do want to say that I think the publishing model is a long term moral hazard and people should avoid it as it tends to give power and wealth to people who don't directly create equivalent wealth for society, but I won't get into detail here (unless asked) and simply say that the publishing model can work if we can evolve to a form of capitalism beyond the cutthroat win-at-all-costs run-labor-into-poverty version we have now. Just view publishers with the trust of a neutral arms dealer selling weapons to you _and_ your enemy if you must work with them at all.

Jordan Blake
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I don't really have much input for this lengthy post, but I'll just chip in that when the writer said "shared financial aspirations", they were most likely referring to the common goal of making as much of a profit as possible.

Jeremy Choo
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Jordan Blake,

You might have similar goals; but that's not much of 'sharing same aspirations' if part of the process of earning as much is to make sure you have lesser. As what Jeffery mentions about Cannibalization, sometimes, killing your title gives them a better edge.

I'd 100% agree with Jeffery's analogy that they are pretty much an arms dealer that sells weapon to you and your enemies.

Jonathan Lourie
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Nice article. I do not agree, however, that arbitration is necessarily the only option. Arbitration is a scheme to reduce the number of cases in court but speed (which may not be the case) does not translate to fairness. First, it all depends on the quality of the arbitrator, which while you in theory get to pick, does not ensure that your arbitrator will be able to understand or be willing to take the time to address the issues in dispute. The game industry is a unique industry which frankly will not be understood by most of the arbirators who will be proffered up by the AAA. Second, arbitrators do not have to follow precedent or the law and the decisions they make are not reviewable (unless you provide for this). If a participant feels they have been treated unfairly, tough luck. Third, the costs of arbitration while less, can have a greater impact on the cash flow of a developer because they are squeezed into a shorter time frame. Fourth, a game developer may be faced with having to run a dual process anyway, if it has to go into court to obtain an injunction. I could go on but suffice it to say I have yet to see an arbitration the process was satisfactory (winning aside) and I have talked with a number of litigators who have yet to disagree.

Epona Schweer
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"You and the publisher will split revenue and you also give it control over marketing. Your revenue split will probably cover all variations of your game, including ports and sequels. While I wouldn't normally be comfortable with one of my clients giving the publisher more than 40 percent of the income, there are circumstances where going beyond 40 percent makes sense."

Lets not set developers up for this again. We've had 20 years of that kind of publisher driven model and we're not exactly happy with the state of the industry because of it.

Telling developers that they should listen to what the publisher advises them, hand them control over their marketing message and dominate any relationships with the player/customer is going to generate co-dependent relationships that always turn out in favor of the publisher.

Activision. Just think Activision. Do we really want more of that?

When the majority of developers starting independent studios are new to the biz dev side of things we should be educating those startups in how to reach customers and provide value ON THEIR OWN.

Not advising them to sever their connection to the player and sign away half their revenue to a publisher who may or may not give a shit about the kind of people they're making games for.

Akshay Padukone
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This is quite an interesting post. Speaking of contracts can anyone help me with an example / a draft version of publisher's agreement for a mobile game? If it's possible, please, send it to me on akshay@saitechinteractive.com .

Thank you in advance for any help.

Thank you & Regards,
Akshay.


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