Modern Problems

As I said, publishers are not the business of just selling games; they are in the business of making money. Any time a new or unusual revenue stream comes into play, it is the publisher who initially benefits. This includes anything from lunch boxes and action figures to movie rights. For example, when in-game product placement began, developers rarely saw any part of these revenues... at least until they started asking for it.

The same thing occurred with in-game advertising. Again, this was additional revenue to the publisher long before developers ever saw any share of it. But as the development community became aware of these revenues, developers started asking for, and getting, their piece of the pie.

Developers owe it to their own success to be aware of and always seek to participate in these new inventive ways to commercially exploit the games they make. When negotiating your deals, always push for an even split on these ancillary revenues.

After all, they do not have any of the risks or costs associated with their distribution of the game itself. No funding, no marketing budget, no manufacturing costs, no distribution costs and no platform license fees. Just third party deals that bring in revenue outside of the traditional distribution channels.

Sublicenses are Ancillary Revenue Too

I always attempt to apply the same revenue model to sublicense deals as well. Although most major publishers now have direct distribution worldwide, often second-tier publishers only distribute the game in one territory -- but secure worldwide rights. Then they sublicense the game in other sub territories.

On these deals the regional sublicensed publisher often provides an advance to the publisher for the right to sell the game in that territory and gets a localized version of the master. In effect, they assume all of the marketing and distribution risks for the game in their territory. But instead of getting the negotiated royalty rate in these sublicensed territories, the developer only gets a percentage of the net received by the publisher -- that is, a percentage of a percentage.

For example, if sublicensed distribution deal is at the same rate as the primary distribution area, the developer takes a huge cut. At a 25% royalty for a game that, after allowed deductions, nets $24, the developer would get $6.00 royalty per unit. But in with a 25% sublicense, all other things being equal, the developer ends up getting only $1.50 per unit, and that’s assuming that the game sells at the same price point. Ouch!

The publisher, however, has none of the marketing or manufacturing expenses that it has in the core territory where it actually manufactures, markets and distributes the game. Often second-tier publishers actually generate more revenue from these sublicenses than they do from direct sales, but with little or no risk or expense.

So, if there is going to be any sublicensing, do your best to carve it out and get it treated just like any other ancillary revenue. Go for the same 50/50 split you should be pushing for with any other the ancillary revenue, and for the same reasons.

It All Starts at 50/50

So, always look for additional ways that your game might be being monetized. Think about what risk these revenue streams pose to the publisher. If there is little or no risk involved, press for a higher royalty rate on these revenues. Your publisher may not like it, but there is a valid logic to this arraignment and a strong argument in favor of it as well. You may not get it, but it is sure worth asking for. And one thing is for sure with publishers -- if you don’t ask, you don’t get.

(© 2008 Thomas H. Buscaglia. All rights reserved.)