Tom: Foreign Language Translations
- The games were to be delivered in English and also in eight foreign
languages, with Activision supplying the translated voice and text and
the developer incorporating them into the games for the localized
versions (9.1). Additional localizations would be paid for by
Activision at a negotiated price not to exceed $10,000 each (9.2).
Chris & Dave:
Developing eight language localizations in double-byte enabled code is
expensive. Spark is required to provide these localizations at no
extra cost, so presumably Spark factored in this expense when it was
negotiating the advances.
Tom: Advance Payments
- Activision was to pay a total non refundable, fully recoupable
advance of $8.5M US for the initial game, as set out in Exhibit A., the
Milestone Schedule, and then negotiate in good faith the advances for
the second and third games. But the advances for each of the second and
third games would not exceed the advance paid on the initial game
(10.1).
Chris & Dave:
Section 10.1 sets a maximum on the advances, but no minimum. If the
parties have a good relationship, then this is not a problem. But if
the relationship is rocky, negotiating a large advance for the next
game could be more difficult.
Tom: Additional
advances could be added to the recoupable advances to be deducted from
the Developer’s royalties if Activision had to pay another developer to
provide work on the Games (10.2). The negotiation for the advances for
the second and third Games will commence eight weeks prior to the
completion date for the game then in development.
If
the negotiations can not be completed in time, Activision agreed to
make “bridge funding” payments, deemed Additional Advances on the
future games, to allow Spark to retain its key personnel and maintain
operations through the negotiation period (10.3). All Advances were
fully recoupable from developer’s royalties and cross-collateralized
across all platforms for each Game. But Advances can only be recouped
from the royalties from the Game for which they are advanced (10.4).
Chris & Dave: The
definition of “Advance” includes licensing fees paid by Activision to
license third-party software and all of Activision’s costs to complete
development. Part of Spark’s complaint is that these costs were
substantial, and in Sprark’s view, excessive.
Tom: Royalty Rates
- There are escalating royalties for each sold, or licensed, Game units
from 20% up to 35% with 5% increase at 1,000,000 units and each
1,000,000 unit level thereafter up to 3,000,000+ (11.1). The “Adjusted
Gross Invoice” amount is defined as the gross amount from sales and
licenses, less the usual taxes, customer reimbursements, promotional
amounts for discounts, rebates ad promotional allowances known at DFI
(Deductions from Invoices) and coop (Cooperating Advertising
Expenditures), cost of goods, first and third party royalties and
license fees, returns, price protection and the return reserve.
Chris & Dave:
These broad carve-outs from the definition of net sales significantly
reduce Spark’s chances of ever seeing any royalties. Many developers
try to avoid or limit co-op advertising and other marketing expenses
because they can be significant and virtually anything can be
classified as marketing (if it’s not classified as part of the Cost of
Goods).
Tom: “Cost of Goods” is
defined as the cost of materials, manufacturing, packaging,
replication, and delivery, including freight and fulfillment charges
(11.2).
Chris & Dave: This definition is typical, but some developers negotiate a fixed or maximum deduction for the Cost of Goods.