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Game Law: Development Contracts And 'New' Revenue Streams
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Game Law: Development Contracts And 'New' Revenue Streams

January 10, 2008 Article Start Page 1 of 2 Next

Let’s start with a few basic concepts. Developers make games. Successful developers sell their games. Publishers are the vehicles through which developers sell their games. Too often a developer says, "We just want to make great games" while the publisher says, "We just want to make money."

Unfortunately, that is all too often the result. The developer makes the game while the publisher makes the money. Why? Because the publisher is in the business of making money, not just in the business of selling games. That means maximizing their revenue from the exploitation of all aspects of the games they sell. If a developer believes otherwise, even if the developer makes money, they may well be getting the short end of the whole deal.

Clever Businesspeople

There are some things that publishers excel at and one of them is coming up with new and innovative ways to commercially exploit games. This means more revenue from the games we make. Of course, we have to be savvy enough to ask for our share of this additional ancillary revenue to get some.

Often the developer is so focused on getting a publisher to sell their game that all they look at are the royalties from game sales. If all the developer asks for is a portion of the revenue from the sales, what’s all they’ll get, regardless of how much ancillary revenue a game generates. And publishers are getting really good at finding innovative ancillary revenue streams from the games the sell.

A Case Study

A developer I met at GDC contacted me a few months ago. They needed my help on a publishing deal with a major publisher. These guys had been doing licensed games for years and making a decent living doing it. Now they had a shot at releasing their own original IP.

The publisher wanted the game to add to their portfolio for presentation to the press at E3. And they were willing to do the deal allowing my client to retain ownership of their IP with a favorable royalty rate on sales. Tentatively, a really good deal. So, it came to me to review the contract and see what I could do to earn my fees by making this deal as sweet for my clients as possible.

As expected, there were some of the usual "minor" issues with the contract that had to be addressed, and a few twists. Although the royalty split as acceptable, there was mention of the publisher’s right to exploit several additional potential ancillary revenue streams with no participation by the developer. In-game advertising, for example, was included with no revenue split.

There was also a vague reference to the publisher having a right to B2B relationships relevant to the game, but no description of exactly what that meant. When pushed for the details of what sort of B2B deals they might be looking at, the publisher just danced around any meaningful answer. Of course, this sort of behavior made me even more suspicious that this might represent a clever new revenue stream from the game. Call it my jaded lawyer’s suspicious nature.

Eventually, through some rather persistent negotiating, we were able get the publisher to agree to pour any in-game advertising and any B2B revenue into the revenue pool. I pushed for a straight 50/50 split on this ancillary revenue because, in effect, this is found money for everyone involved. And as my old buddy, super agent Barry Friedman, likes to say, "All deals start at 50/50!"

But, the publisher held firm to applying the same royalty split to all revenue from any source. But just in case the publisher found any other way to exploit the game that was had not covered, I also include in the contact a "catch all" provision pouring any and all revenue from any commercial exploitation of the game from anywhere into the royalty pool to be split with the developer.

Of course, there is always the accounting of these revenues later to be dealt with -- maybe even an audit or two. But this could ultimately mean a significant amount of additional money for the developer.


Article Start Page 1 of 2 Next

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