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A data-driven primer for publishing agreements

A data-driven primer for publishing agreements

August 6, 2020 | By Alissa McAloon




Kellen Voyer wants to help indie devs better understand what they’re looking for in publishing agreements.

Voyer, himself a lawyer with a background in video game deals, tells GDC Summer attendees that, as it is, indie developers are at a double disadvantage when it comes to negotiating publishing agreements thanks in no small part to a lack of free flowing data about those deals.

“As part of this work helping our clients negotiate these agreements, I’ve realized that developers are at a two fold informational disadvantage,” explains Voyer. “First, they don’t know what key publishing terms mean. The second is that developers don’t know what is standard and what is not standard.”

Developers usually end up turning to fellow friends in the industry to find out if that ‘standard clause’ is actually a standard clause because so much of that data is shrouded in mystery.

Aiming to demystify that and give developers a better source than phoning a friend, Voyer collected data from 30 publishing agreements for a variety of non-mobile indie games to give developers an idea of what other teams are agreeing to in terms of advances, revenue share, IP ownership, and more.

(As a note on methodology, Voyer says that the 30 agreements cover indie game deals across most platforms, but exclude porting projects, localizations, and mobile titles since those deals tend to vary quite a bit from the norm.)

In short, an incredibly average publishing agreement for an incredibly average game should, according to Voyer's dataset, include a $318,000 advance paid out in milestones, with both the developer and publisher receiving a cut of revenue even before that advance is recouped.

Right away, that deal splits revenue 40/60 in favor of the publisher but, once the publisher recoups its advance, inverts to 60/40 in favor of the dev team. This hypothetical developer retains all rights to their incredibly average IP in a deal with a term of 6 years, includes an audit right, and allows the publisher to set pricing but restricts when they can set up discounts or game bundles. 

So, to dig into the data powering those averages, lets take a look at the numbers and advice shared in his full GDC Summer talk, category by category: 

Advance

  • The average advance to fund a game is $318,000, including both advance and no advance deals
    • Counting only deals with an advance, the average amount is $460,000
      • Lowest advance: $100,000
      • Highest advance: $2 million
    • 18 percent of the agreements had no advance, likely due to higher revenue share
  • 68 percent of deals pay advances in multiple milestones
  • 32 percent of deals pay in lump sums, more likely in cases where platform owners are trying to attract more users
  • 81 percent have advances that need to be recouped
  • 42 percent of deals require advances to be recouped before developers see a single dollar
  • 58 percent see the advance recouped while both the developer and publisher receive revenue share

Voyer's advice: Don't agree to deals that require a full recoup of the advance before revenue share kicks in, and, in the case of milestone deals, negotiate for clear milestone definitions. Otherwise, publishers define the terms, and promises to "hash it out later" are super risky on the developer side.

Revenue Share

  • The average revenue split sees developers taking 60 percent, publishers taking 40
    • That jumps up to 71 percent to devs in the case of no-advance deals, often seen in deals with nearly-finished games that only need marketing support and the like.
    • That drops to 55 percent to devs when only averaging deals that include an advance
  • The size of an advance doesn't impact revenue share splits, according to Voyer's data
    • Advances of between 100,000 and 500,000: 55/45 split, in favor of developers
    • Advances of over 500,000: 53/47 split, in favor of developers
  • In 45 percent of deals, revenue share varied during the term: It's not always a fixed number for the duration of the deal! Often terms will favor the publisher, then shift to better favor developers once the advance has been recouped.

Voyer's advice: "If a publisher comes to you with a 50/50 deal, push back! You always need to push back. And recognize that a publisher's concerns really are protecting their investment and de-risking things. There's a higher risk with a lower revenue share."

IP Ownership

  • Developers retain ownership of their intellectual property (be it a game's code, images, textures, characters, etc.) 93 percent of the time
  • 22 percent of deals have transfer on breach clauses; if a developer breaches a publishing agreement, they may lose ownership of their IP

Voyer's advice: "Never give up your IP rights, nice and simple." Even a transfer on breach arrangement is risky business as publishers often have more leeway to decide what constitutes a breach. "If the publisher pushes for a transfer on breach, find another way to address those underlying concerns."

Sequels

  • 68 percent of deals include some sort of sequel "right" or "option"
    • For Voyer's definitions, "right" means developers have the right to negotiate but can take the sequel to other publishers if no agreement is forged
    • "Option" means publishers have first dibs to decide if they want to publish any future sequels, and developers can't shop around if that falls through.

Voyer's advice: "Don't be too concerned about a sequels clause: It is common, but push for a right to negotiate and reject sequel optons." Never lock in sequel terms: don't let this first contract dictate the terms for any contracts for potential sequels down the line. 

Term/Duration

  • Average term, or how long a publishing agreement lasts, is 6.5 years
    • Unlikely to decrease significantly with negotiation
  • 64 percent of deals have a fixed term, much more common than automatic renewals
  • 38 percent of deals have perpetual terms, which have no defined end and see publishers retaining rights unless they breach the agreement

Voyer's advice: Limited room to negotiate doesn't mean developers should let initial terms slide. Pay attention to renewal options, and be weary of automatic renewals. Never accept a perpetual term; instead try to move toward a longer term. Getting the short end of the stick on an agreement's duration can exacerbate issues with less-than-ideal clauses elsewhere in the contract!

Audit Rights

  • 79 percent of deals give developers audit rights, but all should!
  • A clause that grants devs the ability to review a developer's books to make sure accounting errors don't impact revenue

Voyer's advice: "This should be in all deals, but some of the deals we have in our data aren't ones we were directly involved with." "You don't want to try and figure out if you were shorted by a publisher and have no recourse for it."

Pricing

Voyer didn't offer a ton of cold hard data on how contracts have tackled pricing in the past, but did note that this portion of the agreement shouldn't focus on requiring a certain retail price as that can be complicated by regional rules and restrictions. Instead, negotiating this clause should define the earliest day a game can be discounted, and, separately, similar terms for how and when it can be included in any sort of game bundle.  "Once you discount that first time, you're sort of starting that downward trend on the game revenue side of things as the game gets further on in its life cycle."



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