"Famous Last Words"

When Developers Finance Development (May 2008)

Dear Jim:

We are wrapping up an educational game that we developed with federal funds. We think the game can have an after life as a commercial release and we would like to find a publisher. Since we already have the game (for the DS) and don't need development money, what kind of contract should we be looking for?

Frankie

Dear Frankie:

It is great to see game technology and resources being applied to educational applications. Congratulations and thank you for using your studio's talents to broaden the focus of games.

Here are a few issues to consider as you look to find a commercial publisher for your game:

1. Are you sure you have the rights?

Game development contracts generally provide for payments along the way as development milestones are achieved. But ownership of the code, aside from developer's tools and technology, nearly always goes to the publisher who financed the production.

Be sure to carefully read your contract with the provider of your federal funds to understand which rights have been transferred and which have been retained by you.

2. Is there a “non-compete” period?

Even though you may control the rights, there may also be time constraints (known as a “non-compete period”) in which you agree not to develop or release a potentially competing product. All this would be covered in your game development contract with the federal funding entity.

3. Are there characters or likenesses that are protected apart from the game?

Even if you have the right to commercially exploit your game, it is possible that some revisions would have to be made. For example, if the game uses characters provided by your financing entity, rights to the characters may be controlled separately from rights to the game code.

For example, if you developed a racing game and acquired rights to use images of famous racing cars in the game, rights to the game play code may well not include rights to make ongoing use of the images of the cars.

4. Even if you do not need development money, does it really serve your interest not to receive any advance or other payment when you make your deal?

Even though development is paid for, you may be able to use an advance or other payment to fund future game development, staff expansion, more equipment, staff bonuses, or other costs of growing your company. I am always nervous when a developer turns over a game to a publisher but receives no compensation (advance or otherwise). Absent extraordinary circumstances, once the deal is made, the fate of the game rests exclusively in the hands of the publisher. The publisher, alone, determines the marketing plan, distribution, sell-in, priority, and all aspects of commercial exploitation of the game. If the publisher decides it has other priorities than your game, and you have received nothing, you may be out of luck. Remember, nearly all publisher contracts contain some variation of the following clause:

“Publisher shall publish, promote, advertise, market, produce, manufacture, sell and distribute the Game through any and all means of distribution, at its sole discretion. Publisher makes no representation or warranty that the marketing and promotion of the Game shall be successful or that any minimum level of royalties shall become due to the Developer."

In the end, the publisher's view of their business takes into account many games besides your game. Your interests and the publisher's interest in your game are not the same. Negotiating an advance (or other form of payment) at the time the deal is signed could represent the only money you see.

5. It is not a given that you'll get a better deal if you do not need a development advance.

The best publishers decide which games they want based on issues of quality. Your finished game is a great calling card to showcase your studio's ability. Its greatest value may be in showing the level of work of which you are capable!

The relative financial impact of each deal on a well funded “A-List” publisher is non-material compared to quality concerns. Giving or not giving an advance should have little impact on the overall financial deal you could make.

Second or third tier (or lower) publishers may take games based on availability and financial considerations. Before you reach agreement with such a company (you know who they are!), take the time to explore the track record of your prospective publisher. Does the company have the financial resources to actively market the game? Do they have the ability to pay you when it is time for accounting statements to be issued? It is a sad truth of our industry that developers do not always get paid and that publishers fail. Given the choice, I believe the better deal may well be the deal offered by the most financially secure company who, once they decide they want the game, will have no problem paying a fair advance.