"Famous Last Words"

Publisher Default (October 2007)

Dear Jim:

Our publisher went through a big round of layoffs. The Executive Producer left after we delivered two milestones and were waiting for approval.

We've heard nothing back for six weeks; now they tell us the project is on hold.

We can't make payroll! What can we do?

Cashflow Negative

Dear Cashflow Negative:

The short answer is look to your contract to determine your options.

I am a strong believer in carefully negotiating publisher review periods, approval language, and payment terms. I am an even stronger believer in managing those dates as closely as any other aspect of game development.

No milestone is complete until it is approved and the associated payment is received, deposited, and the check clears.

We all manage relationships with our publishers, which we hope will be cordial. But make no mistake – this is a business relationship. There is nothing wrong with holding the publisher's toes to the fire when circumstances require. The publisher is not your friend.

Game development contracts should set calendar periods in which milestones can be reviewed. Once a milestone is submitted, that clock starts to tick. Stay on top of your producer to make sure this process is moving forward. It is the responsibility of the developer to oversee the publisher. Persistent developer oversight can go a long way to help the publisher meet its affirmative contractual obligation to you to review and respond within the mandated period.

If no response is received, or if you learn that no response will be received (vacation schedules, staff changes, etc.), take advantage of the written notice provisions of the contract. Failure of a publisher to respond in the contractually mandated period is a default. Send a breach letter. Be sure to send copies where required in the notice provision of your contract. Get on the phone. Complain loudly.

In this case, your publisher advised that your game is “on hold.” I have never seen a game development contract that gives the publisher a unilateral right to put a game “on hold.” Just as you must deliver milestones on or before their due dates or risk going into default, publisher's performance obligations are also ongoing.

Unless the publisher exercises its right to terminate for convenience, there is no generally recognized unilateral way for either side to stop the clock.

If no such publisher right exists in your contract, then the publisher's unilateral “hold” action is a default. Publisher's failure to timely review and either approve and pay, or reject, comment and trigger your opportunity to fix the milestone, is a further default. Together, these have caused you enormous direct damage. All should be included in your notice letter.

Sending notice of default is a first step – but it is not a guarantee that you will be paid.

If after notice and the associated cure period, publisher will not address its multiple defaults in a way that makes you whole and permits the project to either continue or terminate as provided in the contract, then the only alternative may be to file suit against the publisher for breach of contract.

I hope it does not come to that.

The real takeaway from your question is the huge importance for developers to carefully monitor publisher compliance with the review, approval, and payment terms of their game development deals. If you are too deeply into development, give this assignment to your office manager or bookkeeper. It is critical to developer well-being to identify and address these delays quickly.

Given the very high cash flow requirements and very low profit margins of game development, managing this process may be one of the most important responsibilities in a studio.