Famous Last Words June 2011

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DISCLAIMER: This column is intended for general educational and entertainment purposes and is not legal advice. Every situation is unique. Anyone entering into a contract should have a lawyer who can provide counsel.

Jim Charne,

Attorney at Law

June, 2011

Famous Last Words
By Jim Charne, Attorney at Law

Are We At the End of an Era?  Evolving Deal Considerations

Dear Readers:

We’ve always said, with just a little hint of pride and self-satisfaction, that our industry is growing and evolving at lightning speed.

Each year, when my colleagues and I plan for the GDC legal, business, and management tutorial, the first question we ask ourselves is: “how has the landscape changed since the previous GDC.”

From there, we put together an agenda that addresses the emerging landscape and how developers can be prepared for the new challenges in our game development segment.

I recommend to all readers that they take a look at the ESA’s “Industry Facts.” A briefing that is updated every year around E3.

“Industry Facts” can be found on the Internet at: http://www.theesa.com/facts/index.asp.

The great take away from the ESA, and other material that has crossed my desk, is how the average age of game players is increasing, E-rated games dominate the market, there is a huge universe of female game players, and market share of Social Network Games has been increasing, while console, mobile download, and computer games has, at best, held flat or is decreased.

As more and more developers move to social network games, what considerations are there in their deals?

It’s always important to analyze what is being asked of the developer, what staffing and time must be committed, and how the developer can be fairly compensated for the work.

Some things don’t change.

No one should ever work for “cost.”  When you prepare financials that will be the basis for your quote, it is extremely highly totally recommended that you include a profit margin.  Also, mark yp the whole thing by a contingency number for if (more likely, when) development, for whatever reason, takes longer than expected.

But equally important, understand what is expected of you.

If you are being asked to develop a game for a social network, delivery of the game, and achieving approvals for publication, may well be only the beginning.

There is a strong need to keep the game “fresh” by constantly adding new content.  If the game remains the same, no matter how compelling, eventually the audience will drift away to other newer, fresher products.  That is NOT what your publisher wants.

Often there is a requirement to provide ongoing development of new content.  Be sure your agreement provides for that, not on a milestone basis, but rather on a time and materials basis (a revolutionary concept in our industry!).  If you have shown yourself reliable during development of the game, your publisher may well accept that your further engagement on a  time and materials basis brings no extra risk.

Negotiate the size of the team you will bring to continuing development.  Provide for a “man-month” rate that covers all salaries, management of the team, benefits, overhead, and *profit*!!  Remember, you cannot make it up in volume when you are losing money every month.  I advise never to sacrifice cashflow with assurances or temptations of future royalties from your publisher.

Given the uncertainties of development, and the possibility that your social media publisher may want changes throughout the development process, it may even be wise to consider a time and materials deal from the start.

If the publisher hesitates, look for a way to give comfort to both sides.

For example, you may be able to guarantee a ceiling on the number of weeks required to complete the next part of the project, so long as no design changes are required by the publisher.  Any design changes must be accompanied by a good faith negotiation of additional weeks at the time and materials rate, or extra staff being added to the team, whichever may be the best way to move forward.

And, any changes to the original deal must be in writing signed by both you and your publisher.

It’s important to keep your eyes on the big goal – getting your publisher a great game and providing cash flow and profit for your company.

Moving away from the milestone and associated payments deal structure gives you greater confidence in connection with making payroll every two weeks, and provides some flexibility in how the game development is carried out.

Time and materials after the game is launched gives the publisher the means to keep adding new content, and keeps your team busy.

Once the game is up, you may be able to negotiate key employees dropping out of the project, to be substituted by others, and offering a lower man-month rate as an incentive to the publisher.

That permits you to move your key people to a new game.

Always keep a fresh eye on the legal and game dev parameters of any proposed deal.  Pay attention to what is required and ask “what is the best way to accomplish that?”  Talk to your games industry lawyer.  He or she can help with this (they see many more deals than you do.)

New requirements lead us to move to new deal terms.  Such movement can help both developer and publisher get what each needs out of a deal.

Jim's Bio

Jim Charne practices law in Santa Monica, CA (www.charnelaw.com) where he represents developers, designers, composers and other clients in the games industry.  Jim has been a frequent speaker at GDC and Practicing Law Institute games industry programs, is active in IGDA from whom he received a coveted “MVP” Award at GDC 2006, and is a member of the Advisory Board of G.A.N.G.  On October 19, 2011, Jim will chair a one day program in San Francisco, offered by the Practicing Law Institute, titled: “Representing the Games Industry Client 2011.  Jim served as President of the Academy of Interactive Arts and Sciences from 1998 to 2001.

Is there language in your contract that has you scratching your head?  Found something confusing or worse?  Send it to “Famous Last Words” for developer-oriented analysis.

Famous Last Words is intended for general educational and entertainment purposes and is not legal advice.  Every situation and circumstance is unique.  Anyone entering into a software-related contract should have an experienced lawyer who can provide counsel throughout the process.

©2011 Jim Charne.  All rights reserved.