The Basics of Video Game Publishing Contracts
There are three issues which all video game developers inevitably run into: Funding, marketing and distribution. More and more developers – especially indie developers – are opting to self-publish their games, which can make a lot of sense: The developer (usually) keeps all the revenues and retain all rights, and while their marketing efforts may not be as effective, the strategy can still result in an overall net gain. If the developer consists of 1-2 employees, they can also finance their development through other work (side-gigs as contractors or similar). But for many, funding development for up to five years and a small to medium sized team requires more funds than are available, and many still want help with both marketing and distribution to ensure the game reaches as wide of an audience as possible – that's where publishers come in. In this article, we’ll be looking at some of the basics of the contracts which regulate collaboration between developers and publishers, namely publishing contracts.
What is a Video Game Publishing Contract?
A publishing contract is a legal agreement between a game developer and a publisher. In essence, these contracts are based on the developer's need for funding during development, as well as distribution and marketing after completion, and the publisher's willingness to risk its capital in exchange for certain rights and economic upside. The publisher typically manages funding, marketing, distribution, localization and other similar tasks associated with distribution. In return, the publisher generally receives rights to distribute and monetize the game, including a revenue share, and typically some additional rights such as the right to distribute hypothetical sequels, DLC, etc.
Key Components of Publishing Contracts
Publishing contracts vary greatly, but tend to cover several core components:
1. Intellectual Property Rights
Clearly defining who owns the game's intellectual property (IP) is fundamental. Who owns the IP will depend on the level of funding, how far the game has been developed, royalty rates, relationship between the parties, and much more. These days, the most common structure has the developers retaining IP ownership and granting publishers a license to distribute the game, however publishers owning IP is by no means unusual, especially if they provide significant funding or are willing to take a comparatively low revenue share.
2. Funding and Revenue Sharing
Contracts detail financial agreements, including upfront payments, milestone payments, and royalties. Since most payments which publishers provide during development are advances (meaning they must be repaid), the terms of repayment also need to be regulated, as well as what happens in terms of financials if the development is cancelled, the contract is terminated, etc.
3. Distribution Rights
Publishing contracts specify distribution methods, geographic regions covered, and exclusivity terms. Publishers will almost always seek full exclusivity rights, occasionally with regional differences. This means the developer's ability to distribute, market, or license the game is significantly reduced.
4. Milestones and Deadlines
Contracts outline specific milestones such as alpha, beta, and final release dates, and depending on scope will contain 50 or more deliverables, most of which will be tied to individual remuneration and must be approved by the publisher before payment is made. Meeting these deadlines is crucial, as missing milestones may trigger penalties or contract termination. The contract will typically also regulate what happens in cases of missed deadlines.
5. Marketing Responsibilities
Clarifying who handles marketing and promotional efforts is essential. Publishers typically have extensive marketing capabilities, but clear definitions of rights and obligations, especially as to budget and scope, helps ensuring a fair deal for both parties and helps avoid misunderstandings.
6. Termination Clauses
Termination clauses outline under which conditions a party can end the agreement, and what the effects of that termination should be, especially regarding ownership rights and financial obligations. These are vital to understand and to negotiate, since an unfairly written termination clause can severely hamper or even bankrupt a smaller studio – imagine a developer misses a milestone deadline, the agreement is terminated, and with no further compensation the publisher takes the entire IP which the developer has been working on for three years.
7. "Standard" Legal Clauses
In addition to commercially oriented clauses such as the above, publishing contracts will have a significant number of more legally oriented clauses, pertaining to legal rights and obligations in various circumstances. These may include right to equitable relief, waivers and guarantees, privacy regulation compliance, indemnification, and much more. These may sometimes be presented as "boilerplate" or "standard language", but the truth is that most publishers (who typically draft these contracts) rarely if ever see other publisher's publishing contracts, and as such tend to have a skewed understanding of what constitutes common industry practice. These clauses tend to be viewed as boring and therefore unimportant and standardized, but they can vary heavily and have extremely important implications for the parties involved – and while the developer, lacking funds and experience, may ignore these parts of an agreement, you can be sure that the publishers and their lawyers are paying very close attention.
Common Pitfalls to Avoid
There are more risks and pitfalls in a publishing contract than could be laid out in an article, but below are some very common issues which developers should keep in mind when negotiating:
Misinterpreting Language: Words that may seem like normal or innocuous words can have legally distinct meanings and may impose unforeseen obligations – the difference between "best" efforts and "reasonable" efforts may seem minuscule, but have very different meanings legally.
Not Understanding Legal Interactions: Many clauses in publishing agreements interact with each other and change implications and meanings depending on other clauses that may or may not be in the contract. If these interactions are not properly understood, it can lead to unintended and unforeseen consequences.
Not Being Realistic: It's understandable that a developer with a great game idea who's just about to get funded for full development is excited and doesn't want to contemplate risks or limitations. But the reality is that deadlines are missed regularly, contracts are terminated regularly, funding is cut regularly, and disputes arise all the time. The agreement is written when everyone's friendly to make sure everyone behaves if something goes wrong. Hand-waving contractual terms because "everything will sort itself out" is naive, and has a doubly negative effect: In the worst case, the terms you've agreed to completely destroys what you've built or takes it from you, but even in better circumstances the other side will use the unfair terms against you if you've agreed to a bad deal: You want an agreement that forces everyone to act reasonably when things go wrong, because not doing so would be bad for both sides - what you don't want is the other side forcing you to act against your own interests, because if you don't, everything will go very bad for you, and not affect them.
How a Lawyer Can Help
Engaging a lawyer experienced in video game law can be very helpful. A knowledgeable attorney will:
Clarify complex legal terms and conditions.
Negotiate better financial and IP ownership terms.
Prevent costly mistakes and misunderstandings by highlighting hidden pitfalls.
Identify what’s really important to you, and focus negotiations on that.
In Summary
Publishing deals are complex beasts and, unlike many other agreements within the video game sphere, are almost completely unique to the gaming industry. Lawyers not working with video games will rarely, if ever, see agreements like it. These contracts operate along a general industry standard, but with significant variation, and that variation will include fundamental terms such as IP ownership, funding, secondary rights, legal wording, termination rights and obligations, etc. Having a lawyer on your side who understand these agreements is paramount to reaching a deal you feel truly happy with, so you can focus on making games.
