By Bryan Wasetis. Bryan is an entertainment and media law attorney that focuses on publishing, distribution, and production of digital and physical media. Bryan helps indie game developers negotiate publishing agreements and obtain development funding for their games.
This article aims to give you a general understanding of what video game publishing is, what publishing agreements cover, and issues that video game developers should be aware of when negotiating publishing agreements. If you are familiar with publishing generally, you can skip down to the “Video Game Publishing Agreement Issues” section for a breakdown of contract issues.
Publishing a video game through a publisher can create great opportunities for a video game developer that they might not have had if they released the game on their own, including benefits such as additional funding for the development of the game, marketing support, platform distribution, and generally helping the game reach the largest audience.
But publishing agreements can also be overwhelming and complicated for developers regardless of their experience in the industry. The contracts usually cover more than just distribution of the video game and go into issues such as marketing activities and expenses, control over sequels and merchandise, and ownership of intellectual property (“IP”). Also, small differences in wording can have a significant impact on how the contract is interpreted as we’ll cover later in this article.
To make sure that the developer is treated fairly and to help ensure the success of the publishing relationship, the publishing agreement should accurately reflect the understanding and goals of both the developer and publisher.
Don’t be afraid to ask questions! As a developer, you should definitely be asking potential publishing partners any questions you have about the publishing agreement. And if you don’t like something in the agreement, ask for changes to make it more agreeable to you. Any good publisher will be expecting this and will work with you to accommodate any concerns you have.
What is Publishing?
The term “publishing” means the act of producing and distributing content. Traditionally, this meant printed content such as books and newspapers but now covers many types of media, including video games. For video games, a “publisher” will at a minimum help produce and distribute the video game.
A publisher may also ask for additional rights, including the ability to find other opportunities to commercially use the game content. For example, a video game publisher will license or sell copies of the developer’s video game but may also look for opportunities to make a movie based on the video game or create merchandise for the game. Many of these additional rights are discussed below.
Who is a Developer?
A developer is the person or business that is developing and producing a video game. The developer usually owns the rights to the video game but, in some situations, the publisher may own some or all of the rights to the game. The developer can be a single person or a team of people working together, and may be a legal entity such as a limited liability company or corporation.
If a developer has not contracted with a publisher to publish its game, then the developer is actually acting as its own publisher during that time. This is called “self publishing”.
What is a Publishing Agreement?
A publishing agreement is the contract that the developer enters into with a publisher to allow the publisher to use the video game, including its copyrights, and release the video game to the public. The publishing agreement usually also allows the publisher to act on behalf of the developer to negotiate deals for the video game, such as platform deals to distribute the game through marketplaces such as Steam or on hardware such as Nintendo Switch.
To publish a video game, the developer needs to grant certain rights in the video game to the publisher, including rights held as a copyright owner or a licensee to any licensed materials used in the video game. If you have licensed any material for your game, you should make sure your license allows you to sublicense the material to third-parties since your publisher will also need to use that material.
US copyright law grants the copyright owner of a work the exclusive rights to make copies, distribute, display, prepare derivative works of, and perform the work. For a publisher to be able to release a video game, the developer needs to at least grant the publisher the right to make and distribute copies of the copyright protected video game.
The developer may also grant additional rights such as a derivative work right to create sequels or merchandise, or a performance right to stream gameplay. These additional rights are usually granted in exchange for additional benefits from the publisher. For example, merchandise and performance rights for a commitment by the publisher to a big marketing campaign.
The grant of rights is usually done by licensing where the developer keeps copyright ownership of the video game and grants the publisher rights to the game. Occasionally, the copyright rights may be given by an assignment, which means the developer actually transfers ownership of the copyright in the video game to the publisher. The route you take is usually dependent on how significant the publisher’s assistance ($$$) with the game will be.
If you haven’t reviewed a publishing agreement before, both Raw Fury and Neon Doctrine have publicly released their publishing agreements, which are worth checking out since they are good examples of the types of template agreements you’ll receive.
Video Game Publishing Agreement Issues
Now that we’ve covered the basics, we’ll go over a few of the major terms of a video game publishing agreement and what to keep in mind when negotiating the publishing agreement.
Most deal terms are often agreed on between the developer and publisher after pitching the game and talking about publishing options, but both the developer and publisher should make sure that the terms are stated accurately in the contract. A developer may receive the publisher’s standard template contract without any changes to match the conversation so far, which means that the developer is responsible for calling out the changes that need to be made in order to match the terms that everyone already agreed on.
As a general rule, the more rights the publisher receives, the more benefits the developer should receive in return. This is often in the form of increased development advances or better revenue sharing terms.
Identify the Property and Development Milestones. The contract needs to identify what video game property will be published through the publishing agreement. Is it a single game or does it include sequels or spin offs such as games that involve the same characters? Does it include downloadable content (DLC) created later? Does it include all games made by the developer within a period of time? The agreement also needs to state what and when the developer will provide to the publisher during development to show it is making progress on the video game. This is normally done through deliverables called “milestones”, which are builds of the game that must be provided to the publisher by a specific date and include the specifications stated in the milestone. Milestone specifications should be very clear and not subjective in order to avoid any disputes that a build doesn’t meet the specifications.
Watch for: broad definitions for the video game property, including the IP, subject to the publishing agreement.
Identify the Scope of Publishing. The scope of publishing means where and how the publisher can publish the video game, and includes terms such as exclusivity (whether the publisher has the exclusive right to publish the game), the term of publishing (how long the publisher is allowed to publish the game), the publishing territory (the geographic locations where the game can be published, which is usually worldwide due to the nature of video games), and the platforms for distributing or playing the game (the hardware and software that must support the video game such as specific consoles, and digital retail stores such as Steam or Windows Store). The agreement should also be clear on whether the developer is responsible for delivering all versions of the game for each platform or if the publisher can contract with other developers to create those versions (called “porting”).
Watch for: a commitment to publish on a single platform but exclusive rights granted for additional platforms.
Game Ownership. Who will own the video game and content created for the game? Usually, the developer will retain ownership of the video game and exclusively license the game to the publisher for a period of time. But some publishing arrangements may require that the publisher own the video game and IP. Publisher ownership of IP happens more frequently when the developer is contracted to create a new video game property and not one that the developer has already started working on. The publishing agreement should also clearly identify any licensed material included in the game. If the developer has included licensed content in the game, such as licensed music for the soundtrack (composers sometimes keep ownership of the music), the developer will need to make sure its license to the content is able to be sublicensed to the publisher.
Watch for: situations where you are forced to transfer ownership of the IP such as during termination or breach of contract.
Merchandising and Ancillary Rights. Merchandising rights allow the publisher to create merchandise such as apparel and toys based on the video game. The publisher will probably want merchandising rights, which overlap with marketing rights for things like promotional material, but watch for exclusivity or restrictions there since the developer will likely want to retain some merchandising rights. Ancillary rights allow the publisher to create new products such as books or movies based on the video game being published. Ancillary rights are often restricted with a right of first refusal or first negotiation for the publisher, which usually require the developer to at least offer the publisher the opportunity to create any new products that the developer is pursuing. For example, a right of first refusal for a movie means that the developer must ask the publisher if it wants to produce the movie, which the publisher may accept or refuse. If the publisher refuses the opportunity, the developer can ask other companies to produce the movie. The way any revenue from merchandise and ancillary uses is shared also needs to be accounted for in the publishing agreement.
Watch for: exclusive rights to any merchandising or ancillary rights, and whether revenue from the uses will be applied towards any recoupment by the publisher.
Royalties and Revenue Share. Royalties are amounts paid to a rights holder for a license. Video game publishing agreements tend to use the term “revenue share”, which is a more general term for sharing in profits earned from a video game. Revenue shares are often structured in tiers that adjust to be more friendly to the developer based on higher sales figures. For example, a 70/30 split in the publisher’s favor until a certain point where it switches to a 70/30 split in the developer’s favor. Revenue share terms, especially how revenue is defined, need to be reviewed very carefully because the wording can have a significant impact on the amount of money that the developer receives. For example, whether payment is from “gross” revenue (meaning based on all income received by the publisher) or “net” (based on income after specific expenses are deducted). If revenue is based on net terms, any deductions should be reasonable and clearly identified, and you may want to limit some deductions, such as marketing expense deductions, to a certain dollar amount. You will also want to make sure the agreement accounts for all income streams, including revenue received from merchandise, ancillary rights, and sequels or other versions of the game.
Watch for: exclusive rights that are granted to the publisher but are not accounted for in the revenue share since that likely means the publisher will keep all of that revenue.
Advances and Recoupment. Advances are amounts paid by the publisher to the developer as funding to develop the video game. The total development funding is usually split up into advances for each milestone and dependent on the publisher’s receipt and approval of the applicable milestone. Advances are then usually recouped by the publisher from sales or other revenue received by the publisher from uses of the game. Recoupment is generally calculated from all sources of revenue from the game, but you can have different payment structures where some revenue streams aren’t put towards recoupment, which may be good or bad for the developer depending on which revenue stream you’re accounting for. For example, the developer may want to retain all revenue received from its merchandising activities rather than have that go towards recoupment.
Watch for: recoupment terms that heavily favor the publisher, such as recoupment that only comes from your share of the revenue.
Publisher Commitments. The developer will want the publisher to contractually commit to certain things such as promising to actually publish the game (this is often initially not included in publishing agreements) and to provide marketing support. Publisher commitments in the agreement give the developer legal options such as terminating the agreement if the publisher fails to follow through since the publisher will be in breach of the contract. The publisher should be required to publish the game by a certain date or within a window of time and, if they don’t, publishing rights should revert back to the developer. Marketing commitments, such as creating and releasing trailers and advertising, should also be clearly stated along with how the publisher will account for these marketing expenses.
Watch for: loose statements that the publisher might provide certain support or has a right to provide the support instead of actual contractual commitments to provide the support.
Post Launch Support. Post launch support is a period of time after the game is released that the developer will be available to help with things such as patches and bug fixes. This is often during the time that the publisher will be recouping any advances or expenses, which means the developer needs to account for cash flow issues during the support period. This can be done several ways, including through the initial or subsequent advances, having the developer be paid on an hourly or other basis during the support period, or limiting the type of support provided by the developer to only serious issues.
Watch for: long or ongoing support windows, especially when no additional funding is provided or you aren’t yet receiving any game revenue because the publisher is in a recoup period.
Developer Approval Rights. Approval rights give the developer the right to say “yes” or “no” to certain actions by the publisher. You may also see consulting rights, which require the publisher to talk with the developer about the action but the publisher ultimately decides what to do. The developer will want to retain approval or consulting rights on certain publisher actions, including rights to approve marketing assets or merchandise, expenses, the pricing structure of the game such as initial sale price and discounts, and any changes made to the video game. The developer may also want approval rights for any sublicenses to third-parties, especially sublicenses to affiliates of the publisher (affiliates are companies that are owned by the publisher or under “common control” with the publisher such as both businesses having the same owners). A sublicense to an affiliate might allow the owners of the affiliated businesses to receive revenue from the game at multiple points in distribution before the revenue is included in the payment calculation for the developer, which reduces the amount of money the developer receives. Developer approval rights can help account for these issues.
Watch for: only receiving consulting rights when approval rights are more appropriate for you (for example, approval rights on major marketing assets such as trailers).
Publisher Approval Rights. The publisher will likely want to have approval rights on milestone deliveries such as specific builds of the video game. Often, this is to make sure the game is on track for the agreed upon publication date, but a publisher may also want approval rights on the overall concept and mechanics of the game. If this is included in the agreement, you will want to make sure the approval process is clear and tied to objective specifications for the game such as the milestone delivery descriptions or any included game design document, and avoid anything subjective since you probably don’t want a publisher rejecting something because they just don’t like it.
Watch for: strict or subjective approval rights for milestone deliveries that can easily put you in breach of contract.
Termination and Post Termination Rights. Termination is how the contract and publishing rights can be ended. Publishers will often want flexibility on how they are able to terminate the publishing agreement and may want the ability to terminate without cause, meaning at no fault of the developer. The developer will want to make sure that termination, especially no cause termination by the publisher, does not leave them in a financially vulnerable position. You can try negotiating for a “kill fee” to account for this, which requires that the publisher pay some portion of the fees that otherwise would have been payable to the developer had the publisher not terminated the agreement. The developer will also want the ability to terminate if the publisher is not fulfilling its side of the agreement, especially for breaches to commitments to actually publish the video game or make payments to the developer. Post termination rights to the game also need to be clearly stated, which may include the publisher being able to continue to fulfill contracts entered into before termination, or the developer regaining all rights to the video game and being able to find a new publisher.
Watch for: a lack of termination options for you, or termination rights for the publisher that put you in a vulnerable position (for example, requirements to fully repay any advances on termination, or the publisher retaining a percentage of game revenue even after termination).
The Takeaway
Remember that the contract is negotiable! Review your publishing agreement carefully since small words or changes can have very large consequences. For example, the term “may” only means that someone has the option but not the obligation to do something, but “shall” is a term that legally requires someone to do something.
And don’t be afraid to ask your contact at the publishing company questions or ask that they talk through the agreement with you. Nothing is truly “industry standard”, and making sure everyone is on the same page is helpful for everyone involved and can help avoid contract disputes later.
Thanks for reading!
