The number one golden rule of business: Always have a contract.
Contracts help clarify business relationships on paper and provide mutual protection for everyone involved. Whether it’s a one-off consulting contract or an ongoing revenue share contract, you should be very careful about what you sign and when you sign it.
In this article, I’m joined by video game lawyer Zachary Strebeck to talk about a very important document many developers often run into: publishing contracts. If you decide to work with a publisher to fund, market, or release your indie game, there are a few key aspects of the developer-publisher relationship that you need to look out for. Here are five common issues in publishing agreements that you should watch out for and discuss with your publisher.
1. Unreasonable or Undefined Timeframes
Zack: The timeframes included in a publishing agreement can be a big problem if you don’t think through a lot of the issues. For instance, you may be giving up your publishing rights with no guarantee that the game will be published within a reasonable time.
Additionally, many publishing contracts that I’ve reviewed are basically infinite, with no way to get out if things don’t go well. Having a defined length of time for the contract, with a process for renewal and some ways to terminate the agreement (if the game sales are not above a certain threshold, for example), is a good starting point.
An important tax issue can occur when the publisher is funding the game development. It’s vital that you are careful about how the money is disbursed. If you get a huge transfer of development funding, particularly at the end of the year, you may be on the hook for a huge tax bill if your accounting isn’t set up properly. Break the payments up throughout development (this is usually based on approval of various milestones) and consult with a tax advisor to make sure you’re not going to get hit with big taxes.
Raghav: It’s definitely important to make sure you and your publisher are on the same page when it comes to timeframes. Zack nailed it in saying that you should ensure the publisher actually has a timeline and a plan in place to launch the game to the public. You want to be protected in case your publisher ghosts you.
You should also watch out for timeframes with other aspects of publishing: how soon you have to deliver game update files to the publisher; how far in advance the publisher has to notify you of discounts or bundle opportunities; how much notice you need to give to terminate the contract (if that is a way to terminate the contract); how long they will take to pay you your royalties; etc..
2. Ownership of the Intellectual Property
Zack: Who owns what is always one of the biggest issues in a publishing agreement. If the publisher is funding development, usually they will start off wanting to own everything. The eager developer who is too quick to sign may find themselves starting from scratch on their next game, having given up all rights to the underlying technology and engine enhancements they’ve made during development.
Avoid this by, at the very least, having an exception for tools and technology that you provide, create, or improve upon during development. The publisher will want a license to use these (naturally, since they need to publish the game), but you want the scope of this license to be as limited as you can get it.
Even better would be to own the IP that you’ve created. Sometimes, giving the publisher a right of first refusal to publish future games using that IP can be enough to convince them. It really depends on how powerful the publisher is (do they usually retain IP ownership and do they have a lot of money?) and how slippery you can be in negotiations.
Raghav: This is an area you really need to talk to your publisher and lawyer about, since every contract and deal is different. Make sure you think about various other factors related to IP ownership. Who gets the rights to derivative works like comics or merchandise? What about sequels? If your game has something horribly offensive or illegal in it, or if the publisher uses shady messaging to market your game, who is liable? Can the publisher modify your game’s assets, footage, and promotional materials?
You have to be very careful about your intellectual property. As Zack mentioned, usually the more powerful and financially beefy a publisher is, the more they will want to take from you in terms of things like IP. You certainly should not sign over IP rights without receiving a nice sum of money for them, and being properly protected from future liabilities. Regardless of what the circumstances are (since they can differ so much), talk about your specific situation with your lawyer and publisher.
Another thing to keep in mind—if you are using work from various programmers/artists/musicians on your team, who owns each of their individual contributions? Them? You? Your company? Your publisher? And who is liable? There’s a lot to think about that goes beyond just the publishing agreement.
3. An Unclear (or Infinite) Approval Process
Zack: If the contract requires a publisher to approve milestones, these approvals can be a complete disaster if you don’t anticipate the potential issues. Imagine a scenario where, like most contracts, the publisher has fourteen days to approve the milestone after delivery. Great! Two weeks go by, and you don’t hear anything. The publisher is, naturally, very busy. So you notify them that their two weeks are up. But the contract doesn’t address what happens next. Do they get another two weeks? Is it a breach and the whole deal goes south? Who knows.
The better way to do this is to 1) Give the publisher a reasonable amount of time to approve milestones, and 2) Put some pressure on them to make their approvals. You can do this by giving them the fourteen days, but stating clearly that a failure to approve or disapprove (with specific reasons for disapproval) constitutes an approval. Now they’re on the hot seat, and could potentially be losing money because you’re moving on with work that hasn’t been approved.
Bonus points if the contract names the specific people that are authorized to approve!
It may be a bit of a fight, but getting this approval process in writing can save you a ton of headache down the road.
Raghav: This is another aspect that really differs on a deal to deal basis. Every publisher is different and will want to be more hands-on or hands-off with approving changes and updates. You should make sure that not only are the terms clear for the publisher approving updates you provide to them, but also for you approving things like discounts, bundle placements, new promotional materials like trailer, and event presences.
Also make sure that everything is dealt with in writing (and that the contract stipulates that everything must be in writing). If someone gives verbal approval on the phone or in person without signing a document approving something, and the case ends up in court, there is no written evidence or proof of approval.
4. Who’s Responsible for What?
Zack: Defining the scope of each party’s responsibilities is vitally important. As I’m sure you can imagine, the potential for fighting over vaguely-defined responsibilities later on is huge. If you don’t address who is in charge of marketing, how much should be spent, and other details, you’re left hoping that the other side meets your expectations without a guideline.
The best thing about getting this in writing up front is that it forces you to have the discussion. For instance, imagine that you tell your prospective publisher that you think they should pay for your flight to PAX and your hotel in Seattle (so you can promote the game in person). This discussion can go one of a few ways, but at least you had the discussion! If there were vague terms about convention appearances or marketing in general in the contract, who knows what the publisher would agree to when the time came to get you to PAX.
If you bring it up before signing the agreement, you at least have an idea of where you both stand. While talking about this during negotiations can seem scary to many first-time developers (“What if they say no?!”), it’s extremely important, in my view. And if they say no to everything you ask, you can either accept that and sign the agreement without the uncertainty, or go find another publisher who will take care of that for you.
The sketchiness comes in when the publisher refuses to discuss things like this, or tells you that you’ll agree to the specifics later on. They should be professional enough that they know what they can offer you and smart enough to know that “agreeing to agree” is usually a bad way to work with contracts.
Raghav: Definitely make sure you discuss this upfront. Every publisher is different with what they provide—some may be more involved with things like QA, playtesting, social media marketing, and PR, whereas other publishers will only provide funding and a marketing budget to hire an external firm.
Another aspect of this discussion is making sure you have consequences and failsafes in place in case something falls through. For example, a lot of publishing contracts stipulate that if a publisher fails to provide the developer with certain services, reports, or resources, it can be considered grounds for terminating the contract.
If you don’t sign off on the exact terms and conditions encapsulating every aspect of every responsibility of every party, you could find yourself in hot water down the line. I know it can seem like a lot to think about and a lot to encompass in one agreement, but you will be much better off putting in the work and time upfront to be protected down the line when more is at stake.
5. Going Beyond the Game: What About Sequels, Expansions, Ports, and Merch?
Zack: One big question that needs to be answered in any publishing contract is: What happens with sequels, expansions, ports, and other uses of the intellectual property?
A lot of this depends on who owns what after the game is developed. If the publisher owns everything, then the developer probably doesn’t have much of a say in what happens to their game after delivery. On the other hand, if the developer retains ownership, often the publisher will retain a right of first refusal to publish on other platforms or for sequels and other derivative works. This is to protect the publisher’s investment in that unproven first game, but also give them the chance to avoid investing any more in a dud.
In some cases, it’s even fine to just say that the publisher has no rights to any further installments or ports, and the developer is totally in charge. This option is highly unlikely, though, since often a publisher is investing this money to create a potential franchise, not just a single release. If your game is highly sought after, though, and you have some bargaining power, anything is possible.
The height of sketchiness, though, would be not to address it at all. All this does is leave a ton of uncertainty to after the game is finished and published, and the relative bargaining power of the two parties has possibly changed (from either a success or a failure). Going back to the negotiating table then could lead to protracted discussions that may be fruitless. Better to handle this up front, as always.
Raghav: Zack’s last point is super key—regardless of whether the publisher gets the rights to sequels and expansions or not, you need to get everyone’s rights in writing. Derivative works and control of things like ports to other consoles or the creation of merchandise are very important issues.
All of the other topics we discussed come back into play here—when a port/expansion/derivative work is made, what happens to the intellectual property? The responsibilities of each party? The royalties? The time frames? You have to think of each possible addition to your game as a whole new game in terms of the agreement.
So much work and so many resources are involved in creating derivative works and expansions that you really have to be careful when it comes to your contract. Again, better to discuss the terms up front and have everything clear and in place, than to scramble around trying to dig up one email from two years ago the night before your court appearance!
Disclaimers: Zack is a lawyer, but he’s not your lawyer. None of this content should be considered legal advice, and this blog post does not constitute any attorney-client or consulting relationship. Before signing a contract or acting on this info, you should consult with an attorney to discuss the specific facts of your case. Additionally, Black Shell Media is a game publisher and Raghav Mathur is its co-founder. Raghav is not a lawyer.