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Oct 4, 2022

What to know about game publishing deals

Gaming

Sanlo Team

For generations, artists have dreamed of getting “The Deal.” For musicians, it’s the record deal. For writers, the book deal. And for game developers, it’s the game publishing deal. 

Whatever form it comes in, signing that dotted line with the big-wig executive is ingrained in our culture as the moment you become successful as a creative.

But is it really the be-all and end-all? 

Although “The Deal” is the right move for some people, recent years have seen a movement away from big studios and publishers in favor of more grassroots, indie releases. Musicians are opting for Bandcamp, authors for Amazon self-publishing, and game developers for self-publishing through platforms like Apple/Google stores, Steam, etc.

Ultimately, the “right” choice is simply a question of finding the best fit for your gaming company. To figure out which direction is best for you, you’ll need to understand what a game publishing deal is, what’s great about it, and what might not be so great about it.

What is a game publishing deal and how does it work?

A game publishing deal typically refers to an agreement between a game developer and a game publisher that allows the publisher to produce and distribute the developer’s game. 

But a publishing deal isn’t simply a piece of paper that says “go publish my game” with two signatures at the bottom. Publishing a game can actually be pretty complicated. 

The complexity lies in this: when you create a game, you hold the copyright to it. This grants you the exclusive right to make and distribute copies, to make other works based on your game (sequels and merchandise), and to display and perform your work (streaming). So, for a publisher to publish your game, at the very least, you’ll need to give them a license that gives them rights to distribute and make copies of it.

But publishers aren’t always happy with the bare minimum — it’s simply not economical. They’re publishing your game to make money, and they can make more money the more rights they have. After all, to make any decent return, they’ll at least need royalty rights, and likely merchandising rights too.

Plus, for the developer, one of the benefits of working with a publisher is being able to leverage their connections, expertise, and marketing skills, so not granting them a broad enough license and a large enough interest can potentially hinder your success. 

Still, actually giving another company the rights to the game you’ve worked so hard on can feel scary — even if the publisher you’re working with has your best interest in mind, you’re still giving up some of your control. 

Typically, a publishing deal also means that you won’t be all the revenue the game will be generating. Even in a good publishing deal, revenue is split to the publisher’s advantage (split is custom for each relationship but may range from 90-10 to 30-70) until the developer’s advance and cost of publisher’s services are recouped. This means that developers may not see any substantial revenue from their game unless they really hit it big. 

Ultimately, the points of contention come down to this: what rights are you granting, and what is each party getting in return? A game publishing deal lays out the answers to these questions. 

What’s covered in a game publishing deal?

Typically, a game publishing agreement will touch on the following points:

  • Rights: Distribution rights are a given in any publishing deal, but both parties need to work out the other rights. Some of the most important are:

    • Approval rights: Do either the publisher or the developer retain any “veto” rights? For example, if the publisher wants to hire a company to port the game, can the developer say “no?” Similarly, can the publisher reject the developers proposal to make a certain type of content?

    • Ancillary rights: Ancillary rights are similar to merchandising rights in that they grant the publisher the right to make other products based on the game. Ancillary rights are typically provided in the form of a right of first refusal or right of first negotiation. That means that if you want to make a board game based on the release, you would need to ask the publisher if they want to produce it first. If the publisher declines, then you’re free to use whatever studio you want. 

    • Merchandising rights: Is the publisher allowed to create merchandise for the game? Or does that right remain solely with the developer?

  • Game and IP Ownership: In most deals, the game developer will retain ownership of their game and their IP. The most common exception is when a developer is making a new game based on an old IP. For example, if Microsoft, the owner of the Halo IP, wanted a new developer to make a Halo game, Microsoft would likely decide to retain ownership of the game and IP even though they’re not the developer. 

  • Publishing Scope: This section of the deal sets out the terms under which the game can be published. Specifically:

    • How long the publisher has the rights to publish it (ex.: 5 years)

    • Where it can be published (ex.: worldwide or only in the EU)

    • The platforms it can be published on (ex.: Apple App Store and Google Play)

    • Whether porting (adapting the game so it runs on another console or OS) is allowed, and who is responsible for making those ports (ex.: whether the developer or a third-party makes ports)

  • Advances: One of the most enticing parts of a publishing deal for developers is the advance. This part of the deal sets out how much the publisher is willing to pay up front, how it’s distributed (lump sum vs. installments), and how much the developer needs to pay back through sales revenue before they start getting royalties. 

  • Milestones: This lays out what is included in the deal and when it needs to be delivered. Milestones are typically tied to the advance (outlined in the bullet above).This typically entails specific milestones a developer has to deliver in order to unlock the next round of financing. Specific milestones are custom for each developer, but some examples may be character design, completed core game loop design, soft launch in test markets, etc.

  • Revenue share: Once the game is published, who gets the profits, and in what ratio? In most publishing deals, the publisher gets the substantial share of the revenues until the advance and cost of provided services and support are recouped.

  • Publisher commitments: This section makes it clear what the publisher is committing to — for example, that they commit to publishing the game and won’t back out at the last minute. This is also an opportunity to negotiate publisher resource commitments, such as marketing budgets or team resources (the publisher may provide additional artists/engineers/analysts/etc.)

  • Support after launch: Typically, a publisher will want the developer to agree to provide support after the launch so that they don’t end up with a buggy game on their hands with no patches in the pipeline. At the same time, a publisher would outline what support they’d be providing for the live ops.

  • Termination: Under what conditions can either party terminate the deal? And what rights do each of the parties retain after the fact?

Deal or no deal

Clearly, there’s quite a lot that goes into publishing agreements. So, how do you know if you’re getting a good deal?

While it’s not an exact science, there are a few things you can look out for. According to lawyer Kellen Voyer, unless you’re working on an established IP that you didn’t create yourself, you’ll want to make sure the deal allows you to retain ownership.

As far as the size of advances go, it depends on a blend of the team's experience and test market metrics. Bigger projects (e.g. games with slick 3D graphics with licensed IP) with experienced teams can usually ask for larger advances, which likely skews the average deal size. Voyer says the industry average is $318,000, but for the vast majority of indie developers out there, they should expect much less, likely below $50,000.

For revenue splits, Voyer recommends looking for a deal that gives you a 60-40 split in the publisher’s favor during the advance recoupment period, which should then flip once the advance is recouped.

She also advises that a good publishing deal will last around 6.5 years, and the publisher will be in control of pricing, but the developer can decide when to start discount and bundle pricing.

However, the full range of advance size and deal duration is very wide, so developers should expect to have unique and varied experiences.

It’s also important to factor a publisher’s reputation into your decision. Currently, the top game publishers by revenue are:

  1. Tencent 

  2. Sony

  3. Apple

  4. Microsoft

  5. Google

  6. NetEase

  7. Activision Blizzard

  8. Nintendo

  9. Electronic Arts

  10. Take-Two Interactive

Alternatives to game publishing deals

These days, signing a game publishing agreement isn’t the only way to release a successful game. If you want to publish a game without giving away any creative or business control—and still get the money you would from an advance—venture capital financing and non-dilutive financing are other options worth considering.

When you work with a non-dilutive financing company, you’ll receive an upfront, lump sum payment to finish developing your game, which you’ll pay off each month as a percentage of your monthly revenue. If you’re considering non-dilutive financing, it’s important to work with a partner you can trust.

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Copyright © 2022 Sanlo
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Financing for game developers, by game developers.
Contact
Questions? Drop us a line👇
Copyright © 2022 Sanlo
Made with ❤️ across the Globe
Financing for game developers, by game developers.
Contact
Questions? Drop us a line👇
Copyright © 2022 Sanlo
Made with ❤️ across the Globe