Are publisher contracts really so bad that developers have to turn to Kickstarter? Well... usually, yes.
By Patrick Vuleta on January 31, 2013 at 1:22 pm
Last week, Chris Taylor described contracts between developers and publishers as so draconian in favour of publishers, that just reading one would melt your face off. Taylor’s a big fan of using Kickstarter instead. In fact, he’s staked the entire future of Gas Powered Games on the Wildman project, a new action RPG funded by Kickstarter. If Wildman fails, Gas Powered Games fails too.
And it’s stalled. With only sixteen days to go before the fundraiser expires, Wildman has only raised $387,575 of a $1.1 million goal. While it’d be premature to write how Taylor bet his entire company on the risks of Kickstarter (the timing for that is better suited for next fortnight’s article), we can still be smug and point out that one of the reasons publisher contracts work is that they avoid this sort of risk entirely.
But are contracts with publishers so draconian that trusting Kickstarter and jumping into the arms of a sometimes-not-very-enthusiastic public is the only way to go? Here, we look at how exactly development contracts screw over developers, and why this makes Kickstarter so popular.
Contracts always allow the publisher to give feedback and creative input. However, publishers will also gain complete control over the development of the game from the development milestones.
A milestone is what the developer submits to the publisher on a regular basis to show how the game is coming along: alpha builds, concept art, and so on. Contracts will have clauses that allow the publisher to reject these milestones and demand they be resubmitted for… well, almost any reason at all.
Not only does this give the publisher full creative control over a game, but can also cause the developer to suffer significant delays. While the developer can negotiate terms that push back deadlines if the publisher causes any delays, they’re likely to suffer delays in receiving advance payments due on delivery of milestones regardless. This puts the developer’s finances at the mercy of the publisher’s satisfaction with how the game is shaping up.
Development contracts are really just loans. The publisher agrees to pay the developer an advance to cover the costs of developing the game until it ships. This advance is then to be repaid by the developer’s royalty payments—a portion of the game’s net sales figures. This portion can range from as little as 20%—for average developers, to as high as 35%—for top AAA developers. Really favoured developers may command more than this, but then you’re either Blizzard or BioWare, and in bed with the publisher anyway.
A game needs to be really successful to pay back an advance and secure ongoing royalties for developers. AAA games need to make millions (perhaps hundreds of millions) in profit to pay back typical development costs at a 30% rate. As such, often the initial advance is the only money developers will ever see for a game.
More seriously, development contracts often also allow the publisher to detract from the developer’s royalty payments a few random other costs. This includes advertising expenses, compensation for unsold games that get returned by customers, and licensing fees. If the publisher decides what’s needed is a massive marketing campaign six months before release, then the developer is probably financially screwed.
To make matters worse, publishers may also insist on using the royalties of one game to pay for the advance of another. So if a developer is working on several games for one publisher (as most do these days), they may be locked into a state of perpetual debt to the publisher, with royalties of successful games being used to fund all kinds of costs and losses from both ongoing development and unsuccessful games.
Termination and ownership of IP
As Chris Taylor pointed out, development contracts will include terms that allow the publisher to cancel the development of the game at any time, for no reason other than “convenience”. When this happens, contracts will almost invariably give the publisher legal ownership of all the game code developed prior to the cancellation, and often outright ownership of the game IP—all trademarks, copyright, and general rights to develop it further.
This means that if one publisher cancels, a developer can’t just hawk their unfinished game to another publisher. In some cases developers can negotiate around this, but are still required to pay back the first publisher for any advance payments—they don’t just get to keep the money and run.
The real benefits of Kickstarter
I raise a sceptical eyebrow whenever a big-name developer like Chris Taylor claims to be able to make a AAA game for $1 million. It’s clearly a risk. Lacking the support of a publisher, they’ll need to scrimp and save if they want to make an AAA game for that much. Or even just a B minus game. Advertising is expensive, you know. And as Wildman shows, Kickstarter funding is by no means guaranteed.
However, the game development contracts show why this risk is worth taking. First, if they do manage to successfully release the game on such a tight budget, the developers will keep all future royalties, not just 20%. Even though the developers may have sold most of the game copies in the initial Kickstarter drive, anything after that is pure profit.
Second, even if $1 million is not enough to develop a full game, it’s at least enough to develop most of a game, or give capital to approach an investor. Development contracts are so biased towards the publisher because when the developer comes to the publisher, they don’t really have any bargaining power. All they have is their reputation and a crappy little demo pitch.
Things change when you have a marketable product to push, and have a secure hold on the IP. A great example is Path of Exile, which just entered open beta. Path of Exile has no traditional publisher, but Grinding Gear Games do have investors behind them. These are the same type of investors that fund business start-ups all the time, and the terms can be far fairer than a typical publisher contract. A developer with angel investors would easily be able to negotiate keeping full ownership of their IP, and higher royalties.
Kickstarter, then, probably doesn’t remove investors entirely from the equation. But by freeing the developer from the draconian contract terms, they receive far more bargaining power when it comes to seeking other sources of money.