Joe’s Take
As the game industry business slowly begins to thaw, pressure on development contract negotiation is going to magnify. With so few contract opportunities to go around, how much can a studio negotiate? With so few portfolio slots approved by management, how much leverage do publishers really have in a market where many developers are questioning the very role of publishers in the ecosystem?
During such times of stress, it can be easy to forget a fundamental truth of development contracts, which often engage the parties closely together for years. If the contract does not provide the opportunity for fair revenues for each side, both parties will likely suffer.
Last year, we had a game release which seemed to have tremendous contractual terms for our developer client. The studio didn’t need to earn back a cent before their full royalty share kicked in, as the publisher was trying to disrupt the market by making this their standard offering. Here is a truism of this chaotic industry… even though likely the same management team will be in place at the developer between signing and ship, it is almost guaranteed that there will be a different publisher management team or a shift in corporate strategy since the original contract was signed. This isn’t a critique; it is just the way it is in such a volatile industry.
If the new executives question why a game was signed under such terms or see that allocating the company’s marketing resources to one product over another provides a far better return… well, the initially amazing deal terms can tank the game’s potential, as it did with our client’s release. This is a regular occurrence in the business as publishers balance their available funds against the risk factors in their slate of products.
That said, it cuts both ways. If a studio is coming up to the Alpha/Beta/Launch period in which a LOT of work is needed to make the game exceptional… how do you think a studio is likely to react if there is virtually no chance for them to receive royalties and their only profit is going to be in the project’s margin? Will they spend what is left of that margin on the game, so that the publisher alone earns more revenue? Some studios may do so, though many will understandably save their margin to maintain a runway of survival after launch.
In this case, the publisher loses, as their deal terms undermine the mutual incentives to pull out all the stops during the crucial polish and launch period… and in this industry we all know the difference in sales a 68% to an 82% rating can make.
More than ever, when quality is so vital for a game to stand out, it is in the interest of both parties to ensure that development contracts truly incentivize each of them to do their very best. When a contract is signed, it should form a partnership for success and not sow the seeds of failure.