As you may know, I publish irregular articles on the Gamesutra.com web site entitled “Game Law.” Gamasutra has a 30 day exclusive, but after that I am free to do whatever I like with these little gems. So, I decided I would make a new category on my blog and post them here, in case anyone had any comments or questions about the topics covered. This post is updated any time I add a new Gamasutra or other Article to the list. Commercial exploitation of these articles is strictly prohibited. That means that you can’t take any of this content and sell it or charge for it. But you are welcome to distribute it for free, so long as you include include my copyright notice at the end of each article and and www.gameattorney.com web address.

Just click on the Gamasutra Articles link in the right frame to see all the articles posted as of their original Gamasutra’s publication date. Or, to make it even easier for you here’s a list of, and links to, the Articles and publish dates I’m posting:

# Gamasutra - Game Law: Get Your Pigs in a Row! [06.03.08]

# Gamasutra - Game Law: Man’s Best Friend Sometimes Bites [03.28.08]

# Gamasutra - Game Law: Game Law: 50/50 Deals on Ancillary Revenues and Sublicenses [1.8.08]

# Gamasutra - Game Law: Discipline and the Up Sell [10.30.07]

# Gamasutra - Game Law: Scrum Deals - Good, Bad or Ugly? [08.28.07]

# Gamasutra - Game Law: Competent Counsel [06.27.07]

# Call Of Duty: Finest Hour - The Contract (Linked to Gamasutra site)

# Game Developer Magazine: Hey, That’s not the deal we talked about! [10.06]

# Gamecloud.com: Game Attorney Interview - My Life and Times [09.6.06]

# Gamasutra - Game Law: Contract Mumbo Jumbo 101 [07.25.06]

# Gamasutra - Game Law: Everybody Conga…Well Maybe not Everybody! [04.28.06]

# Gamasutra - Game Law: The Good News About Digital Distribution [03.01.06]

# Gamasutra - Game Law: Prior Restraint of Games - A Rant [01.19.06]

# Gamasutra - Game Law: To Sue or Not to Sue…That is the Question [12.07.05]

# Gamasutra - Game Law: A Case for Flexible Milestone Deliverables [10.27.05]

# Gamasutra - Game Law: Audit Rights - Use Em or Lose Em! [09.19.05]

Isn’t That Supposed to be Ducks?

Well actually no. Allow me to explain. I often counsel developers on the importance of focusing on building a great game studio to make great games, instead of focusing on making a great game to build a great game studio. The reason for this is that if you build a solid studio your chances of getting to make that opus you yearn to create is much greater. It also allows you to eat, have a home and live in a similar fashion to other folks in society instead of emulating the starving artists of our romantic fantasies. Quite simply, being consumed by passion is wonderful, but it does not pay the rent…and often leads to madness.

I Know, You Still Don’t See Any Animals.

Let’s take a look at the issues that need to be considered in building a sustainable business model for your studio. One thing you need is the ability to have a coherent projection of revenues and operating expenses, commonly referred to as a budget. I personally hate spreadsheets. But spreadsheets are the language of budgets much like musical notes are the language of music. I suspect that many studio heads dislike spreadsheets as much as I do. But the successful ones know how to read and write in that obscure language of the budget.

The simple fact is that without a projected revenue and expense model it is very hard to determine if you are succeeding or even whether your studio is in survival or extinction mode. I am not advocating letting the budget “tail” wag the company business strategy “dog.” But you do need to know when you are succeeding and when you are not. And budgets are a better way to check than that the old reliable, “Can I make payroll?” model. And even a bad budget should deliver the news well in advance of a catastrophe - hopefully in time to adjust.

Still No Animals, But We are Getting Closer.

In everything but the most basic games, a team is required to build the game. And in the more sophisticated games, that team is not of a consistent size throughout the project. I am going to avoid the funding issue for purposes of this example and just look at the development process in isolation. The dev cycle goes through several more or less recognizable stages that we are all pretty familiar with…concept development, prototyping, full design documentation, vertical slice, asset generation, feature lock, testing, GM candidate and final rounds of tuning and debugging, acceptance and release. However, there are significant differences in terms of the studio’s month to month budget associated with this process. Moreover, understanding and planning for these budget fluctuations can be critical to the success or failure of the studio, especially if it is operating as a single project studio.

OK, Bring in the Animals.

First the snake. The snake represents the project leads. Those core team members involved in the initial design and prototyping stages of the project. You probably know who I mean on your team. This is a tight group of highly talented individuals who bring home the meat. (The rest is mostly sizzle.) For purposes of this example, let’s say this is a 5-man team. They will be involved in the project from conception through delivery. And whenever the going gets tough, these will be the “go to” guys. They will probably also be the last members of your team to touch the game before the final GM candidate is accepted. The snake…

Now we introduce the pig. The pig is the vast number of people involved in generating the multitude of assets that comprise the full game. The artists, level designers, animators, scripters, tool programmers and all the others who build the assets that fill out the game and add that all important sizzle. In effect, the pig delivers sustenance to the snake. How? By being eaten of course. And the development process is then revealed to be like that old National Geographic image that haunted so many children’s dreams. That small head and long thin body with the huge lump in the middle. The pig in the snake.

What About Putting Snakes in a Row?

Putting your snakes in a row sure seems a lot simpler. And isn’t simpler often better? Well yes. But unfortunately, putting your snakes in a row will not work. At least not if you intend to have your entire team in house. Sure, outsourcing the pig might do. But aside from the whole team approach and control issues, even the most efficient outsourcing creates a it of internal pigish overhead. And if you don’t outsource, feeding the pig while only the snake is working will drag your budget into hell and your studio with it. I have seen this occur over and over with even the most talented of developers. In fact, aside from issues that arise when trying to grow a studio into a larger organization, this issue may be the most difficult for any studio executive to successfully manage.

The problem is that the same key people needed to finish the game in the final stages are in crunch and in no position to be working on the prototype for the next project. Moreover, they will likely be unfit to do much of anything for a few weeks after crunch is over. The solution is having the foresight to put your pigs in a row, not your snakes. This demands that the snake’s head be redirected at some point in the development process of project A to start thinking about and actually working on project B.

When Pigs are in a Row.

If we assume that it takes between 6-9 months to land a fully contract a deal, then working backwards from there should give you an idea of what point in the current project work needs to be started on the next project so that you will have enough of the next project completed to get it picked up without there being a serious cash crunch in the space between the pigs…err…I mean projects. If it takes 6 months of designing, prototyping and documenting to get to the point to pitch the next game, then you need to get started on it about 12-15 months before the project GM delivery of your current project. Sure, that seems like a lot of time…but think it through and it is really not. Especially if you consider the alternative.

When snakes are in a row.

When your snakes are in a row your studio is only looking at one project at a time. This is great for THAT game. But can spell disaster for the studio. Remember what I said about building a great studio to make great games instead of making a great game to build a great studio? Here’s where that comes to life. And this is not mere conjecture on my part. I have seen this happen time after time. You finish your current game and it is great. So, the team takes a month off to celebrate a job well done and to recover. Then you the start the design and prototyping process and are lucky enough to get a deal a year later…if you are still in business (most are not). Unless that game you delivered has the legs to recoup and deliver revenue within 6 months, you’re DOA. And realistically, that is not going to happen. Even with a hit it takes longer than that to get to first royalty report, and 2 - 3 quarters to recoup. So, unless you have about 18 months of overhead in the bank when you deliver, your dream of having your own studio just died.

The Benefits of Good Pig Management.

Getting those pigs in a row will lead to a long and economically sound life for your studio. The pressures of living on the edge of economic disaster will lessen and, who knows, you may even be able to have some fun, have a life and enjoy making games. After all, that is what this is supposed to be about. Being fortunate enough to make a decent living doing what we love to do. As an added bonus, if you get your pigs in a row, you are on your way to a smooth transition from a single project studio to a multi-project studio in the bargain.

[No animals were harmed in the writing of this article.]

Til next time, GL & HF!

One of my clients sent me an engine license to review for him. He was considering a few options and asked me to review and revise the contract on one of the engines he was interested in. I took a look and, typical of most middleware licenses, the middleware developer was delivering the license with few, if any warranties. Well as much as I would prefer that my client get some decent level of comfort in the software he was considering licensing, I understood the issues and was pretty much OK with most of the language. I did however have a concern that if the engine code included some open source software inadvertently included, it might compromise the commercial viability of the game. So I added language into the license agreement that warranted that the engine did not contain any open source computer code that would limit or negatively impact the commercial viability of my client’s game. I didn’t expect this additional language would be a problem since the inclusion of any open source of code would significantly impair the commercial viability of their product as well.

The engine developer told my client that they could not agree to the added language though they assured my client that the engine code had already gone through a full open source audit and was clean. This raised the obvious question. If the code was clean, why not agree to the language? When asked this question by my client, the engine developer’s response was, “Our lawyer will not allow us to agree to this language.” So, my client did the only reasonable thing he could under the circumstances, he decided to use a different engine. And, the engine developer lost the deal. Assuming what the engine licensor was saying about the code audit was true, what the heck was he thinking? Obviously he was not thinking. He was just doing what his lawyer told him. I guess you could say that “the tail was waging the dog!”

Bad Dogs

This month’s Game Law column addresses a very touchy subject, especially for us lawyers, the training and care of your lawyer. I am a firm believer that just like a kid and a dog, every game studio should have its pet lawyer to keep it safe and secure. One to be your friend and companion . . . and when appropriate to bark and growl at those who try to do you harm. It is also a sad but true fact that, just like with dogs, not all lawyers are well behaved and, if not properly trained, can at times cause more harm than good. Just like any good dog, they need to be trained, disciplined and under control or they might just bite you!

Sure lawyers get plenty of legal training in law school and in their day to day practice. But too often they don’t know your desires or the games you work on as well as you do. And few understand the subtleties of our industry as much as the developers they represent. They are ingrained with a commitment to vigorously protect their client’s right to the fullest extent possible. In fact, it is a core element of their ethic. Oddly enough, it is this training and commitment that can often result in serious problems for the developers they represent.

Biting Your Team

One of the most common ways this occurs is in the relationship between the studio and its employees. Game development is a creative process based on intellectual capital. It requires the collaborative effort of many creative individuals. It is also in large part grounded in a culture that has non traditional values when compared to most other businesses. And although not everyone in the game industry is “of the gamer culture,” most of those who create the games are. Moreover, experience shows that often enlightened non traditional management models create the best environments for creating great games.

A well-meaning attorney experienced with traditional employment agreements working to protect his client’s studio to the maximum extent possible, will usually come up with an employee agreement that is offensive to both the sensibilities of the most talented developers and contrary to an enlightened management style. If the studio head just asks their lawyer for an employee agreement and does not describe the cultural and management goals of the studio, they will get a contract that will quite likely interfere with their ability to get and retain talent. The inclusion of non-competes and overly broad intellectual property ownership that extends outside of the scope of the studio’s project can often bruise or even break employee relationships and make it difficult or impossible to get top talent. This is especially sad if the studio ends up with a bad result because they just used an employee agreement without going over it with their attorney to make sure that it is consistent with their management style and goals. This is like just letting your dog run free. It’s sure to chew up some of your favorite shoes if you don’t discipline that critter as to what is, and is not, acceptable behavior on your household. Your studio is your house. You, not your pet, need to set the rules.

The Cost of a Good Puppy

Sure enough, lawyers are expensive. And taking the time to review their work to make sure that it comports with your desires and values takes time. And, like most developers, reading contracts can be a bit painful as well. But ultimately, the harm that an overly aggressive and untrained lawyer can do to the potential long term success of your studio makes this a required task and expense. Otherwise your relationships, both internal and external, can suffer. And the more you engage in meaningful discussions with counsel about your business goals and values, the more likely they will be to incorporate your vision into the ongoing work that they do for your company. The more you treat them like an unwanted hassle, the more likely they will be to simply do a quick hack job on your work and what you are spending on them will not get you what you want or need. Rest assured, the extra time and money you spend on your pet will be rewarded.

Care and Feeding

Often lawyers are strong assertive personality types. And frankly, that’s exactly what you want on your side when things get tough. But this can also create a problem if the studio head is less assertive, as is often the case in a creative business like ours. Communicate your vision and your passion for what you are doing to your lawyer. It will give them insight into your business and a way that nothing else will. It will ultimately make them a valuable asset to your management team, not just an unwanted expense. You should consider throwing them a bone every once in a while too. I always let my clients know that in addition to getting paid, I require a boxed copy of any projects that I am involved in and a mention in the credits. Thoughtful perks like that make for a loyal companion and it costs little or nothing to provide these sorts of “bones.”

You are the Master

Remember that your attorney should be your trusted counsel. But ultimately, the decisions are yours to make, not theirs. Take their counsel and value it. But do not just abdicate your decision making to their advice. It may be easier, but, as in the opening example above, it can lead to situations where your lawyer’s best advice may turn out to be bad advice in terms of your business goals and the manner in which you wish to manage your company or working relationships. If you don’t make the final decisions on these business matters, you may end up bruising your internal relationships with staff through an overly oppressive employee agreement or even losing business due to an unreasonable lack of flexibility, like that engine developer did.

A Good Pet is Worth the Effort

I’m not saying that you need to take your lawyer for a walk every day. But a little extra training and thoughtfulness will make for a loyal and long term relationship that will serve you and your studio well. Get them to understand the culture of the industry and your company. In the long run it will be well worth the extra time and money you spend in the process. You will end up with a loyal obedient companion who will not bite you, your employees or your business partners!

Til next time, GL & HF!

Tom Buscaglia
The Game Attorney © 2008

Time for Some Campaigning

Enuf said!

Tom B

I am not sure if it’s the long gloomy winter months, or if it’s just indicative of having seasons…but, I am lovin Summer this year. After 20+ year in Miami where the weather goes from nice in the winter to unbearably too nice in the summer, having seasons is a hoot. Here that is just not the case. Spring was none too springie…with the cloudy weather dragging on way too long for my taste. But it did help with all the plantings. It seemed like summer would never arrive. ..and after a long dreary winter and cloudy wet spring I was for sure ready.

Well it hit about two weeks ago. Temps in the 70’s and 80’s….lots of work around the house including getting the house stained (it has cedar siding) and tons of work on our garden working to make it a sweet spot to hang out. Som time for taking Sadie to the beach to show off her incredibly fetching skills. And a great deal of wandring around enjoying that strange light in the sky…I got a chance to break out all of my Hawaiian shirts and shorts. Sweet!

Things cooled off yesterday and it may rain through the week end…but I think I can handle that. I sort of needed a break from the great weather to get some work done as I get a little wonkie when the sun shines…it just seems more special now that it did when it was a daily occurrence!

Life is good….

I am sure you hear that all the time. But for me it’s true. In several ways. But for now, let’s focus on my career. Being a musician before law school, I knew that there was only one type of lawyering I wanted to do…trial work. After all, the jury was just a smaller audience. And I had already been studying the dynamics surrounding the feedback loop that occurs when a group of people give heir attention to one person. I had learned through my days as a rock musician that attention is both empowering and malleable. So trial law was a natural for it. And if I do say so myself, I was one MF of a trial attorney. I loved the pressure, the focus, the need to be totally aware of your surroundings and having someone interests or even freedom, in my hands. Pretty heady stuff. for sure.

Trial initially grew out of the days when the “royals” would each select a champion to do battle for them to resolve their disputes. (The magazine for a national criminal defense association is actually called “The Champion”) And I loved the combative nature of trials. Within the framework of a strict set of rules, at its core, it is still war! However, as my law practice changed over the years, trials grew fewer with only one a year, and if I did not get my “fix” of combat I would tend to get even more surly that normal, which is already pretty surly! Around this time I found Quake…

Well it turned out that Quake was able to fill the void created by my lack of trials. My “blood lust” was sated by virtual fighting shoulder to shoulder with my fellow Clan members in F8S. And at that point in my career I was starting to tire of the total BS surrounding civil litigation and no doing much of any criminal work any more either. So, it was time. And Quake had some added bonuses. The community of folks playing QW Thunderwalker CTF became my tech mentors. Playing online I learned a ton about networks and needing to upgrade from time to time, I learned about PC’s. And out of my interest I started to learn way more than any sane lawyer should know about everything from polygons to algorithms. And many of the folks from the Old School TW days moved into the industry and we see each other often at the industry events, adding a sense of continuity to this whole crazy trip. But most of all, Quake introduced me to the game industry that I have grown to love and found a home in and to the folks who makes then. And now I have the pleasure of doing what I can to help those folks make those life changing games we play and love.

Now I no longer need a trial to “get right.” and do nothing but Game Law for a living. I even still play Quake every once in a while.

Pretty sweet!

Thanks Quake!

Let’s start with a few basic concepts. Developers make games. Successful developers sell their games. Publishers are the vehicles through which developers sell their games. Too often a developer says, “We just want to make great games” while the publisher says, “We just want to make money.” Unfortunately, that is all too often the result. The developer makes the game while the publisher makes the money. Why? Because the publisher is in the business of making money, not just in the business of selling games. That means maximizing their revenue from the exploitation of all aspects of the games they sell. If a developer believes otherwise, even if the developer makes money, they may well be getting the short end of the whole deal.

Clever Business People

There are some things that Publishers excel at and one of them is coming up with new and innovative ways to commercially exploit games. This means more revenue from the games we make. Of course, we have to be savvy enough to ask for our share of this additional ancillary revenue to get some. Often the developer is so focused on getting a publisher to sell their game that all they look at are the royalties from game sales. If all the developer asks for is a portion of the revenue from the sales, what’s all they’ll get, regardless of how much ancillary revenue a game generates. And publishers are getting really good at finding innovative ancillary revenue streams from the games the sell.

A Case Study

A developer I met at GDC contacted me a few months ago. They needed my help on a publishing deal with a major publisher. These guys had been doing licensed games for years and making a decent living doing it. Now they had a shot at releasing their own original IP. The publisher wanted the game to add to their portfolio for presentation to the press at E3. And they were willing to do the deal allowing my client to retain ownership of their IP with a favorable royalty rate on sales. Tentatively, a really good deal. So, it came to me to review the contract and see what I could do to earn my fees by making this deal as sweet for my clients as possible.

As expected, there were some of the usual “minor” issues with the contract that had to be addressed, and a few twists. Although the royalty split as acceptable, there was mention of the publisher’s right to exploit several additional potential ancillary revenue streams with no participation by the developer. In-game advertising, for example, was included with no revenue split. There was also a vague reference to the publisher having a right to B2B relationships relevant to the game, but no description of exactly what that meant. When pushed for the details of what sort of B2B deals they might be looking at, the publisher just danced around any meaningful answer. Of course, this sort of behavior made me even more suspicious that this might represent a clever new revenue stream from the game. Call it my jaded lawyer’s suspicious nature.

Eventually, through some rather persistent negotiating, we were able get the publisher to agree to pour any in-game advertising and any B2B revenue into the revenue pool. I pushed for a straight 50/50 split on this ancillary revenue because, in effect, this is found money for everyone involved. And as my old buddy, super agent Barry Friedman, likes to say, “All deals start at 50/50!” But, the publisher held firm to applying the same royalty split to all revenue from any source. But just in case the publisher found any other way to exploit the game that was had not covered, I also include in the contact a “catch all” provision pouring any and all revenue from any commercial exploitation of the game from anywhere into the royalty pool to be split with the developer. Of course, there is always the accounting of these revenues later to be dealt with, maybe even an audit or two. But this could ultimately mean a significant amount of additional money for the developer.

Modern Problems

As I said, publishers are not the business of just selling games; they are in the business of making money. Any time a new or unusual revenue stream comes into play it is the publisher who initially benefits. This includes anything from lunch boxes and action figures to movie rights. For example, when in-game product placement began, developers rarely saw any part of these revenues . . . at least until they started asking for it. The same thing occurred with in-game advertising. Again, this was additional revenue to the publisher long before developers ever saw any share of it. But as the development community became aware of these revenues, developers started asking for, and getting, their piece of the pie.

Developers owe it to their own success to be aware of and always seek to participate in these new inventive ways to commercially exploit the games they make. When negotiating your deals always push for an even split on these ancillary revenues. After all, they do not have any of the risks or costs associated with their distribution of the game itself. No funding, no marketing budget, no manufacturing costs, no distribution costs and no platform license fees. Just third party deals that bring in revenue outside of the traditional distribution channels.

Sublicenses are Ancillary Revenue Too

I always attempt to apply the same revenue model to sublicense deals as well. Although most major publishers now have direct distribution worldwide, often second tier publishers only distribute the game in one territory, but secure world wide rights. Then they sublicense the game in other sub territories. On these deals the regional sublicensed publisher often provides an advance to the publisher for the right to sell the game in that territory and gets a localized version of the master. In effect, they assume all of the marketing and distribution risks for the game in their territory. But instead of getting the negotiated royalty rate in these sublicensed territories, the developer only gets a percentage of the net received by the publisher, that is, a percentage of a percentage.

For example, if sublicensed distribution deal is at the same rate as the primary distribution area the developer takes a huge cut. At a 25% royalty for a game that, after allowed deductions, nets $24 the developer would get $6.00 royalty per unit. But in with a 25% sublicense, all other things being equal, the developer ends up getting only $1.50 per unit, and that’s assuming that the game sells at the same price point. Ouch!

The publisher, however, has none of the marketing or manufacturing expenses that it has in the core territory where it actually manufactures, markets and distributes the game. Often second tier publishers actually generate more revenue from these sublicenses than they do from direct sales, but with little or no risk or expense. So, if there is going to be any sublicensing, do your best to carve it out and get it treated just like any other ancillary revenue. Go for the same 50/50 split you should be pushing for with any other the ancillary revenue, and for the same reasons.

It All Starts at 50/50

So, always look for additional ways that your game might be being monetized. Think about what risk these revenue streams pose to the publisher. If there is little or no risk involved, press for a higher royalty rate on these revenues. Your publisher may not like it, but there is a valid logic to this arraignment and a strong argument in favor of it as well. You may not get it, but it is sure worth asking for. And one thing is for sure with publishers - if you don’t ask, you don’t get.

GL & HF!

Tom Buscaglia
The Game Attorney © 2008

Here’s a video of the Katamari ball that we built at the IGDA Booth at GDC this year…some fun!

I have decided to run for re-election to the Board of Directors of the IGDA. Yeah, I know,what am I a glutton for punishment? Well, maybe I am. But, I truly feel that my work with the IGDA is important and I am committed to working to keep helping the IGDA deliver true value to all of its members. Or maybe this whole election year thing got to me!You can read my Candidate Statement if you like.

So, vote early and vote often…for me!

I will be attending the Game Developers Conference in San Francisco as usual this year. I’ll also be doing a presentation at the GDC Independent Games Summit on Monday. I’ll be hosting get togethers in The Game Attorney suite at the Westin Market Street Hotel (formerly the Argent) nightly. So, stop by for a chat and a beer.

If you would like to meet with me at GDC, call me at 206-463-9200 to set up a meeting.