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December 2, 2008

Game Law Articles Updates

Filed under: Thoughts and Rants, Game Law Articles — Tom B @ 1:52 pm

As you may know, I have published a bunch of articles on the Gamesutra.com entitled “Game Law” and elsewhere various industry business and legal issues. I have them assembled here in case anyone had any comments or questions about the topics covered. Since I was provided an “Expert” blog on Gamasutra a few years ago, my articles have been done on this blog and copied there. So, in addition to the links below, you may want to also check through the other posts here for other articles of interest. You are welcome to redistribute any of these articles or posts for free, so long as you include include my copyright notice at the end of each article and my firm’s web address. Please include the legend “© 2011, Thomas H. Buscaglia, All rights reserved” and the www.gameattorney.com URL in each article posted or published elsewhere. The sale or any other commercial exploitation of these articles, in whole or in part, is strictly prohibited.

Here’s a list of, and links to, my Articles and publish dates:

# Gamasutra - Game Law: So, What’s the Dealio? [10.23.08]

# 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]

So, What’s the Dealio?

Filed under: Game Law Articles — Tom B @ 1:45 pm

The proper negotiation of a contract is a process that is too often ignored by developers, especially those eager to get a deal. I suspect that part of the reason for this is that the stereotypical game maker neither likes nor enjoys the process.

The harsh reality is that many, if not most, publishers are so used to developers being passive about the negotiation process that they have become arrogant and unwilling to actually engage in a meaningful negotiation dialog with developers.

Instead, they too often become rigid and inflexible when it comes to their contract negotiations. And I suppose this attitude comes in part from, among others, the following factors:

* An overwhelming financial advantage held by publishers in the relationship

* Publisher risk aversion

* The perception, at least, that there are more developers than deals

* A failure by developers to have or communicate a long term vision for their studio

* A lack of appreciation of the “process” of contract negotiation

* Developer fear, rather than appreciation, of being exploited

These factors are certainly not present in every deal dynamic, nor do they apply to every publisher or developer.

Moreover, with the vast array of innovative approaches to succeeding in the industry, even the traditional developer-publisher model is hardly a standard for the way we do business.

However, there may be some value to just accepting the stereotyping for the moment and proceeding with the discussion to see where it takes us and what we can learn in the process… so, shall we proceed?

Publisher Financial Advantage

Sure, the publisher has the money. And lots of it. And the developer needs the money to make the game and build their studio. What possible leverage can the developer have in a situation like that?

Well if you look at it like that, it may actually make sense to take whatever deal the publisher offers and just “take your beating like a man.” But, I don’t think so.

Step back a little and consider what it is that the publisher sells… games. And what does the developer have that the publisher does not?

A game. And all the money in the world is useless to a publisher if they have no games to sell — unless they want to open up a bank.

Oh yes, they want and need your game. If they didn’t, they would not be talking to you. The old Steve Miller song, “Your Cash Ain’t Nothin’ but Trash” comes to mind.

So, while the developer may desperately need to dollars, the publisher needs the games. I sense the makings of a mutually beneficial business relationship.

Risk Aversion and a Clever Diversion

Publishers, as businesspeople, focus a great deal of attention on risk avoidance. They sometimes even use it as an excuse to convince developers to accept terms in a deal that are, in reality, unnecessary or overreaching.

In a deal with a developer the easiest way for the publisher to minimize risk is to put as much risk as possible on the developer. So, back-end loaded budgets, long payment procedures and the necessity of the publisher owning the IP is standard “policy” for many publishers.

Well, as a professional negotiator, I’ll tell you what I hear when someone says “it’s policy” or “it’s the standard deal in the industry.” I hear nothing.

If the publisher cannot provide a realistic logic-based justification for an adverse contract provision, make them or don’t agree to it. And if the best they can come up with is “reduction of our risk” be extremely skeptical.

I recently ran into a really clever ploy by publishers. In order to overcome the objection to IP assignment for original IP games, instead of demanding the IP ownership in the deal, publishers are now allowing the developers to retain IP ownership until after the game is released.

However, the publisher retains an option to buy out the IP (and in the process the developer’s rights to a back-end royalty in the process) if the game performs above a certain level.

What level, you ask? Well, it is inevitably some time before the advance recoup point when back-end royalties would normally kick in if the game is a hit! You really have to admire their guile.

If the game sucks, the developer can keep the IP. But if the game is a hit, the publisher owns it and the developer gets screwed out of any back-end royalties in the process!

More Developers than Deals

There is certainly a perception that there are more developers and games than there are available deals. There certainly are.

However, that does not apply to the right game at the right time. Each game is in many ways unique and if you are lucky enough to garner the interest of a publisher you can rest assured that they believe that your game will succeed.

It could be unique gameplay, your team’s reputation in the industry or filling the right slot in the publisher’s portfolio strategy. But regardless of why they want your game, once you pass that threshold, you no longer have one of the many games in the marketplace, you have the game that the publisher desires.

And, as I already stated, getting the right games to publish is the whole point of the exercise for the publisher in order to insure their ongoing success.

Long-Term Vision

So, what does having a long-term vision for your studio have to do with your negotiations? Initially, the impression the studio makes on the publisher can make a significant impact on the course of the negotiations.

Conveying a coherent vision can instill a sense of competence in the mind of your contact at the publisher — that the developers are serious-minded about the long term success of their business, not just their current game. This level of respect will usually have a positive impact on the process.

Also, having a long term vision for the studio can impact the sort of deal that will ultimately be acceptable to the studio.

After all, taking a deal that does not provide sufficient revenue for the studio to survive the development process and stay healthy in the post-release period is important, especially if the long term goal is to build a great studio, not just to make a great game — which should be the long-term goal of every studio.

The Negotiation Process

A negotiation for a deal is a process, not an event. Developers too often look at the initial offer as the end, not the beginning, of the process. But think about it. Would you expect the initial offer to be the best deal? Certainly not.

In fact, the initial offer is usually the best deal that the publisher thinks they can get. But it is sure not the best deal the developer can secure. In fact, it is often a bad deal for the studio.

Of course, it is gratifying to get any offer, any offer, to get your game made. And it is usually the result of a long period of effort by the developer to get a deal.

But that alone does not make but it a deal with taking. After all, sometimes the best alternative to a negotiated deal is no deal at all.

Naturally, getting a deal is the point. But some extra time, thought and perseverance can make a significant impact on the result.

And don’t think that you are going to offend the publisher by working them a little. They negotiate deals all the time — much more than developers do. They will generally look at it as an expected course of action.

My initial response to a first offer is to respond with the studio’s best possible deal. After all, the publisher just probably sent the studio the publisher’s dream deal — so a similar response is appropriate.

This is especially true if the publisher’s offer is extremely exploitive of their perceived superior bargaining position. And they may just be in the habit of getting everything that they ask for.

But remember that the initial offer will usually remain there. So, the studio really has nothing to lose by testing the publisher’s resistance in the process and making a counteroffer that includes everything that the developer wants and needs.

And in the process don’t worry too much about what the publisher will ultimately accept. Let them decide how much they are willing to give. That’s their job, not yours.

So if you find yourself holding out on asking for something because you don’t think that the publisher will agree to it, don’t. Let them negotiate their position. You negotiate yours. And if they are in a position to deal, you can rest assure that they are quite good at knowing what they want.

Exploitation

Developers build games and publishers exploit them. That should mean that publishers exploit the games, not that publishers exploit the developers. What every developer should want in a developer-publisher partnership with someone who is really great at exploiting their game.

After all, the commercial exploitation of the game is where the money comes from. And few, if any, developers are really good at exploiting their own work. But then, few, if any publishers are really good at making games. That’s why they keep buying studios.

And it is also may be why so many studios tank after they get purchased by publishers. So long as the negotiation takes this fact into account, it is truly a win-win situation for everyone.

Make a Great Deal for a Great Game

It takes a huge amount of time and effort to make a great game. And it also takes some serious time and effort to make a great deal. And by that I mean a deal where everyone wins, both the publisher and the developer.

So, put the same degree of focus energy and time into the deal they you do into the game and who knows… you may build that great studio in the process.

Til next time, GL & HF!

Tom B

July 31, 2008

Get Your Pigs in a Row!

Filed under: Game Law Articles — Tom B @ 3:09 pm

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!

Tom Buscaglia
The Game Attorney © 2008

Man’s Best Friend Sometimes Bites!

Filed under: Game Law Articles — Tom B @ 2:15 pm

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

March 16, 2008

Game Law: 50/50 Deals on Ancillary Revenues and Sublicenses

Filed under: Game Law Articles — Tom B @ 1:58 pm

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

December 12, 2007

Game Law: Discipline and the Up Sell

Filed under: Game Law Articles — Tom B @ 7:02 pm

Game Law: Discipline and the Up Sell

A few years ago one of my client studios was just starting out and had landed their first game deal. It was a bare bones sort of deal with minimal funding. But the game that they pitched could have probably been delivered within budget. The game was a PC FPS built around a multiplayer theme, with a ladder system for the single player using the same maps as the multiplayer. The AI for the single player was pretty much within the scope of what was built into the engine they were using. The PC release was to be followed, at the publisher’s sole option, by an X Box version.

The agreement with the publisher was a typical staged milestone deal and had the design document attached to it. These guys were in heaven. After doing contract work for a few years, they finally had their own game based on their own original IP. They went out and rented cool offices, got new computers and brought on a few additional developers to bring their team up to size. Everything was good. Each of the members of the team was extremely talented and as a team, they were amazing. And they were totally stoked. But, it was their passion, combined with a lack of discipline that was their downfall.

As they began development in earnest, they realized that although the single player ladder model would be OK for the PC, it would not make it on a console where multiplayer had not yet gained any acceptance. Without a solid single player experience, the game would never be green lighted by Microsoft. The publisher contract was back end weighted, so the X Box part of the development followed the PC with more money allocated for the development of the console version of the game.

The multiplayer design was done, but that single player design challenge was out there. As they brain stormed about all the cool things that could be incorporated into the single player game, they began to develop their design. A 21 level linear adventure with AI driven NPC allies and enemies. A real multiplayer experience in a single player game. Awfully ambitious. But they believed that they had the talent to do it. (And in my opinion, they did.)

When they took this new and substantially enhanced design to their publisher, the publisher was thrilled. The team also told the publisher that rather than waiting to do this for the X Box version, that they thought it would just make more sense to do it in the PC version first and then port it to the X Box. After all, why not deliver all of these cool features on the PC as well. The publisher was all for it. This was gonna be great! This is also where the title to this article comes into play…Discipline and the Up Sell.

At this point they should have taken into account more than just how cool this game was going to be. But their passion blinded them to the harsh realities of running a business. The scope of the project had changed substantially. More features, more levels, a more demanding AI; all would necessitate more time to completion. And as we all know (or should know) more time means more money out the door for salaries and expenses. Sure, publishers get upset when a game slips. But the real problem with slippage is the addition operational and personnel costs to the studio. And this was not even a slippage situation. This was a situation where the studio knew that the new expanded design would require significantly more time to complete. And while the game that they sold originally could have been made within the original budget, this new game would ultimately take twice as long to build, which meant it would cost twice as much to make.

This did not have to be a disaster in the making. If properly addressed, it could have been a huge opportunity to make the game they wanted to make and get enough money to do it. It’s called “Up Sell.” We have all had it happen to us. You go in to buy a used car and they show you new ones. You want the simple version but all you are hearing from the guy in the appliance store is all the features that the high end model offers. “But we’re game developers, not cheesy appliance salesmen,” you say. Sure, but the example still holds. And the point is even more important because we are not salesmen trained to do this.

Many new developers just want to make the best game that they can. But if they do not condition that desire with discipline to, “We want to make the best game we can within our budget,” their dreams of having their own studio may well never come true. Call it slippage, feature creep, “going the extra mile” or whatever else you want. But if you commit your studio to do it anything without getting paid for it, I call it just plain foolish.

Our example was a perfect opportunity for an up sell. The game budget was back-end loaded with most of the advances tied to the X Box option. But under the new model, by shifting revenue from the X Box to the PC version, which would now have many of the features reserved for the console title, more money would be available for the PC development. And the additional features and expanded design would also require more time and, therefore, a larger total advance. But the publisher loved the new design. The selling part of the up-sell was already done. The part that was lacking was the new price. This ultimately cost the studio everything.

They brought me in to help out in late in the project. I was able to renegotiate the milestone payment structure to move more of the back end payment to the front end because they were getting into difficult financial straights. But by that point they were already fully committed to the revised game design. So, reverting back to the original game they sold to the publisher was not an option. So, though the game was released, the studio took a huge loss on it and shut down shortly thereafter.

Using the magnificent magical prism of 20-20 hindsight, it is easy to see what they should have done….after all; figuring out what should have been done is always way easier than figuring out what to do in the first place. But maybe this article will help someone else avoid this particular pothole on the road to building a successful studio. Here the additional features and revised game design were great. And getting publisher buy in was also right on point. In fact, the more the publisher is salivating for the enhanced project, the better off you are. But (here’s where the discipline comes in) at this point a full realistic analysis of the revised project schedule and the impact that this will have on the budget needs to be done. Yeah, I know…this is not what you got into game development to do. But if you want to run a studio, you better cowboy up and do it or find someone else to do it for you!

With the publisher fully bought into the new design and features is the right time for the Up Sell. Just go to the publisher with the revised budget and let them know how much more time and money they will have to advance to get this great “new and improved” game. Of course, at that point you also need to be disciplined enough to say (and mean) that if you don’t get the new budget, you just can’t make the enhanced version and then just deliver the game as you initially sold it. If the publisher sees the additional value, they will pony up the additional dollars to make it happen. And if not, you’ll just have to save all these cool additional features and enhancements for the sequel or your next title. This combination of “Discipline and the Up Sell” can go a long way toward helping build a successful development studio.

A few parting thoughts - OK, one reason I picked the topic of “discipline” is because I figured the editors at Gamasutra would come up with some really kinky pictures to go with the article. And, in case you are wondering what happened to the folks at the studio in our example, well, it seems that every cloud does have a silver lining. Although their studio is long gone, all of the developers involved are doing well and have extremely successful careers at some of the top studios in the industry.

Til next time, GL & HF!

Tom Buscaglia
The Game Attorney © 2007
www.gameattorney.com

August 27, 2007

SCRUM Deals - Good, Bad or Ugly

Filed under: Game Law Articles — Tom B @ 8:48 am

SCRUM Deals - Good, Bad or Ugly!

SCRUM, the latest craze that’s sweeping the industry. Agile, egalitarian and accommodating to iteration. What could be sweeter? Yes, it’s another step closer to the game developer’s promised land . . . or is it? More importantly, even if it is the promised land and your studio wants to SCRUM, will you be able to and what will the contract for a SCRUM deal look like. This is a natural continuation of ideas I presented in an article I did about 2 years ago entitled “A Case for Flexible Milestone Deliverables.

What is SCRUM?

For the uninitiated, let’s take a look at this “new” developmental paradigm and see how it stacks up. For the uninitiated, SCRUM is named after the “group hugs” that occur in the game if Rugby . . . it is sort of a cross between an American football huddle and a hockey face-off. What SCRUM refers to is the agile management of the development process with several levels of periodic review and adjustment of goals and tasks by the manager (sometimes referred to as the SCRUM Master). Google SCRUM and you’ll find detailed descriptions of the process and more sites than you can shake a stick at pitching everything from training and support software to books and consulting services. But, hey . . . this is the Game Law column, not a bit on development management. So, before I start embarrassing my self, I’ll just try to follow the old KISS rule . . . and Keep It Simple Stupid!

The Good . . .

SCRUM seems to be just chock full of innovative ideas. For example, it breaks down many of the barriers to communication within the development team hierarchy. Daily, weekly and monthly meetings involve the entire team (or at least the entire core team). In this manner everyone who has something to say gets to say it . . . or at least should have the opportunity to do so. Obviously this can contribute to identifying and correcting problem issues effectively and in a timely manner. And it has the added benefit of increasing team morale by instilling a sense personal ownership in the project by all of the team members.

In addition, this process facilitates ongoing iteration of the project, something that most game developers agree makes for better games. Witness the work of the top studios if there is any doubt. Bungie, id, Valve, Epic . . . they all iterate the hell out of their games and don’t release them until they are done. The story board - design document - production plan - hard milestones - set delivery date model that is used for many games, especially captive (publisher owned) studios and for licensed IPs, just never seem to be able to produce truly great games. Many believe that is it this hard development delivery model that is why even mega-budget major movie IP related games may be able to hit their Theatrical film based release dates . . . but never make that leap to the top level as far as immersion and engaging gameplay. Iteration does that. Hard set deliverables and deadlines don’t. So, in short . . . it is the increased efficiencies, a happy engaged team and the ability to iterate that result from the SCRUM model that is the “Good.”

The Bad . . .

Woohoo . . . let’s all run out and restructure our studios so we can SCUM. Then we’ll be able to make those great games just like the big guys. One small problem here . . . most studios do not have the internal resources (that means the money) to pay for this. Without self funding the entire project, third party funding through a publisher, or other third party, is required. And Publisher’s reps may think it’s cool idea, but the vagueness of the process does not comport with their corporate oh so risk adverse business practices. If they are going to fund a project, they will want clearly defined objective milestone deliverables, not some fuzzy etheric mumbo jumbo about “Sprints” and “Back Logs” with soft milestones based on the % of completion of a loosely defined project goal and subject to ongoing alteration by design. If a studio does not have a string of AAA hits in its portfolio, they’ll will be searching long and hard for a publisher that will even consider funding this type of deal. So, for the vast majorities of studios, SCRUM may be an interesting management exercise that they can learn a great deal from . . . but the total adoption of the “real deal” full SCRUM model is just not economically feasible.

The other problem is that in most successful studios with sufficient publisher cred to allow them the freedom in their deliverables to experiment with the process, already have a methodology that works for them. They already are really good at doing things the way they are doing them now. So, why mess with success? Sure, SCRUM sounds cool. But, as with any new technology that offers the benefits of higher efficiencies, the overhead of learning the new methodology often overshadows the value of the new process. And, of course, the ever present fear, or at least significant distrust, of the unknown.

The Ugly . . .

[NOTE: This may not really be that ugly . . . but the title was too good to pass up.]

Like I said, two years ago I did a Game Law article for Gamasutra entitled “A Case for Flexible Milestone Deliverables.” And at first blush, documenting (that is, doing the contract for) a SCRUM deal appears to fall into the type of situation addressed in that article. In many way it does. But in others, it is not. The flexible deliverables part sort of fits . . . but not really. [Hmmmm . . . this may be going to get ugly after all!] Developing contract provisions adequate to address the ongoing funding of a SCRUM based development pretty much trashes the whole idea of hard set objective predetermined milestone deliverables. If that is the case, what is a publisher to look in order to gain the level of comfort necessary to continue funding the developer’s SCRUM based “creative adventure?” I know, the publisher could just trust the developer to do the right thing . . . yeah, right.

One possible answer might be to have the publisher actually manage the SCRUM process through its producer. They could be in on the SCRUM meeting and have input into the process. The publisher’s rep could even be the SCRUM master. Of course, this would require the publisher to get SCRUM training for their producers. And it would make it extremely difficult, if not impossible, for a publisher’s producer to shepherd more than one game at a time due to the frequency of the meetings. Then there is the whole idea of the developer sacrificing its creative autonomy and a huge potential for bad “chemistry” between the publisher’s rep and the development leads . . . a notoriously difficult relationship under the best of circumstances. [This really is ugly, isn’t it?]

I suppose that with a relatively enlightened publisher (and only a few come to mind) it might be possible. But since when do publishers push innovative development methodologies. Besides, it would, for sure, require much more tender care and attention in the process than most publishers would care to tolerate. In short, it is not realistic to expect your publisher to be driving or even enthusiastically supporting the adoption of the SCRUM methodology into your studio. It not something they want. It is something the Studio wants. But even then, everyone involved on both sides of the deal would have to believe in and be committed to the SCRUM process. Of course, the end result may be well worth the effort, especially if SCRUM delivers on its inherent promises.

So, where does that leave us?

We are back to that question that was raised earlier - “What would the contract for a SCRUM development deal look like?” There will, of course, need to be periodic payments to the developer to cover the development budget. These payments have to be attached to a triggering event that the publisher or other third party funding entity can use to assure itself that the development is, in fact, on track to completion within the basic parameters of the game that was pitched. (After all, even with SCRUM, there is still an underlying game finished concept that is the objective of the development). The triggering event could be as simple as an acknowledgment or even passive approval of the ongoing progress of the project by the publisher. Or it could require written publisher approval of a monthly written milestone completion report based on target comprised of the previous month’s Sprint (monthly) goal set. In a stretch, a similar result could be accomplished with that stale old traditional publisher/developer agreement through periodic amendments to the contact adjusting the milestone deliverables, though this would for sure be tedious.

One thing is certain, as more developers incorporate SCRUM into game development, the terms of the contracts that govern their projects must also change. And for those who do want to make the transition to SCRUM, obtaining the appropriate contracts necessary to support the new development model is a must in order to proceed without huge additional potential risk. After all, if the contract does not reflect the actual business relationship between the parties, problems inevitably follow. And since it is the developers who are driving this innovative transition, it is the developers who will need to take responsibility for the contract alterations. Don’t expect your publisher’s legal department to help create a unique contract for you that adapts to your new project management model and protects your economic interests in the process. It won’t happen. As with all contracts, care needs to be taken to assure that the contract reflects the deal. New innovative business methodologies demand contracting solutions just as creative as the management ones offered by SCRUM development based deals . . . Good, Bad or Ugly!

Til next time, GL & HF!

Tom Buscaglia

June 25, 2007

Game Law: Competant Counsel

Filed under: Game Law Articles — Tom B @ 5:42 pm

Competent Counsel

Last March at GDC I had the misfortune of contracting the nasty crud like cold that was going around. The cold, combined with the usual late hours and less than normal sleep, made for some incredibly sluggish mornings. So, as I was sitting in the Marriott hotel restaurant having lots of coffee and some breakfast a few days into the show, I noticed the folks sitting at another table near me. To be honest, I could not actually hear the conversation and have no proof that my impression of what was occurring was, in fact, true. But it sure looked that way to me and I tend to trust my gut. Besides, for purposes of this article, I guess it doesn’t really matter . . . I’ll just pretend I made the whole thing up as a clever way to make a point.

Sitting at the table were, on one side, a casually dressed young man and woman who looked like budding game developers. On the other side of the table was a nice looking fellow, not much older, wearing a suit, but no tie (publisher informal I presume). There were papers on the table and it appeared that tieless publisher’s representative was going through the document and explaining the elements of the contract to these rookie developers. It had 1st deal written all over it. It also had disaster written all over it as well.

I was horrified. I wanted to get up, go over there and make them stop. “What’s the big deal?” you say. After all, they weren’t signing the deal. There was no indication that they even believed what he was telling them or trusted what he was saying. They could have a decent lawyer or business agent at their disposal and were really just having a little discussion so that they could get clear on the deal terms. Besides, the suit seemed like a decent enough guy and for sure knew way more than they did but this sort of thing. Who better to ask? No harm, no foul . . . right? Wrong!

Certainly anyone new to the business end of the games can gain a great deal from talking with folks with experience in the industry. And who does more deals than a publisher’s rep anyway? There is for sure a big difference between making a great game and making a great game deal. So, it’s natural to want to acquire as much information as possible when looking at getting that first deal. It’s just that the publisher’s representative that you are looking to get a deal with is the last person you should be getting this information from, even if he or she is a great person and being really straight with you.

First - the obvious. No matter how much he may love your game (he would not be talking to you about a deal if he didn’t), this guy works for the publisher. That means that at the core, he is on the other side of the deal and has substantial responsibilities to their employer that he must honor. More importantly, unless he has experience on the developer’s side of game deals (and some publisher reps do have this experience) even if he really wanted to help you out he still doesn’t have the developer’s perspective on a deal. The reality is that a publisher’s rep will not give you anything in a deal that you are not savvy enough to ask for, even if he or she could deliver it as part of the deal if you did ask.

Second, you immediately make the publisher’s rep the authority on this deal. He’s the one who “knows” and you are the ones who don’t! You see, even if your publisher’s rep is a great person and wants to help you, you have giving up your bargaining position by revealing your lack of experience relative to the business of games. Once that impression is made on a potential business partner, it will stick for the duration of the relationship. Moreover, even if they do not want to intentionally take advantage of your relative naiveté, once they know that you do not have a solid handle on the process or what to expect, they will be in the position to dictate the entire deal. There is really no need to let a potential publishing partner know exactly how green you really are. After all, many new developers have folks on board with business experience and the more competent the publisher rep believes you are, the less likely they are to take advantage and the more likely they are to accept provisions favorable to your interests.

This does not mean that you should misrepresent your level of business acumen. Just don’t broadcast your lack of it. Stay cool and take your time. Don’t spill your guys and try not to go all giddy just because someone who can help get your work to market actually likes it. After all, you are in the dream business. Making your dreams into reality is what developers do. So, don’t go all “school girl” if someone takes a shine to your work and you begin to succeed. It happens. Maybe not as much as we would wish, but it happens every day. Play your cards close. Don’t jump at the first indication of a deal. Do not let anyone push you into or through a deal. If you are lucky enough to get into a negotiation, take your time and go slow.

There is a scene in the film adaptation of Steinbeck’s “Cannery Row” where Nick Nolte’s character Doc, a marine biologist working on the cannery row, takes Suzy DeSoto, a hooker from the local brothel played by Deborah Winger, out to a fancy dinner. She has never been to a place like this in her life and is worried that she will not know what to do as the meal progresses, what with all the numerous different forks, spoons and such. As Suzy narrates the experience, she gets through by making her moves mirror Doc’s and always stays a little behind him, going slowly move by move through the entire meal. And in the end, she pulls it off and it worked out fine. No one even suspected that she was in way over her head the entire time. Similarly, when you move into a deal scenario, take your time. Don’t broadcast your inexperience. Everyone naturally assumes that those they deal with are as competent as they are. So, don’t show them different. And for someone starting out in this business, that just may help get you a deal that is better than the one that might otherwise have been offered.

The assumption that every developer gets screwed in their first deal need not apply in all cases. It sure doesn’t have to. So, take your time Suzy . . . and things may just work out all right. I sure hope it did for those folks at the Marriott!

Til next time, GL & HF!

Tom Buscaglia
The Game Attorney © 2007

October 1, 2006

Hey, that’s not the deal we talked about!

Filed under: Game Law Articles — Tom B @ 5:36 pm

Development studio business leads sometimes are able to negotiate a deal with a publisher that meets their studio’s business needs. But, as is often the case when confronted with an unfamiliar and tedious task, they become more interested in getting their contract signed than in getting it right. This frequently results in the studio losing deal points that they spent time and effort negotiating in their preliminary discussions with the publisher by entering into a written contract that bears little resemblance to the deal that they originally discussed with the publisher’s representative. Understanding why this happens and learning how to deal with it are essential skills needed to build a successful studio.

A Rather Extreme Example

Several years ago I was working with a team that had done a very successful PC Mod who were transitioning into an independent development studio. Their agent had contacted the Publisher of the game they had done the Mod for, trying to get its OK to commercially release the Mod. The publisher would not allow it. But, in order to keep upgrades to the Mod coming out to help drive sales of their game, the publisher agreed to pay the team to continue developing the Mod. The new Studio retained the IP rights, but gave up control over the release dates of its updates to the Mod. This allowed the publisher to time the update releases for the free Mod so they would not compete with the publisher’s own expansion pack release dates. Overall, it was a pretty good deal for the Studio. Not as good as a separate commercial release of the Mod. But, certainly enough to help them get their team together and start acting like a real studio.

With all the deal points in place, the Publisher sent over the contract for my review. I was dumbfounded. The written agreement they send was a “work for hire” subcontractor agreement. The type of contract publishers use with outside individuals or companies that they hire to work on their own games. It transferred all IP in the original work to the Publisher and did not have one single element of the deal that the agent and Publisher’s representative had spent months working out. My first reaction was to throw up my hands and send it back to them, asking for the correct contract because, obviously, there must have been some clerical mistake. I was told that I should work from this model and modify it to comport with the terms of the deal. That meant that I would have to basically redraft an entirely new agreement from scratch because, except for the “boilerplate” (the General Conditions at the back of the contract) everything else was wrong, wrong, wrong!

So, I dug in and pretty much rewrote the entire agreement, even correctly renaming it “Mod Development Agreement.” When the Publisher saw it they refused to even review it because I had removed the Publisher’s name from the Agreement and they said they could only use their own form contracts. So, I did the only sane thing I could…I pasted their name back on the top of the contract and sent it back. That seemed fine with them and we got the deal with the correct terms. But, it would have been a disaster if the Studio had just signed the first written agreement the Publisher sent. You have to wonder why, after two or three months of negotiation, the Publisher would send a contract that did not even vaguely resemble the deal they had cut. Well in practice, this is not at all an uncommon scenario - just a rather extreme example.

It’s the Nature of the beast

I rarely see an initial written contact that accurately reflects the actual negotiated deal points, especially when the deal is at all different from the standard deal offered by the Publisher. The reason is that in most publishers the product acquisition team has little to do with the detailing the written contract once the deal is negotiated. The product acquisition lead is already on to the next deal, after telling the contract person that they have a deal to acquire a game and to get the written contract done. The folks who do the contract work are usually in the legal department if it’s a large publisher, or one of the business leads in smaller ones. The person handling the written contract may not even have been briefed on the deal points. Or maybe they just think it’s easier to send the standard base contract and let the developer fix it, if they have the patience and skill to do so. So, the contact person usually just sends out the standard agreement for publishing deals to start the process. And these base publisher contracts range from extremely publisher friendly to darn right predatory.

The results are things like the publisher presenting the development studio with a “work for hire” agreement when it’s a license deal with the developer retaining its IP rights, missing developer participation in movie and other ancillary revenues or a deal with no escalating royalties, even though they have been agreed to early on in the negotiation process…little things like that. These may be classic examples of one hand not knowing, or not caring, what the other agreed to. But remember, it is not the publisher’s job to make sure you get the deal you negotiated. That is your job. It’s the publisher’s job to get the most out of every deal for the publisher. The publisher may not even intend to cheat the developer out of the deal they agreed to verbally. It may just be their administrative overhead getting in the way of a written contract that actually reflects the original deal discussed and verbally agreed to. But be sure, if you sign a written agreement with the wrong terms you can and will be legally bound by it. Because, all of these agreements have a standard “incorporation” clause that says that the written agreement is the final agreement and any verbal representations made in the negotiation process, not in the written agreement, don’t count.

Patience Pays

So, after you verbally negotiate the best deal you can, be ready to start the process all over again in the written agreement. It helps to do summary emails to the publisher representative throughout the negotiation process, summarizing the deal points as they are agreed to. You may need these emails later to remind the person doing the written contract what was discussed and agreed to already. When you get that first proposed written contract don’t be offended by it, or take it personally. Like the mob boss says in the movies, it’s nothing personal, it’s just business. Besides, they don’t really think you are that stupid (though they can always hope!). It is best to just look at it as the clumsy way things get done around here. If you are at all unsure of what you are doing or just don’t want to deal with the hassle, get professional help. Be patient and never sign a written contract that does not accurately reflect the deal you made. Most of all, remember my old law school motto, “illegitimus non carborundum”- don’t let the bastards grind you down!

Til next time, GL & HF!

Tom Buscaglia
The Game Attorney © 2006

September 6, 2006

Game Attorney Gamecloud Interview

Filed under: Game Law Articles — Tom B @ 9:52 pm

I did an interview for Gamecloud.com…but since they have changed their format and the article is no longer available online, I thought some of my readers might enjoy checking it out. So, here’s my Gamecloud interview from December 2005.

1. First, can you give us a brief background on your legal career?

1. Well I was a late bloomer. I’d taken a sabbatical from undergraduate school for about 12 years to save the world through rock and roll. Then, after successfully saving the world, I returned to school. Eventually I decided pursue a career in law. I was fortunate enough to get admitted into the Georgetown University Law Center in Washington, DC and when I came out was recruited to a position in a large commercial law firm in Miami. So for the first 3 or 4 years of my career I practiced commercial litigation in a big downtown firm. Then, I moved out to a small boutique litigation firm that was doing some fairly complex Anti-Trust and commercial law suits. Shortly after that, I setup my own firm.
One of the problems for anyone starting their law career who wants to do trial work is getting into the courtroom. In a larger law firm, it is less likely for you to actually get into the courtroom since the senior partners are the ones who actually try all the cases. So in order to put myself on the fast track and get some real courtroom experience I applied to the Criminal Justice Act panel. The CJA panel attorneys are the ones who are appointed to represent people in federal court who cannot afford an attorney. So, while I continued to practice commercial litigation, I also handled some fairly large and lengthy criminal cases including two racketeering trials, one that lasted 3 months and another that lasted 5 months. I continued to do commercial litigation and also began doing Intellectual Property law.
I discovered the internet around the same time that I withdrew from the CJA panel and stopped actively pursuing criminal defense work, in the mid 1990’s. Around the same time I discovered the internet, I discovered computer gaming. In 1997, I began playing Quake online which led to the formation of FaTe’s Minions with me as FaTe[F8S], its’ Supreme Warlord. I was hooked. In 1998 I attended my first E3 in Atlanta and was totally blown away. I didn’t really tell anyone there I was an attorney because I was sort of ashamed. The following year I made it to my first GDC and immediately became involved in the then Computer Game Developers Association which morphed into the IGDA.

2. How did you become interested in working on video and PC game legal issues?

2. It was my passion for games that brought me into the industry. In 1998, I went to E3 for the first time in Atlanta, Georgia and then the following year attended GDC. At first I did not let anyone know I was attorney because I was kind of ashamed. I mean really, lawyers don’t make anything; Developers are geniuses who build these wonderful games. So I started volunteering my time through the IGDA and tried to help where I could. The rest kind of grew out of that. I began to speak at GDC and other game related conferences like the Indie Games Con. I also founded and became the chapter coordinator of the South Florida IGDA chapter. These things led to me representing developers and sort of dedicating myself to helping independent developers with their business and legal matters. Eventually I realized that, just like the Programmers and Artists, I had something to contribute to games. Maybe not something that shows up on the screen. But something that developers really needed; legal expertise and business savvy. So, I finally found my place in the industry. Then about two years ago I relocated my firm and home to the Seattle area and now only do game related legal work. It is pristine!

3. What do you think are some of the bigger legal issues that game developers find themselves in?

3. Two Areas; Business and Intellectual Property. Many developers, especially those who are just starting out, don’t have any idea what Intellectual Property is and what are the rules and regulations that are the laws that govern it. They, “just wanted to make games.” The problem is, if you just want to make games, then that’s all you are going to get to do. But, you are not going to get to make any money.
I guess the first issue would be developers that fail to secure intellectual property rights in the content for their games. You know, games are collaborative efforts. The problem is that all this creative work is owned by the person who created it, unless all the contributions are from fulltime employees. But otherwise there has to be a written agreement transferring those intellectual property rights to the studio. A lot of startup developers fail to secure their IP before they go out and try to sell their game and that can cause real problems.
And it is not just startups. I recently had a situation where a developer that has been making games for over 10 years released one of his employees from employment and continued to use him as an independent contractor. Unfortunately, the developer didn’t get a written agreement from the former employee concerning the Intellectual Property rights to his work. It could have been a real mess if the former employee hadn’t been willing to cooperate since the game had already gone gold and been delivered to the publisher. That could have been one huge problem.
The other business problem for new studios is a failure to have a clear understanding of what it is to run a business and doing everything that it takes to do just that. Developers want to make games. But if they want to continue to make games, their first obligation has to be building a solid studio. Many developers really don’t want to do that. If you don’t want to run a business then you should work for someone else.

4. What sort of interesting legal cases involving video and PC game issues have you worked on recently?

4. Right now I am involved in a case against Gizmondo. My client Hand Held Games, a Seattle developer that specializes in smaller screen platforms, entered into a contract with Gizmondo to develop Chicane: Jenson Button Racing. A binding letter of intent that was entered into between the parties gave Hand Held Games the exclusive right to produce the game. Gizmondo was a little slow getting the Dev Kits and other materials to HandHeld in a timely manner, but that wasn’t the big problem. The big problem was that ultimately they pulled the game away from Hand Held Games and gave it to somebody else. Interestingly enough, the CEO of Gizmondo recently resigned among allegations that he had diverted several games, including the Chicane game, from developers that had been working for Gizmondo to his own Development Studio at prices well beyond what was called for in the Hand Held Games contract. I am sure Tom Fessler, the President of Hand Held Games, was really pleased to see that the game was made for almost 3 times as much as what he was going to charge. Eventually the whole Gizmondo company ended up in receivership with pretty much everyone getting screwed.

5. You sell what you call the GameDevKit for start up game developers. How did the idea for this project come about?

5. The GameDevKit came out of a perceived need and my desire to help. I actually came up with the concept on the flight home from the Indie Games Con in Eugene Oregon. As I mentioned above, one of the big problems that startup developers have is that they don’t understand nor do they have a methodology for securing the Intellectual Property assets in their game. Over the years I developed what I felt was a very competent Contributor Agreement that I’d used both with established developers and even for mod teams who were becoming developers. The agreement applies equally to contributors, sub-contractors and employees and effectively conveys all their Intellectual Property rights to the company. The problem I saw was that most startup developers: 1.) Don’t have a company; and, 2. Don’t have any sort of contributor agreement. I have been customizing this agreement for game developers at a discounted price of $1,500 for the last several years. I realized that for most startups, even the discounted price of $1,500 was more than they could afford to spend.

So, after my attendance at the Indie Games Con out in Eugene, Oregon, I decided that I should do a generic version of the Contributor Agreement and then sell it at a flat rate of $300. Now, keep in mind that is less than I charge for one hour of legal advice as an attorney. So, this is a huge deal. Well, I talked to some of my friends about it and they all said “Well Tom you can’t just sell one contract, you’ve got to add more.” So, I started with a section on how and why to start a company with links to the big websites that can facilitate that and do it for a fairly nominal fee like MyCpropration.com. Then I did a section on securing the Intellectual Property assets for your game and included as an attachment the Contributor Agreement.
Now you have a company and you have your assets secure in the company. So I did a section on communications with third parties about your game and explained about the need for Confidentiality in terms of protecting any trade secrets with the company. And I included a Unilateral and a Mutual Non-Disclosure Agreement and explained how and when to use each. The next section has to do with U.S. Copyright Law. I explained what and how copyright law applies to game assets. It also has attached to it the U.S. Copyright Office’s application form that people can use to apply for Copyrights that has a very comprehensive explanation on how to file a copyright included on the form. Finally, the last section of the kit is a listing of links that people involved in Game Development probably already know but in case they don’t, I put them in there.

That’s the history of the kit and I sell it through GameDevKit.com at $295.00. I don’t sell a lot of them and I have even had a few people complain that it was too expensive in spite of the fact that, compared to a the cost of even bad legal advice, it’s a damn good deal. I think I have helpd many small developers and created a great deal of good will in the process.

6. Right now the game industry is under attack by certain people and groups about the content of their games. How do you feel about these attacks in your profession as an attorney?

6. I think that Jack Thompson is sort of like the Organ Grinder’s monkey without the Organ Grinder. He is just dancing around for attention and doesn’t seem to have much concern for whether what he is saying is true or not. He just wants people to listen to him. I think the really sad thing about him is that he has been pretty much a laughing stock in the Legal Community in South Florida for years since he was back attacking 2 Live Crew and anybody else that he doesn’t think meets his “moral” standards as far as Pop Culture. But frankly the main thing that bothers me about Jack Thompson is that anybody listens to him at all. Of course, now Wackie Jackie has been disbarred and pretty much defanged in the process.

That is not to say that everything in games is good. But certainly everything in games isn’t bad - there are no pedophile cookies in the Sims. Games should be treated the same as films and books. Not held to a different standard to treated differently under the law. And for the most part, courts agree with this point, even if Wacky Jackie does not!

I have had a couple of people ask me if I would debate him and I suppose I would. But I wouldn’t bother to call him and set it up. (This part of this interview had a very interesting result - http://gameattorney.com/blog/?p=13 ).

7. As games become more and more expensive to develop, will the relationships between game developers and publishers grow better or worse in your opinion?

7. As far the relationships between Developers and Publishers, I think they will continue to be what they are. Some of them are good, some of them are bad. What I think we will see more of is alternative funding models and this includes the recent Pandemic/Bioware/Elevation Partners in forming their new Super Studio (later purchased by EA). What Elevation Partners brings to the table is enough money so that they will never have to look to Publishers to fund games again. Seamus Blackley, one of the driving forces behind the Xbox at Microsoft who now works at Creative Artists Agency as a game agent, has been pitching independent funding sources for games for years. It looks like his dream is finally becoming a reality.

I think that independent funding sources and self funded games are really going to take a lot of pressure off Publishers because they won’t have to front the money to make the game and it will also put the Developers, or the Developers in association with the funding parties, in a position where they can retain their own Intellectual Property and in the process create long term value in the studios. That is something that hasn’t been able to happen in a long time and it has created a very desperate relationship between traditional publishers and developers. Hopefully, the advent of these new funding sources is going to make the relationships between Publishers and Developers better because Publishers can then do what they do best which is manufacture, distribute, and market games and not have to act as a bank.

8. How do you feel about game developers trying to self publish their titles or using an Internet download service to sell their games? Are there any legal issues to deal with in those cases?

8. Certainly for PC Games, digital distribution is the future. I have developers right now that have games that have received a tremendous amount of critical acclaim that hardcore games certainly know of and would probably be willing to buy. But, since they didn’t have a big display at E3 and the buyers for Wal-Mart and the other big retail chains never heard of their game, the Publishers won’t touch it. Right now, decisions of whether or not to green light a game for publication is initially made by the Product Acquisition team. But then the final decision is made by the marketing people. The marketing people go the retail chains and ask them how many copies of this game are willing to pre order. If the buyers say we never heard of it so we will take a couple of thousand, that game doesn’t get made. There are a lot of great games that don’t get made. The other thing is for a PC title 100,000 units should be a successful game but under the standards that are now being applied by many of the Publishers 100,000 unit sell through would not be a good enough return on investment, even if the game was completely self funded.

On the other hand Derek Smart, the creator of the Battlecruiser Millennium series, recently released his latest version of Universal Combat through digital distribution. If my memory serves me, according to Derek, he sold over 35,000 units in the first 11 days. That level of sell-through was more than sufficient to put him in the black within the first two weeks. Brick and mortar distribution brings with it a lot of costs. Direct digital distribution eliminates those costs which creates much lower threshold for financial success of the game.

In addition, these Pop(ular) Games, what are often referred to as casual games, are another way that a developer can make a lot of little games and sell a couple of thousand and make a decent living at it. If you sell $4,000 worth of games on a 50/50 split you get $2,000 a month. You really can’t build a studio on that. But if you got 20 games doing that, all of a sudden it starts to look a little more attractive. And if the sell through is a little deeper and goes up 100-200% you get a couple of hits the next thing you know you got a PopCap sort of deal going.

9. What other legal issues do you see looming for game developers and publishers in the future?

9. I really got caught short on this one. Several years ago somebody contacted me and asked me about virtual property. I thought it was a joke, theoretical things created in a virtual world having real life value….I just didn’t see it. Well, I have to admit I was wrong. There was an article on the front page of the Business Section of the Miami Herald today about someone who purchased an online resort in an online Massive Multiplayer game for $100,000 and then explained his plan to turn it into a profitable business. And you know what, I think he’s right. IGE is the Ebay of online assets where people can buy Gold, Weapons and even characters for thousands and thousands of dollars. It has been reported that the sale of in game assets is a $50 Million dollar a year industry and growing.

Recent buzz at the development conferences that I have been is that the next generation of MMOGs are going to be free games, no subscription fee, but paid content. That is, the revenue will be derived from items that you have to buy in order to excel in the game world. This is going to create some legal issues that I think that will undoubtedly have some long term ramifications. Imagine someone dies and their estate contains several million dollars worth of online assets that are located…where? The International Jurisdictional issues alone will be enough to give any legal scholar a headache.

10. Finally is there anything else you wish to say about your work specifically and legal issues for games in general?

10. I guess the only other thing I would say about my work or legal issues is that for me being The Game Attorney is Da Bomb! It is a real opportunity to work with the creative people that create these great games and I absolutely love this stuff. Everyday is work. But everyday is fun. For me it is just a real honor to serve the Game Industry.

Answers © 2005 & 2008 Thomas H. Buscaglia

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