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.
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!
The Game Attorney © 2006