Deal... or no deal?

Deal... or no deal?

By Develop

July 6th 2007 at 1:56PM

From the humble beginnings of your studio through to your biggest release â?? maybe even the sale of your business â?? contracts will play a part, so itâ??s imperative they help, not hinder. Sean Crotty and John Schorah offer some tips on how to go about securing the best dealâ?¦

The games industry is currently at a crossroads again. From MMO to ever more competitive (and complex) consoles through to mobiles, the creative and finacial challenges are vast and varied. And while the soundtrack to our lives may have changed from the days of the ZX Spectrum and Commodore 64 (replace Duran Duran with Arctic Monkeys) the need for a developer to handle changes in technology, consumer expectations and the needs of publishers hasn’t.

It is no secret that a developer’s greatest asset is its IP. It’s the cornerstone of this exciting and ever-changing industry. But in a world where the pound competes with artistic creativity it is a cold reality that a developer’s survival is often based upon its ability to drive a good deal. Such a deal may be in relation to a development deal with a publisher or ultimately the sale of the studio. Of course, the ability to drive a good deal relies upon the quality of each developer’s assets, but you get the gist.

Getting the best deal
Okay, you’ve sweated blood developing a product that you hope (and pray) will be picked up by a major publisher. You’ve battled with your staff to hit deadlines and kept them out of the pub and off Middle Earth blog sites long enough to create a great prototype. You’ve discussed the product (confidentially of course) with a few interested parties, and finally, Mammoth Publishing Inc. wants to publish your game. Bingo!
Now what? You must get the best deal possible to reward your hard work over the past few years/months/weeks. Putting the intricacies to one side, you should consider…

Setting out your stall
Ask yourself: What is your bargaining position? Is the product so unique that publishers are clambering for your title? Or, is it a great title which marketed effectively could do well? Or, is it a niche title which is creatively amazing but commercially, not exactly Halo?

Although perhaps painful, assessing your ‘baby’ in this way is important so you know at the outset of negotiations where you really stand.

Obviously, the way of this world is that the more commercially viable your title is likely to be, the greater your bargaining position. So if you can bargain from a strong position, the more effectively you can play hardball in relation to advances, royalties, sequel rights and (to some degree) IP exploitation. Don’t forget, your skills are in short supply and if Mammoth Publishing Inc. could do it itself, it would. That’s your advantage.

Be realistic
This point leads on from your bargaining position, but you should also be realistic as to what you can expect from any possible deal.

If you manage expectations at this stage, it is easier to push for the best possible deal without disappointment. As discussed, Mammoth’s beancounters (not the creatives) will drive the financial value of the publishing deal that will filter down to the potential cash earned by you. Consider the bargaining strengths of Coldplay and Liberty X when attempting to negotiate an album deal and this will give you some idea.

However, this should not be taken to its extremes. Although you should be realistic in your expectations, you should not give your assets away cheaply either. Often professional advice will assist you in finding the appropriate middle ground. Talk to people to establish your worth.

Gameplan
Unfortunately, this is one aspect that you will definitely need your faithful trusted lawyer for. At an early stage, the key aspects of the proposed deal should be discussed in detail between you and Mammoth. Now you are able to devise a plan of strategy.

Consider which of terms are:
a. ideal
b. acceptable
c. the bottom line
d. not important.

Again, such issues will include financial aspects (such as advances and royalties), IP, milestones and, ultimately, acceptance.

As with all negotiation, if your first line of attack is a., expect to be pushed back to b. in relation to some points.

Provided you have a clear idea of c., and don’t fall short of it (without a very good reason unless it is d.), you and your lawyer should be able to negotiate the best deal possible.

The goal is to achieve a result which, even if not totally what you originally wanted, is an acceptable step towards it. Know your starting position and win the points that matter, as opposed to all points (which would be nice but may lead to disappointment if attempted). Pragmatism is the key.
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Preparation
Since your school days various people have been telling you that preparation is the key to success. This part of the process proves they were right.

Firstly, study Mammoth to see how it works and likes to do business. Secondly, if possible, speak to your peers and collect nuggets of wisdom. Perhaps your (friendly) competitors have had dealings with Mammoth Publishing Inc. and can pinpoint its strengths and weaknesses. Such knowledge can shortcut time-consuming and unproductive negotiation.

Appoint individuals within your organisation who will deal with the bulk of negotiations and be in a position to make speedy important decisions. Not only will this keep negotiations focused, it will assist your lawyer to move matters forward quickly if he (or she) has a point of contact who can give the nod on particular issues.

Often this will comprise a team, as one person may deal with financial aspects, another with operational issues whereas another may deal with IP, etc. All such aspects are important and you should not commit to anything which one department may struggle to deliver or perform. So problems may arise if the finance director attempts to agree a milestone delivery schedule.

Also, you should ensure that sufficient time has been set aside for the negotiation of the project. Although your lawyer will (happily) do the donkey work and work around the clock, you’ll be required to provide input, make commercial decisions and collate internal information to assist your lawyer to protect your interests.

It is a team effort and you need to be in for the long haul. Many developers have suffered when, due to time pressures, they have conceded points which they shouldn’t have. Don’t repent at leisure.

Negotiation
Except for the most astute and experienced developer, negotiation is a pill often sweetened by the assistance of (you’ve guessed it) your lawyer.

The benefit of involving your lawyer is twofold, not only should your chosen lawyer be skilled in the art of negotiation and experienced in relation to the industry norms, it is often useful to portray them as the ‘bad guy’ who is driving the hard bargain, not you. A healthy relationship with Mammoth during negotiations is often more fruitful than the most hardnosed lawyer.

However, often it is a useful exercise for the developer and the publisher to thrash out a number of issues at an early stage to avoid a backlog of issues at the eleventh hour. Keep the eleventh hour reserved for the major sticking points. A useful tool is to provide your lawyer with a schedule or heads of agreement to provide a menu of your and the publisher’s requirements (in principle at least).

Once negotiations get underway you should focus on the key issues which are important to you. Therefore, as discussed, it is important to win the points that matter. If an issue makes little or no difference to you, agree to it and let Mammoth believe that you have been more than reasonable by conceding.

You should always think about the future. Although by the very nature of a publishing deal an element of your assets are being assigned or licensed, don’t give too much away. For example, as far as possible, retain the IP in aspects of the title, particularly the underlying IP and development tools. Remember, you may need such IP for a different title which will not compete, and therefore the publisher should have no rights to it.

On the same point, it should be considered whether you wish to assign or licence the relevant IP. Although commonly this issue is argued vociferously by the publisher at the outset.

Depending on the stage of development, you may be in a position to argue the IP issues above to a greater degree if, for example, your title is or almost fully developed. The key is risk. If the title is merely a concept or prototype and Mammoth Publishing Inc. is to fund development, the more it can justify acquiring a chunk of the IP due to investment risk. But if you have taken the risk and financed the development prior to Mammoth’s involvement, then why should you lose all of the IP at this stage?

Avoid onerous restrictive covenants. Presumably (subject to your royalties) you wish to work again after the game has been released. If so, ensure that you are not restricted from doing so, or if you are, such restrictions are reasonable and workable.

And if the title is a success, who has the right to make a sequel? In practice, Mammoth will either want an absolute right or an option to publish sequels. However, you do not wish to be restricted from developing a sequel if the publisher fails to pick it up.
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You will probably have to negotiate long and hard to establish a workable acceptance procedure which is suitable to you. You will want the title to be accepted as soon as possible whereas Mammoth will endeavour to impose an onerous and often drawn out acceptance procedure. A middle ground should be reached.

Similarly, any milestone schedule should be reasonable and therefore great care should be taken not to agree to a timetable that you cannot deliver. Not only can this leave you red-faced and out of pocket if advances are milestone linked, the likelihood is that the publisher will look to sue you for damages if, for example, your inability to comply has led to a delayed release date. The phrase “you’ll never work in this town again” springs to mind.

Finally, and lets face it, one of the main reasons you are in this game is the money. Jerry Maguire references aside, you must stick to your guns on this issue. From advances to royalties to recoupment to accounting and payment, the negotiated deal must conclude with what is right for you. You have invested time, energy and skill in to this project and therefore it is only right that any recompense is fair.

Therefore, you should obtain good advice and guidance, and your lawyer must ensure that all loopholes are closed, your interests are protected and that the contract accurately reflects the outcome of the negotiations.

Of course, there are many other issues that you, with the help of your lawyer, will need to address during negotiations such as warranties and indemnities, confidentiality, marketing policy and early termination. However, provided that you, your lawyer or both, understand the relevant issues, assess your bargaining position, prepare, invest the time to negotiate effectively and be realistic you should get the best deal possible.

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