Contract Negotiation...

Discussion in 'Indie Business' started by dypaul, Apr 7, 2005.

  1. dypaul

    Original Member

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    I'm sure many here are experienced hands at negotiating contracts, especially with big portals like BigFishGames, Yahoo, etc. There are others who are complete novices and would benefit greatly from your experience. For example, there is a marketing method called "bundling", where the distributor bundles lots of games and sells for a bargain price. When your game is included in these bundles, then your take for each sale, instead of being around $9, would be around $2, if that. So you would specifically prevent this sort of marketing in the contract. There are many other pitfalls to watch out for. If those here have done contract negotiating, if you can provide some insight and lessons, that would help the rest of us a lot. I think it is in this sort of contract negotiating that we indies suffer greatly. Thanks.
     
  2. dburger

    Original Member

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    I’m not a lawyer, but I have negotiated dozens of development and publishing contracts for online and CD-ROM distributed games.

    Here are a few suggestions:

    1. Start by reading the whole contract a couple times through and highlight anything that concerns you or that you don't understand. (Sometimes I need to reread a section five times to figure out what it says and what it means to me.)

    2. Pick your battles. In negotiating a contract you are bargaining. You will not get everything your way, so decide which are the biggest issues for you. When push comes to shove, you'll know which issues to hold strong on and which to back down.

    3. Write up your list of issues and present it to the other party in writing, then discuss your points on the phone. Be willing to trade off some of the smaller things you want changed for the big ones that are important. Maybe you can get them to improve their payment terms (eg from 90 days to 30 days), but they can’t change the royalty rate.

    4. No mater what, don't agree to leave something bad in the contract when the other party says that they can't change the contract, but he'll make sure the 'bad' thing never happens. Companies change, personnel change, etc. You can't count on your 'buddy' to always be there.

    5. You can ask the other party for explanation of what tricky parts of the contract mean, to help you understand, but don't rely on this advice.

    6. Be civil and reasonable when negotiating the contract. Once things get nasty, it becomes much harder to close the deal successfully.

    Ok a couple specific areas to keep your eye on...

    a. Exclusivity. Very few portals today want pure exclusivity, but they may want it for a brief time (1-2 months) for an exclusive launch. If you are giving up any exclusivity you should get something in return, like cash up front, or a higher royalty rate.)

    b. License to Distribute. Make sure that the ways they can distribute are clearly spelled out and that you agree to give them all the rights they are asking for. Can they distribute overseas? On CD-ROM? In magazine discs. Can they sublicense the game to other distributors? Can they bundle the game with other games? Not all of these are bad, but you should understand them.

    c. Who is handling customer support. Make sure that they are paying for this.

    d. Reporting and Auditing. They should be required to send you regular sales reports so you can see how many units sold for how much and what your cut is. You should also have the right to audit their books at your cost. (I’ve only had to do this once, and it was expensive, but worth it.) A well written contract will already have this clause in there for you, if it isn’t in there proceed with extreme caution, as it is a strong sign of an unfairly written contract.

    e. Mutual indemnities. The contract will have a section saying that you indemnify them against liabilities and damages that could be caused by damage your game does. This will also protect them if it turns out you have a trademark problem or you don’t have the rights to the music, voices, art, etc. You should be indemnified by them as well so if they get sued for something (like installing spyware with your game) you don’t get dragged into it.

    f. Royalty rates. This one is difficult to negotiate with the portals, but you should make sure you understand the various rates you’ll get for regular sales, membership sales, etc. Make sure you understand if there are or are not any minimum prices they can sell the game for. It might be ok to let them run sales for the game, but make sure you realize that it means you’re not going to get nearly as much per unit (but hopefully more units sold.)

    g. Royalty Advances. Try to get them, but don’t give up too much for it. Advances are money you get up front before distribution, then they withhold your royalties until the game has earned enough to payback the advance. You usually have to give up something to get an advance, like short term exclusivity.

    h. Royalty hold back. I’ve seen contracts that call for the portal to withhold thousands of dollars of income to cover their marketing and launch costs. No Way. Don’t let them do this if at all possible. You have put a lot of money (and time) into this game and they can put in a couple thousand dollars to cover the launch. They shouldn’t get paid first. You can get them to back down on this.

    i. Termination. Can either party terminate the contract? How much notice needs to be given?

    Cheers,
    Denis
     
  3. warpy

    Original Member

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    dburger,

    i have book marked this, your advice is well appreciated !
     
  4. Jim Buck

    Indie Author

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    An awesome book I came across shortly before I was going into negotiations for a development contract was Bargaining for Advantage.
     
  5. ZuluBoy

    Indie Author

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    thanks dburger.
     
  6. Spaceman Spiff

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    Nice write up dburger. (cut, paste to notes) Thank you for sharing with us! :)

    With past projects, we always used someone with experience negotiating. It's not a place for amateurs, as publishers have zero problem with taking you for all they can get.

    One thing I would add is to not be afraid to walk away. Do your strategic homework before coming to the table. Know what you must have and what you can not accept at all, then stick to your guns. (being realistic of course)
     

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