In this series of three articles, we have focused on different issues for game developers to consider during the development, production and exploitation stages of game development.

This second article focuses on financing and distribution. See our first article; Considerations of Confidentiality and Intellectual Property. Our final article will explore other regulatory issues such as consumer protection legislation, privacy and censorship classification.

Interactive gaming is big business; the budgets and revenue rival that of films and TV programmes. Games are interactive and addictive, and so there is little surprise that gaming is the fastest growing sector of the entertainment industry. This area of entertainment involves an interesting and complex array of commercial and legal issues to navigate.

Financing and Distribution in Interactive Gaming

Financing

Depending on the scale of the game, developers may look to crowdfunding, financing from publishers, distributors, banks or investors to fund the development of a game. Games may also offer in-game advertisement or product placement as a source of raising finance. The nature of financing may be by loan, grant, equity or an advance on royalties. For each type of financing any terms and conditions, including any repayment obligations, associated with that financing, should be carefully considered, with the assistance of legal advice.

Distribution

There are numerous terms to consider in distribution arrangements. We have set out some of the main areas below; however, this is not an exhaustive list of all of the terms that need to be considered.

Scope of Licence

The scope of the arrangement needs to be clear and include the rights which the publisher or distributor will have. This includes;

  • Establishing what platforms and which forms of distribution will be used;
  • Determining the scope of the rights to be granted, such as whether the rights will be exclusive in each case, which territories will be covered, and for what period of time;
  • Consideration as to who will own newly created material;
  • If sub-licensing is permitted, how will it operate and at what cost;
  • How and when revenue will be shared,
  • The fees and expenses the publisher can charge (what will the expenses cover, you might also want to have a minimum commitment in regard to marketing and advertising spend) and;
  • The royalties payable to the developer and how payment will work.  

The developer should also ensure it receives statements at agreed intervals and includes specific content. The developer should also have the ability to audit the publisher.

Developer Obligations

It is important to understand what needs to be delivered to the distributor (for example, a gold master) for the game, including marketing assets (for example, screenshots, game descriptions and logos), by when, by what method and at whose cost. The process for acceptance of delivery materials by the distributor will also need to be considered.  

Any ongoing assistance required will need to be set out, for example, to fix latent defects, provide updates, and any other types of customer support that will be needed. The cost for these obligations and timeframes for providing these will also need to be considered.

Other Considerations

Each party will also need to provide certain representations and warranties to the other as well as indemnities (for example in respect of intellectual property warranties). 

The developer may also be required to have errors and omissions insurance in place to cover the costs involved in any litigation or settlement associated with claims involving intellectual property infringement, defamation or rights of privacy.

The agreement should clearly specify termination rights and outline what will happen if the agreement is terminated, for example, whether materials need to be returned to the developer.

The governing law of the contract is another important consideration.

End-user license agreements

Terms of use or end-user license agreements will be important to set out the terms on which the players can access the game and any restrictions the player needs to abide by.

Summary

Developing and producing the game is the first achievement, but monetising it is the ultimate goal. This is where the terms of any financing and distribution or publishing contract will become vital to ensuring that revenue is maximised for the game developer and to also ensure that any risks and obligations are managed to the best extent possible. In order to achieve success, it is recommended you seek legal advice. Our expert media law team at Morrison Kent are your first point of call when developing an interactive game for the market.

For More Information

For further information or to arrange an initial consultation with one of our Wellington-based media law experts, contact Rochelle Cooney, email rochelle.cooney@morrisonkent.com, phone (04) 495 8910 or Andrew Stewart, email andrew.stewart@morrisonkent.com, phone (04) 495 8921.