Publishing deals

Personally I would never sign an agreement on those terms. Absolutely not. It's fine for publishers to take a big percentage - even right up to 100% in some cases - if they've accepted all the up-front risk by funding you during development. But in this case they are wanting half of your revenue just to do marketing for you - and they want this after deducting their costs too!

Here are some random figures for you. Imagine your game is $20 a copy and sells 5000 copies, so gross revenue is $100,000. Sales tax/VAT takes off roughly 20%, leaving $80,000. Distributors take their 30%, leaving $56,000. (Certain stores will also charge you the processing fee but I'll assume that's included in the 30% here.) Now assume the publisher spends $25,000 on marketing (which is half the headline figure here: https://www.gamasutra.com/blogs/JustinCarroll/20170327/294552/TheRealisticGuidetoPricingIndieGame_Marketing.php) and that leaves a final net revenue of $31,000. The publisher gets 50% of that, which is $15,500, and you get the remaining $15,000.

Considering you took all the risk and did most of the work, only getting 15% (for example) of the revenue should be making you very concerned. But it's actually worse than this. By splitting revenue after marketing costs, the publisher 'recoups' their risk first, so if your $20 game only sells 2000 copies, that's $22,400 of revenue (after store/tax), meaning the publisher loses $2,600 on the marketing, but you see absolutely nothing. You don't even get paid for the work you did to integrate their SDKs.

At the other end of the scale, imagine you made the next Minecraft. Once the sales get into the millions the marketing budget is long forgotten, but you're still only seeing 28% of each sale. The store gets 24% but they are at least providing ongoing hosting, distribution, payment processing, and so on. The publisher is seeing 28% of each sale, just off the back of that initial tiny investment - and unlike you, they're not providing any technical support or really doing anything for that money at all.

Here's the broad strokes of what I'd suggest to you, although do get some other opinions first:

• Any work you do for them should merit an advance. They want SDKs integrating? That's billable time.
• Marketing costs should not recoup first. Ideally they should just recoup them from their regular share. Marketing should be their risk, just like developing the product was your risk.
• The splits should change at a certain point to recognise that once the publisher has recouped their 'investment', they're less entitled to the ongoing benefits than you. e.g. Someone else's hypothetical deal might be 70/30 in favour of the publisher up to $60,000 gross, at which point they've recouped their marketing but at least you've also seen $10k for your efforts - and then it could flip to 30/70 in your favour beyond that point. (i.e. 39% of gross in the long run, rather than 28%.)

Aside from what Kylotan said, there's also this: you did not mention the publisher making any promise for how much money they will spend or that the marketing they do is actually effective.

Scenario 1: the publisher spends $1 on a Google ad. They technically fulfilled their end of the bargain at no financial risk at all. Your game is a total flop, selling only 10 copies total. Even though the game is a flop, the publisher still comes out ahead.

Scenario 2: the publisher spends millions on an all-out advertising campaign. The game is a big hit, but not big enough to pay off the advertising costs, so you get nothing.

Scenario 3: the publisher gives millions of advertising dollars to an advertising agency, which is a wholly-owned subsidiary of the publisher. This advertising agency then spends $1 on a Google ad and takes the rest home as profit. This way the publisher comes out ahead no matter how well the game does. Game is a flop? The publisher as only spent $1 of real money. Game is a big hit? The publisher can claim a multi-million dollar advertising budget and collect all of the money.

Hi guys!
Thanks for your tremendous help! I am really grateful for this.
It seems that I did miss out some details in my first post, sorry for this. Here they are:

1. We are talking about a mobile game. Sorry if this was unclear.
2. The publisher is a smaller one, but has a decent record. We would like to work with him because he is close (we are located in the EU (Germany) so this would be easier for us).
3. The publisher has contractually dedicated to a minimum spend. Which is a figure we could not afford easily. First a 5 digit number monthly for a certain period of time, then, if we hit certain KPIs, it will increase to a 6 digit number monthly. If we do not hit the KPIs, the deal is off (no harm done for anybody, no payback of the invested money from our side). It -seems- ok to me.
4. We have not got any money from the publisher during development, so yes, what we look for/what we get is more a distribution deal. Not a real publishing deal. And yes, of course we will try to get a second offer!

MOST IMPORTANT: Of course we will have this checked by a reputable lawyer who is competent in this field (he already is) BUT he does not or cannot help us with the most crucial question: Is the split ok?

I have posted this in several forums, and I got somewhat contradictory answers. Some said it is ok, some said it is bad. Please: Is there someone with actual real knowledge about a deal? A lot of the answers seem estimations or what people think would be fair. But is there someone with actual knowledge about an executed agreement?
Thanks again so much!

What kind of 'actual knowledge' do you expect? Every deal is different. But most deals do not see you giving up 50% of net income in perpetuity to an entity that didn't invest in development.

You need to consider what this 'minimum spend' actually means. There's a big conceptual difference between them spending €10000 on buying ads for you, and them spending €10000 on getting their staff to make marketing materials and videos. On the surface both have €10000 of value, but the first one is them taking a risk (which merits a reasonable share of the revenue) and the second one is them paying their own wages from your work (which merits a much smaller share).

This becomes especially pertinent when you say that you only get your 50% after marketing costs. Their impressive minimum spend guarantees become a lot less impressive when you realise that they will always get all that money back before you see a single Euro!

It is true - especially on mobile - that you need marketing, and that it's worth giving up a share of your income for that. But the basic question of "is a 50/50 split AFTER their costs OK?" is always going to be a firm NO from me. You did all the hard up-front work to make this game - you should be seeing some revenue from the very first purchase, and there should be no way at all for the publisher to be able to cover their costs without you seeing a penny.

I'll repeat my basic outline of a suggestion, clarified:

• Publisher to provide an advance for the SDK integration (or, second best, for it to be deducted from their recoupable marketing spend)
• 70/30 in the publisher's favour up to a specific gross figure (after stores/tax, but NOT after their costs - they recoup their costs from the 70%)
• 70/30 in your favour after that figure
• You do due diligence to ensure that the figure isn't being inflated to cover publisher wages at your expense
• You get clarity on what "the deal is off" means - does that mean it reverts to you, 100/0?

Addendum: looks like you're getting similar answers to mine over on TigSource, i.e. 50% is too high, 30% is more standard.

One reply leads to this blog - https://www.gamasutra.com/blogs/RyanSumo/20191126/354767/WhatDoesAHealthyPublisherDeveloperRelationshipLooksLikeWithRealContract_Details.php - which has a real contract in there - and you'll see in that example that while the publisher does get a 100% recoup on marketing costs, they also funded the development up front.

This is what we talk about when we discuss 'risk' - during that project's development, all the risk is on the publisher (as they're paying wages with no guarantee of return), so they're entitled to recoup first. After that point, 30% to the publisher is more standard, not 50%. In your project, you've put in all the development risk, so you should expect to recoup that first.

I'm not saying the publisher is trying to rip you off or be dishonest. I think this is just an opening offer which they are expecting you to negotiate down to something more reasonable.

I would actually be willing to accept a 50/50 split. My reasoning:

• The vast majority of games are flops. If my game flops, then it doesn't matter what the split is.
• The vast majority of money in games goes toward a few runaway hits. If my game is a runaway hit, then I can afford to be generous.
• When negotiating from the standard 70/30 to 50/50, I am only giving up about 29% of my take while the publisher is increasing their take by almost 67%.
• The bigger the publisher's stake, the more motivated they are to do a good job promoting the game.

However, that's 50/50 of the gross income, not net.

It doesn't work like that.

Game publishers provide a range of services. One of those services is getting your game out to customers. Sometimes one of those services is helping with advertising. Sometimes they help with testing and QA, help passing console certification, help providing customer support. Sometimes one of those services is fronting money.

All of those services have a cost.

If they are providing you money up front to develop your game, you will make nowhere near a 50/50 split at first. They are taking a tremendous risk in investing in your project with no guarantee of reward, and that is expensive money. Exactly what you negotiate in that situation depends on how much money you need and what you are bringing with you to the negotiating table. A game that is basically complete and needs funding for the final push is radically different from a game that is a proof of concept and seeking funding for the entire project.

Steam has been a source of frustration with the 30% take since they launched, but originally Steam was doing far more than providing a download link and payment processing to justify the cost. Steam curated games, provided distribution, customer support, anti-piracy and anti-cheat systems, assisted with marketing, assisted with launch services, and helped with so much more. Others followed suit because they could. These days Steam and other distributors are having a very difficult time justifying their 30% rate as the number of services they provide has dropped over time.

For standard publisher services like distributing through Steam, distributing through Live, distributing through Epic or Origin or the Apple Store, you'll pay whatever rate is standard for the service. If you're talking about it here you aren't a large enough business for them to bother changing their standard agreements.

If you're looking for services like fronting money, advertising and promoting the game, featuring the games on their stores, those services will cost based on the details you negotiate with them.

Thank you @Kylotan , @frob , @a light breeze! Your info is very much appreciated.

@frob Do you have any more info about mobile games? About publishing contracts or links to useful info?