Book Excerpt: Secrets of the Game Business: Pros and Cons of Worldwide and Country-by-Country Deals

A development studio has been working for months on the next greatest game and now it's time to hit the streets and secure a publisher for the game. They're confronted with their first decision: do they want a single publisher, or multiple publishers? This article gives developers the information they need to decide whether they want one publisher to handle every territory in the world, or whether it would be better for the company to leverage their risk across multiple publishers. Each model has its advantages and pitfalls, but developers need to have a firm grasp on the development status of their game and what their company needs to move forward.

The Alternatives

There are two primary models used for publishing or distributing titles. The worldwide model will place a game with one publisher who will handle everything for the developer and take care of all sales around the world. The country-by-country model will involve selling the game to smaller publishers in each major territory, or having one of these publishers handle a group of smaller territories.

Basic Criteria for Each Model

The first step in deciding which model a developer should go with is to evaluate their game and company. The two primary factors for this evaluation are the state of the development and the amount of cash in the bank. When looking at the state of development, the further in development a company is, the more options they will have.

Worldwide publishers will be able to sign titles on a technology demonstration or design document if your team has a great track record. When developers begin this process, they must realize that as much as three to five months can pass between the initial pitch and the signing of a contract.

When dealing with smaller publishers or country-by-country publishers, this process can take as little as one month. Country-by-country publishers will have to see a working demo of the game, preferably at beta stage. Developers also need a significant base of contacts with these publishers as well as time to contact, follow up, and negotiate contracts with each.

Once a developer understands the position of their company and title, they will be in a position to determine which model is best for them. This article takes a deeper look at each business model and how it will affect their game and company both immediately and in the long run.

Advantages of the Worldwide Model

When most developers begin to think about getting a publisher for their game, the publishers in this category are the ones that come to mind. What most people do not realize is that there are far more publishers that can handle these deals than they think. Around the globe, there are about 30 with the capital and distribution networks to handle a multimillion-dollar game on a worldwide scale. Many developers will only submit their title to the top five or six that they see consistently in the press. Here are the advantages of the worldwide model.

Alleviating the Risk Early

For companies that need to have a source of revenue early in the development cycle, this is the best model to use. Companies in this situation that stand a realistic chance of obtaining a contract with a major worldwide publisher are generally new teams with a wealth of experienced individuals and companies that have been in the industry for some time and want to get a second or third team moving on a project. If ateam has a solid track record, these publishers will sign based on design documentation, technology demos, and a solid timetable of milestones. This will allow the team to work on the game without worrying about not being paid, and will save the developers from investing time in a project that will never see the store shelves. Provided all the milestones are met, the contract will cover the expenses of the project as long as it is in development.

Access to Professional Testing Facilities

Few developers have the time or the facilities to fully test a game for gameplay balancing, bugs, and compatibility. Choosing a worldwide publisher will completely eliminate this burden. The publisher will be responsible for this testing and for promptly reporting any problems to the developer. The publisher will also have a wealth of experience with games in the genre to help let you know what features and gameplay elements have worked well with retailers and consumers in the past. Many developers might believe that too much of this input destroys the game that they have envisioned, which is true when this feedback gets out of hand. However, when handled correctly, it can make the difference between a poor selling game and a top 10. Keep in mind that selling to retailers can be as important as selling to gamers. If the buyer for a major chain has a problem with the game, a significant portion of the market can vanish from under your feet-which takes us to our next point.

Better Access to Retailers and End Users

In today's retail market, being excluded from the shelves of one store can put a severe dent in the sell-through of a game. One retailer deciding not to stock a game can cause a ripple effect down the line. Other retailers will see that it is not being stocked and can turn the game down based on this as well. Worldwide publishers not only have great access to all the retail channels, they also have the weight and clout to turn a "no" or "maybe" into a "yes." Through the promise of other titles or promotions, a worldwide publisher can get a title onto some store shelves that a smaller publisher would not have the ability to do. Worldwide publishers also have the experience with similar titles to know what the end users and press liked and disliked. Developers can use this experience to create a better game and consequently a bigger hit.

Name Recognition

Some worldwide publishers will publish titles that sell great despite bad reviews. How does this happen? Gamers often buy products based on the track record of the publisher; they have faith in that company to consistently deliver a quality product. By signing a contract with one of these publishers, a developer gains an instant fan base and potential customers.

This name recognition will also carry over to the next title from a developer. By having one or more titles published on a worldwide scale by one of the larger publishers, the developer will be able to capitalize on the acquired notoriety when approaching other publishers in the future. This is a valuable tool in the process of selling and negotiating future titles.

Marketing

The larger publishers simply have more money to invest in marketing. More money invested here will generally translate into better sales. The best games in the world will not sell if they are not marketed correctly, and sometimes the extra marketing dollars will save a title that is not receiving the great reviews that everyone had planned. Small publishers will finance a few ads and some Web advertising, but the bigger publishers can produce the TV spots and in-store advertising that really push units out the door. Worldwide publishers can also afford to pay for more and better shelf space for their products. There is a reason why the games from the worldwide publishers are always up front and in the face of the consumers: the publisher pays a premium forthis location.

In addition, the more a publisher markets a game, the more name recognition the developer gets for future products. Again, this is a powerful tool for future negotiations and sales.

Relationships

One of the biggest benefits of working with a worldwide publisher is the relationship that a developer will build. Publishers will generally look to teams with which they have had a positive experience in the past to handle contract deals. These deals, which can range from add-ons to ports to the next title in a franchise series, are difficult to obtain without a prior relationship with the publisher, but can be a huge boost to the team.

A good experience with the publisher will also make things much easier the next time a developer needs to pitch a game to them. They'll remember what went right and what went wrong, and reward good teams accordingly. If a developer created a hit for them, the last thing they want to see is that team working on a project for a competitor.

Drawbacks of Worldwide Publishers

Working with worldwide publishers has a lot to offer if a developer is in a position to move on such a deal. However, these publishers also have their drawbacks.

Time Restraints

When a developer submits a title to one of the worldwide publishers, they should be aware of the time that it will take that publisher to evaluate the title. Most of these companies will have to show the title to multiple offices in North America and Europe to get the approval process rolling. These offices will evaluate the game based on the gameplay, finances, and marketability. If the game passes these steps, a board will generally have to approve the project. The higher the budget of the game, the more processes a developer can expect to go through. This process can take anywhere from one month to three months in some cases.

Contract Negotiations

Once the title is approved, the contract negotiation begins. Again, this is going to take time, as the publisher will have a large and sometimes exacting legal team reviewing the contract at each step. The developer is now looking at another one to three months in negotiation before a single dollar is transferred to them. The contracts themselves are much more stringent with the larger worldwide publishers. A developer might find that they are not getting the best deal possible with the contract that they have been presented from the publisher, and swinging the points of the contract in their favor will be a long and arduous process.

Overlooked Territories

Very few worldwide publishers have true distribution across the entire planet. In many cases, some smaller territories with a market for the game will be overlooked. True, these territories generate limited revenues, but when added together they can contribute a nice sum of money. If a worldwide publisher has no presence in South America , Portugal , or Eastern Europe , the developer might end up leaving a lot of money on the table. If the publisher has no plans to support the game in a territory, the developer would be better off selling it on their own in those markets.

Sublicensing

Worldwide publishers who do not have their own worldwide distribution will also sublicense to the territories they cannot cover directly. By sublicensing the game to smaller distributors or publishers, the worldwide publisher can generate revenue of their own with little effort. The drawback to the developer is that in most situations they are receiving a percentage of the percentage their worldwide publisher receives. With a little effort, the developer could make these sales directly and earn much more money.

Lower Royalty Rates

The sublicensing factor is not the only downside to the royalties from a worldwide publisher. Depending on the developer's track record and the profile of the project, the overall royalty rate from a worldwide publisher is generally much smaller as well. This is because the risk associated with completely or nearly completely funding a project is much higher than that involved in acquiring a nearly complete game. Consequently, the royalty rates will generally be much smaller-from 15% to 25% as a general rule. Other deal structures can generate a much higher backend for the developer.

Less Mind Share

Worldwide publishers handle dozens if not hundreds of titles each year. A developer can rarely count on getting the mind share from a worldwide publisher that they can get from a smaller territorial or country-by-country publisher. Less mind share can translate into less time spent with the producer polishing the game, and less marketing attributed to the game. All of this can easily result in fewer sales, which means smaller royalties for the developer.

High Risk for the Developer

One of the biggest concerns with the worldwide model, given the state of the industry over the last few years, is the risk involved in this type of deal for the developer. By signing full rights to a game over to one publisher, that developer has placed all of their eggs in one basket. Without a solid contract and backup plan, this could spell disaster for the developer if the publisher goes bankrupt, is purchased, or loses interest in the title.

Advantages of Country-by-Country Deals

Many developers do not consider this type of deal structure when they are looking to get their game to market. However, if a developer can meet the criteria for doing deals in this manner, they will likely see much larger returns in the long run and sometimes on the advance as well. Starting with the higher royalty rates a developer will see, let's look at the advantages of a country-by-country deal.

Royalty Rates

Royalty rates with these publishers are usually much higher from the beginning. By cutting straight to the source and dealing with a country-specific publisher, a developer can see a royalty rate of 30% to 35%. There are fewer middlemen and lesser margins to factor into the net receipts definition of the contract, so this money is passed on to the developer.

Focused Marketing

Where many worldwide publishers will use one marketing strategy for all markets, a country-by-country publisher will use the strategy that best fits their market. These strategies will vary from country to country, and the companies that specialize in one market will know which channels and strategies work best for promoting a title. The amount of revenue spent will be very close to a worldwide publisher, but the effect will be much greater as the effort is always put in the best place.

Wider Variety of Partners

There are almost 1,000 publishers of videogames around the world. Obviously, some of these publishers operate in territories that generate very small deals, but on the average there are anywhere from 10 to 20 publishers and distributors per territory. With this selection available, it is much easier for a developer to select a partner with whom they are comfortable.

Furthermore, developers will always see a greater response from publishers when they are showing a near complete title, and the options for partners that this model provides makes for a better deal for the developer.

Direct Contact with Decision Makers

When dealing with a worldwide publisher, there is a strong chance that the developer will be dealing with a product manager or producer. When a developer establishes a relationship with a country-by-country publisher, they will most likely be working with one of the principals of the company or someone nearly as powerful. This translates into a better relationship for all parties involved and a much quicker period for evaluations and contract negotiation. In many cases, a title can be evaluated and contract signed within one to two months because of the lesser amount of internal red tape from the publisher.

More Mind Share

The final major advantage a developer will see from this model is the amount of mind share the publisher grants to a project. Some of these companies will release less than one game per month. With fewer games going to the retailers, each is very important to the publisher. This places the interest of the publisher and developer perfectly in line. Both companies have to work well together to ensure a successful launch. The publisher cannot allow one of their games to fail, as it will have a drastic effect on their income for the year. With this type of dedication, the relationship will work out better for both sides.

Disadvantages of Country-by-Country Deals

Signing a contract with a country-by-country publisher has definite advantages to any developer in the industry. Unfortunately, there are several disadvantages to consider and barriers to overcome before someone can adopt this method of publishing or distribution.

Game Should Be Near Completion

One of the major disadvantages to this model is that a game needs to be nearly completed for a country-by-country publisher to invest in the game. In fact, most country-by-country publishers will not evaluate a title unless they can see at least a beta copy. Because they are handling only a handful of titles a year, they are very reluctant to take a risk on a title early in development.

Smaller Advances

As the deals that are being structured in this model only involve one territory at a time, the advances are generally much smaller. Typically, a publisher will guarantee a set amount of units at a fixed royalty rate in dollars, unlike worldwide publishers who set their royalty rates as a percentage. If they don't approach enough country-by-country publishers, a developer might find that their total advance is lower than it would have been with a worldwide publisher. This is usually offset by the royalties on the backend, as country-by-country deals are much more likely to see a sell-through than worldwide deals. Sell-through occurs when a title sells more units than the publisher guaranteed to the developer. This is the point where royalty checks are issued each month and the revenue from these payments can quickly compensate for a lower advance.

Difficulty Landing U.S. and UK Deals

Due to the small number of publishers in the United States and UK that handle deals for only their market, approaching this model will make it difficult to land a deal in these countries. Most of the publishers based in the United States and the UK only want to acquire titles that they can control on a worldwide basis. These two countries hold smaller numbers of country-by-country publishers than countries such as Germany , France , and Italy , so the deals are harder to find unless the developer truly works hard to acquire them.

Time Investment

This is the biggest disadvantage and hurdle for any developer looking to approach the country-by-country publishing model. Developers will be approaching three to four times as many publishers on average than they would for a worldwide deal. A developer has to take time to build that many more packages, follow up on those packages, and negotiate contracts. In many cases, this is a job for a minimum of two people working only on sales for the company. Once the deals are secured in all the major markets, the developer then must deal with localization efforts for each of their partners, negotiating each of the individual contracts, handling the press requests, and aiding each publisher with the marketing effort in their country. After the game has been released, the developer must keep in touch with the publishers to continue the press and marketing, and to receive their royalty reports and any money due with each report.

Conclusion

Each model outlined in this article has its advantages and disadvantages. The important thing to remember is that there is no perfect scenario for every deal or developer. Before deciding which route to take, developers should sit down and take an accurate assessment of where they are with their game and finances and where they want to be.

Selling a game to publishers is not a secret science by any means; the important things to remember with either model are to always follow up with yourleads, never exclude a potential publisher, and be professional with your partners (or potential partners) at all times. In the games industry, one burnt bridge now could easily come back to haunt the company down the road.