Analysis: Licensing Third Party IP for your Game - Where To Start?

[In this first entry of a new series of articles written for Gamasutra, Seattle attorney Mona Ibrahim runs down the important fundamentals of third-party licensing for game developers navigating the murky waters of intellectual property, from music to film licensing and beyond.] Using existing and proven intellectual property in your game can save developers significant development time and money. As a result, game developers don’t always rely on their own intellectual property when making a game. You may not always have the luxury of developing your own game engines or tools software, or have the ability to compose original soundtracks for their games. You may not even be in a position to use characters and stories you’ve created. Sometimes developers rely on third party intellectual property, or IP developed by someone else. To obtain third party IP, you need a license. Knowing what you can and cannot do with those licenses is mandatory. Understanding what you can and should negotiate is equally important. I will cover a few of the basics, but by no means all, in this series. Music Music licenses usually arise in one of two scenarios. You either only need the music and lyrics of a song and will re-record your own version or you need the original recording as performed on an album. In every case, there are three primary concerns you need to consider when dealing with music licenses: the fee, the scope of the license (how you can use the music) and the duration. Let’s take a fictional example. Mercedes is the President of Bottom Line studios and is in the process of developing an MMO for teens and young adults called Rebel Garden*. She wants to incorporate some Guitar Hero-like mechanics in her game that allows kids to jam out online. She’s also incorporating listening parties and listening stations all over Rebel Garden that allow both indie and signed acts to promote their latest releases. Before she can do any of this she’ll need a licensing system in place to get all of the music she wants to include in Rebel Garden. Music Licensing Basics Copyright law treats music in a confusing way by providing two types of protection in a recorded work. First, there’s the musical composition. This is the melody, arrangement, and lyrics of a song—more or less what you’d see if you were to buy the sheet music. Next, there’s the sound recording. This is the specific recording of a song. So any recording in any format, whether physical or digital, will have at least two layers of copyright protection. What kind of license you need depends heavily on these two forms of protection. Sync License Let’s go back to Mercedes and Bottom Line. For Rebel Garden’s rhythm and music mini-games she’s going to re-record the songs she wants to include. This will give her greater flexibility in how the songs can be performed on-line. If she includes some Tool and Kasabian songs she wants the ability to simplify the songs to make them more accessible to her younger audience. Because she’s not using the original recordings from albums like Ænima and “West Ryder Pauper Lunatic Asylum”, she only needs a license for the musical composition. This is called a sync license. The sync license is obtained through the song’s publisher, which you can research through rights management organizations like ASCAP and BMI. Co-publishing deals (where the songwriter retains 50 percent or more of her publishing/musical composition rights) are common, but even in those cases the publisher will handle the licensing (also called “exploitation”) of a songwriter’s catalog and distribute royalties to the songwriter. Master Use License (Master License) Mercedes will need a master use license in addition to the sync license for the recordings played through Rebel Garden’s listening rooms and listening stations. You can have a sync license without a master license, but you will always need a sync license for the underlying composition if you get a master license. Unless an artist self-releases the label holds the rights to reproduce, stream, or otherwise perform recordings. You will need to contact the record label that released the specific recording you want to use to obtain a license. Music License Deal Points Fee: Sync licenses for video games are still relatively new to the publishing industry. Industry standards for fees are therefore still being established. Those fees currently vary depending on the publisher/record label and the developer’s leverage. The rate can be flat fee or royalty-based. A royalty-based sync license could include an advance on the royalty, a minimum guarantee, and any number of ways of defining “net receipts” on which the royalty is based. In short there are as many ways to negotiate the fee for a sync license as there are songs in the vast catalog Mercedes needs. If Bottom Line has the leverage and the budget a flat fee may be ideal. However, if Bottom Line is relying on a big payout at the end and doesn’t have much capital in the beginning a royalty rate can still net Bottom Line the song, provided it can negotiate out of an advance. You should watch out for minimum guarantees; those guarantees will require you to pay a set amount at a specific time after the release of the game regardless of whether the game has made any money. Scope: Scope describes how you’re allowed to use the music. The “Scope” statement will include the title and a brief description of your game and limit use of the song to that game. Bottom Line will want to keep the scope of use as broad as possible to allow for current and future distribution channels within Rebel Garden. The scope should include current and future technologies both known and not yet contrived, and the region covered should be universal (think “satellites”). Term: The perfect deal allows you to use the work for as long as the rights holder retains copyrights in the work. Other ideal licenses include words like “perpetual”. Be wary, though: publishers and record labels may attempt to hedge you in by limiting you to a specific release cycle. A license may say that it will endure for the three years that your game is in print. This isn’t always a bad thing if it’s a condition to reducing the fee. However, in today’s digital distribution environment games are able to see sales long after the initial release cycle. Additional Considerations: 1) Sync licenses and Master Use licenses should match up as much as possible. This will avoid confusion in the future. If, for example, Bottom Line is using a recording and its sync license is narrower in scope than its master use license, additional rights granted in the master use license become moot. 2) Unless a developer commissions a song for their game, all music licenses are non-exclusive; this means Bottom Line isn’t the only one who can use it and its rights are limited to the scope of the license. Music licensing isn’t the only time the video game industry intersects with other forms of entertainment. One of the most prolific areas of growth in third party licensing happens in film. Movies A very different form of licensing arises at the intersection between film and games. Today almost every notable film franchise has a game or series of games based on that franchise. These licenses are generally negotiated through the game publisher and are usually so fraught with restrictions and time constraints that the game becomes little more than a mediocre merchandising tool for the film. This should be a major consideration when you’re developing for big screen properties; you generally will not enjoy the same freedoms and sense of accomplishment you may enjoy when developing original IP. And while a film IP license is often infinitely more complex than a sync or master use license, you still have a handful of major considerations: development time, approvals and creative freedom/control, and of course the budget. Let’s assume that Bottom Line Studios is approached via their publisher to produce a game for on an upcoming blockbuster. What deal points can and should Bottom Line’s publisher fight for prior to accepting this project? What hurdles will Bottom Line have to overcome to release their game? Development Time and Release Date: The single most important consideration for Bottom Line in creating a game based on film IP is lack of development time. The time Mercedes gets to develop a game based on film IP is constricted. A movie studio usually won’t consider licensing its IP for a game based on the film unless that film is 100% greenlit. This means all financing is secured, all necessary parties are committed to the deal, and principal photography is ready to begin. From beginning of principal photography to completion of post-production can take anywhere from 8 months to 2 years depending on the film’s budget, special effects, etc. However, by the time a studio gets around to finding a publisher, principal photography may be well under way unless a relationship with the publisher is already established. Assuming a relationship isn’t established, principal photography has likely already begun by the time Mercedes is given the dubious honor of developing the game. Bottom Line must deliver the game by the end of post-production. Because film studios often do treat games like merchandising and marketing opportunities, the game’s ideal street date is two weeks before the film’s release. Any developer can tell you that it is impossible to produce a triple-A title in 6-8 months. Even a marginally polished, professional product is difficult to pull off with that much of a time crunch; and it will be crunch, hours and hours of it. Unfortunately, even if a relationship already exists between the publisher and the film studio that development time usually isn’t negotiable. There are some exceptions: games based on already released film franchises, television shows, and long term film franchises (e.g., Harry Potter) are under less pressure to produce games quickly. Creative Control: Another drawback in developing games for film is an additional layer of approvals Bottom Line must obtain before they can get their next milestone payment. Milestone deliverables for a movie-based game are subject to an additional layer of approvals by the film studio in addition to the publisher’s approvals. In the studio’s mind this is necessary; studios need to preserve the integrity of their IP, and this includes monitoring the quality and content of any product licensing their IP. Unfortunately, the additional approval process takes time away from development, giving Bottom line fewer options and less time to make a fun game. If the publisher has considerable leverage and a working relationship with the studio, or if the film studio is actually interested in making a worthwhile game as opposed to creating one more merchandising opportunity, some of these approvals may be loosened. However, Mercedes should expect that every aspect of game development will be held back by this added layer approvals over all content. Budget: Unless the publisher is under the same roof as the film studio, studios don’t assist in the budget for the game. In fact budget for a third party IP game is generally less than average because of licensing fees to the studio and the shorter development time. The studio may require an advance or minimum guarantee that the publisher must pay in addition to the licensor’s royalty; this money frequently comes out of the game’s budget and the game’s bottom line. Mercedes will have to keep this in mind when preparing her milestone and payment schedule as the publisher will invariably try to make the budget as lean as possible. All of this means that Mercedes will have less money, less creative control, and considerably less time to create the game she wants; in exchange, she gets free marketing for her game in the form of the film itself and the crossover customer benefit of the franchise. This paints a somewhat bleak picture for Bottom Line. But this should be familiar if you’ve examined the status quo of games based on movie franchises. Until and unless the movie industry treats games as valuable IP in and of itself, the intersection between games and film will continue to disappoint. However, in the uncharacteristic and unlikely situation that you get a film studio willing to grant you some modicum of creative control and all the stars are aligned granting you the time and budget to do so, you may be able to produce a game that can succeed independently from the licensed IP. Clearance One additional concern in all third-party licensing is the matter of clearance and chain of title. Is it Bottom Line’s job to ensure that it can use certain properties and assets from the film in the game? For example, whether Bottom Line can use likenesses of the actors in the movie depends on whether publisher, studio, and developer have permission from the actor to use his likeness in derivative products other than the film. Whether Bottom Line can use the film score depends on if the studio owns those rights. Locations, trademarks, product placement; all of these individual components of IP must be separately licensed or included in the third-party license prior to moving forward. Missing even one seemingly unimportant license can get the publisher and developer into a world of legal trouble. Ideally Bottom Line has negotiated a publishing deal that lay this responsibility wholly on the publisher. The publisher, in turn, will likely demand some assurances and warranties concerning these assets from the film studio. At no point should clearance be Bottom Line’s problem when creating games for licensed IP. The cost of clearance should also be in addition to the budget and at the Publisher’s expense, not Bottom Line’s. Conclusion Third party licensing is a part of the games industry. It is neither simple nor, in many cases, fair. Almost every game studio that achieves some level of success may be confronted with it at some point; how you fare depends on what you’re licensing, why, and your bargaining position. (Special thanks to David Nonaka at Lionsgate and Patrick Sweeney at Reed Smith for their assistance and expertise.) * All characters, events, game concepts, and companies in this article are purely fictional. [Mona Ibrahim is a Trademark, Entertainment & Media law attorney based in Seattle, WA. She is Of Counsel with Imua Legal Advisors and her practice emphasizes copyright and trademark dispute resolution, IP registration, entertainment & media transactions, general business transactions and employment law. Mona is an avid gamer and is dedicated to serving the gaming and game development communities by providing education, helpful strategy, and legal assistance when necessary. THE INFORMATION IN THIS ARTICLE IS FOR EDUCATIONAL PURPOSES ONLY. The content of this article is not legal advice. It only constitutes commentary on legal issues, and is for educational and informational purposes only. Reading this article, replying to it via comments, or otherwise interacting with this article does not create an attorney-client privilege between you and the author. No information you provide in the comments portion of this article shall be deemed confidential.]