Q&A: WorldForge Talks PlayLogic Lawsuit

Russian developer WorldForge was founded toward the end of 2004, and entered into a publishing agreement for its title Ancient Wars: Sparta with Netherlands based publisher and developer PlayLogic six months later, in May of 2005. PlayLogic were to be co-funding the development along with Play Ten Interactive, a Russian publisher and developer, formed earlier that year. Play Ten’s involvement covered the early stages of the game’s development, up to the time when PlayLogic would begin paying its share of the funding across various milestones; the first set just before E3 in 2006, which went unpaid at the time. More important milestones later in the game’s development – the approval of the beta version and the localized version were delayed, and the gold masters for the title went unpaid. WorldForge and Play Ten note that they sent payment reminders to the company each time, each of which was apparently ignored. The game saw release on the 24th of April of 2007 – though its release in a number of regions was actually through Eidos Interactive - the same day the two Russian-based companies initiated a formal breach notice against PlayLogic. Although the publisher continued to promise payment to both companies, nothing materialized, with the breach cure period ending after 30 days and the game’s rights reverting back to WorldForge. Currently, the distribution rights to Sparta are being renegotiated. We spoke recently to Anna Zaeva, legal counsel for WorldForge, and Vladimir Nikolaev, the company’s development director, and asked about the lawsuit, the development period, and their views on the financial status of PlayLogic at this point in time. Gamasutra: The way I understand it, the game was to be co-developed by WorldForge, and co-funded by Play Ten and PlayLogic – is that right? Vladimir Nikolaev: The game was to be developed solely by WorldForge, and funded by Play Ten Interactive (PTI) and PlayLogic. However, the milestone split was such the largest part of the funds was to come from PlayLogic at the end of the development. How was the funding agreement originally split? It seems like a long way into development before PlayLogic actually needed to be invoiced, or even approve the timing of the payments. Anna Zaeva: Actually, around 50% of the funds were to be paid by PlayLogic after they approved the gold masters for different territories for the game. Another 20% of payments were to be made by PlayLogic for Beta version and for the localization kit. So, essentially, over 70% of the development budget up to the release was covered by our partners from PTI. GS: During pre-development work on Ancient Wars: Sparta, were there already discussions with various publishers? VN: Yes, there were some talks with a number of European publishers. GS: Which other publishers were you involved in talks with? VN: It was nearly three years ago, I can’t recall everybody. With Atari, CDV, some other companies that worked with Russians before. Actually, [PlayLogic VP for Sales] Stefan Layer was previously responsible for acquisitions of titles from Eastern Europe for Atari. GS: Why did you decide to work with PlayLogic? What did you know about the company beforehand? VN: Well, at that time - in 2005 - Atari was in a bad situation. So many people left the company; some of them went to PlayLogic and basically told us they were going to make it into next Atari. But obviously, it did not work - for a lot of reasons. We knew that PlayLogic itself was chiefly a developer, and not a very successful one. But in 2005 they’d attracted a lot of funds and seemed to be serious about the publishing business. GS: What were your opinions regarding the financial stability of the company? Had you seen anything that caused any worry at all? VN: They were relatively stable way back in 2005. They’ve picked a number of titles, including console ones, quickly and released them at the end of 2005 and beginning 2006. Their attitude was somewhat worrisome - kind of “we’re second to EA” - but we could bear that. What hopes did you have for the distribution and release of the game? VN: We watched anxiously how PC market everywhere folded, and indeed it was contracting almost as quickly as the original Xbox. Our game was PC only, but still, it was a quality product and could sell well. So we were hoping the game could be picked up for distribution by a strong European company; as to the release, we were on schedule, at least with the Russian version. GS: What did you understand to be PlayLogic's responsibilities in this regard? VN: They were responsible for producers, promotion and all kinds of outsource work, including localization. Regretfully, they did not perform as expected. Promotion failure was especially bad – they even did not pay the marketing agency. Localization was also laughable; we suspect for the same reason. GS: Were you in contact with the marketing agency, or have you been since then? Are they also involved in a lawsuit with PlayLogic? AZ: We’re doing business with that marketing agency even now, but their lawsuit is a separate one, and we do not cooperate on the issue. Playlogic owes them money for many projects, not only Sparta. GS: What kind of work was actually done in terms of localization? Do you mean the quality of it was bad? VN: The game was fully localized to English, German and French, but it was awful. We could’ve done better translation and speech in Russia with our programmers. But I can’t blame the localization team – certainly, PlayLogic tried to spare some money on them too. GS: What did the contract with the company stipulate in terms of actual milestone payments? What dates were they set for, and what where the amounts for each milestone? AZ: The agreement stated that PL was to pay 20% at signing, 10% each at Alpha, Beta and loc. kit, and the rest at the release time split by different territories. GS: Was Play Ten going to retain ownership of the IP? AZ: It sort of hung in the air, formally it was to be taken by PlayLogic, but they did not do that until the very last moment. GS: Do they own the IP at the moment, then? AZ: They’re trying to register the trademark for the name of the game in the EU trademark office, if that is what you mean. They applied right after we’ve notified them about the breach, which isn’t a very clean move. All other rights reverted back to WorldForge. GS: Who is the current distributor? AZ: Sparta is distributed worldwide – with the exception of Italy, Spain, Latin America and Russian territories - by Eidos Interactive. The game’s been on sale in North America and most EU countries since April. The title was in the Top 10 games for PC in UK for four weeks. Due to the termination of the agreement with PlayLogic, though, all rights for the product since the 1st of June reverted to the developer. GS: So PlayLogic were responsible for the release of the game in the territories not handled by Eidos? Or were they going to be doing the worldwide release? AZ: PlayLogic was the worldwide publisher (minus Russia and CIS), but distribution rights for most of the territories were acquired from them by Eidos. Now Eidos can’t keep selling the game, because all rights returned to WorldForge on the 1st of June. But PlayLogic refuses to cooperate with them to resolve the situation. In a nutshell, PlayLogic refuses to cooperate with just about anyone. This is further aggravated by the fact that both their CFO and General Counsel resigned recently. GS: What is your opinion regarding the current financial state of PlayLogic? AZ: Let’s say that money that they ripped from us and other developers was a bitter fruit. The PlayLogic shareholder report states that they’re going to cease operations in a couple of months unless they succeed in “obtaining additional financing from third parties”. Recently they were sued out of their new office, which they did not pay for either. In Q1 2007 they took a loan of US$2.1 million for 10% annual interest, which says a lot. GS: Where was their funding coming from? AZ: That is a good question. People in the industry said their CEO Willem Smit is a rich Dutch businessman and that he channeled some funds in the company to create a playground for his son Rogier. But nobody could do that for years and waste millions just on kid’s toys. However, we were okay with that as long as the business itself was managed by professionals like Layer and [CTO] Dominique Morel. VN: They’re still our friends, especially Dominique, who supported us during this crazy situation. We’ve learned a lot about true nature of PlayLogic’s business from them. GS: What are the other lawsuits the company is involved in? AZ: About a dozen different ones, mostly for refusing to pay to developers, outsource companies, agencies and so on. Some of their accounts were frozen, properties arrested and they’re flooded with dunning letters. At least, this is what our contacts in PlayLogic say. GS: Is there a chance that they can rebuild the company? What avenues do they have in regards to setting aside their debt and continuing to do business? AZ: Yes, they can. If they somehow manage to win all lawsuits and retain the ownership of the game rights for other titles (with the exception of Sparta), the payments from distributors can keep them afloat. Perhaps they won’t even pay the lawyers and so can spare some more money. Also, they’re now busy searching for 10 million euros in investments, and probably can find them somewhere using their CEO’s “connections”, so to speak. Finally, they can always go postal and start suing everybody around, hoping they can win at least in some cases. VN: As to the debt, they are actually increasing it even more – only recently they’ve signed two or three new titles, promising millions to somebody who was unlucky enough to believe them. GS: What was the reaction after PlayLogic missed the first milestone payment? What did you attribute it to at the time? VN: It was right before E3 2006 - they explained it was because of the huge expenses for preparing for the show and delays with the release of Age of Pirates: Caribbean Tales. GS: What was the level of contact with PlayLogic at that time, and what kind of communication were you receiving back from the company? VN: We were in constant contact with Dominique Morel, and Stefan Layer. Mostly they were just telling us to wait until they actually began to sell the game. GS: Have you ever received any kind of explanation you would describe as satisfactory? AZ: The major breaches started when the Gold Masters were approved. They did not pay anything afterwards, and in doing so kept the bigger part of the advance. We’ve talked with a lot of folks at the top of PlayLogic, including their EVP Rogier Smit and CEO Willem Smit. From those gentlemen we’ve received a lot of explanations like, ‘According to the Dutch laws, promising to pay is equal to payment itself’. One has to wonder why Enron did not register itself in Netherlands then. And that was among the most reasonable answers. GS: What options did you investigate before terminating the agreement? AZ: Everything permitted by the contract and the law. We’ve negotiated all kinds of possible settlements with PlayLogic, and they never were honored. We made a lot of offers for three-party agreement with their distributors, but PlayLogic refused, thereby endangering release of the game in some territories. We had considered going to court before the release, but doing so we would’ve hurt everybody, not only the defaulters. The game was in Top 10 of the most awaited games at GameSpot in April. GS: What are your plans to recover from this, and what possible costs will you incur? AZ: Again, we’re going to follow the contract to the letter. Since agreement was terminated due to multiple breaches committed by PlayLogic, we’re free to sell it to other publishers everywhere. Once we sign with publishers covering all major territories, we’ll return the funds paid so far back to PlayLogic - of course, that’s if they do not fold before then. VN: We only can recover by making more good games! GS: Finally, what advice would you give to anyone considering business with PlayLogic? AZ: Speak softly and carry a big stick, like Teddy Roosevelt used to say! VN: Nothing special, just keep an eye on your wallet and watch during meetings.