Royalties Clarification
by Angus Breck · in Torque Game Engine · 05/27/2001 (12:37 am) · 35 replies
I have a question reguarding the cut of royalties given to development teams who create a game using the V12 source as their foundation. If this has been covered in another thread I apologize. I have looked through all of the catagories and haven't found anything answering my question though, but it's a possability that I may have missed something. Anyhow...
The the way I understand things to be in the gaming industry is as such... A development company finds a publisher to front them the costs of going about creating their game in exchange for intellectual property rights and overall control of the game to be created. In return the developer receives royalties after the game is published and starts selling units. These royalties are (according to gamasutra) somewhere between 10% and 18% going to the developer.
[i]"Products published through the GarageGames download distribution channel will have a 50/50 royalty split. You can raise your royalty rate by contributing to the V12 engine, technology, documentation, tools, or community."[i]
Now upon initial reading of this I thought, "wow, 50% cut, that's quite a bit more than a newbie development company like myself would get from a publisher" but then I started thinking some more. If GG is basically arranging to dish out rights to the engine with Dynamix or whoever it is (Sierra I imagine) then they're probably getting a percentage cut to begin with. The way I figure it, this works out to be a 50% cut of an already small cut of royalties that GG gets to obtain from whoever. That would be something on the order of 50% of perhaps 15%. Not so great when think of making $3 from every $40 title you may eventually sell.
My question is, is that the case? Has GG already negotiated a slice of the V12 royalty pie in order to make this seemingly awesome engine license deal happen? If so, what are the numbers? There's a significant different between making $20 on a $40 title as opposed to $3, and this directly factors into whether or not I want to opt-in and use V12. In short, I'd like to know the whole story on royalties, feel free to include all the legalese as well since this is business and I'm sure all the serious developers out there like myself want to know the straight scoop.
Thanks for your time, sorry about the length of my post... I'm sorta wordy. ;)
The the way I understand things to be in the gaming industry is as such... A development company finds a publisher to front them the costs of going about creating their game in exchange for intellectual property rights and overall control of the game to be created. In return the developer receives royalties after the game is published and starts selling units. These royalties are (according to gamasutra) somewhere between 10% and 18% going to the developer.
[i]"Products published through the GarageGames download distribution channel will have a 50/50 royalty split. You can raise your royalty rate by contributing to the V12 engine, technology, documentation, tools, or community."[i]
Now upon initial reading of this I thought, "wow, 50% cut, that's quite a bit more than a newbie development company like myself would get from a publisher" but then I started thinking some more. If GG is basically arranging to dish out rights to the engine with Dynamix or whoever it is (Sierra I imagine) then they're probably getting a percentage cut to begin with. The way I figure it, this works out to be a 50% cut of an already small cut of royalties that GG gets to obtain from whoever. That would be something on the order of 50% of perhaps 15%. Not so great when think of making $3 from every $40 title you may eventually sell.
My question is, is that the case? Has GG already negotiated a slice of the V12 royalty pie in order to make this seemingly awesome engine license deal happen? If so, what are the numbers? There's a significant different between making $20 on a $40 title as opposed to $3, and this directly factors into whether or not I want to opt-in and use V12. In short, I'd like to know the whole story on royalties, feel free to include all the legalese as well since this is business and I'm sure all the serious developers out there like myself want to know the straight scoop.
Thanks for your time, sorry about the length of my post... I'm sorta wordy. ;)
#22
You make a title that goes to box
It retails for 39.99
How much do we get??
Thanks ...
05/31/2001 (3:48 pm)
Ok plain englishYou make a title that goes to box
It retails for 39.99
How much do we get??
Thanks ...
#23
it's not just a matter of 'well, 50% of 40 bux is 25$ so i should get 25$'...not at all.
If a publisher is fronting a somewhat hefty marketing budget for the release of the game, YOU have to pay that back before you make money. All the up-front costs of development (that were put up by the publisher) is recouped before you get ANY royalties.
This is why so many game companies go under after a single game. they get a publisher to put up alot of money, and never manage to recoup royalties enough to even pay the publisher back the upfront money, voila bankruptcy.
There are some good articles on the business of game development on gamasutra. You should look them up there and research the business that you are getting into. There is alot more involved than gross sales figures and generic percentages.
05/31/2001 (5:31 pm)
it's impossible to say 'how' much you would get of a set box-rate, due to the fact that you have no idea what other costs are involved.it's not just a matter of 'well, 50% of 40 bux is 25$ so i should get 25$'...not at all.
If a publisher is fronting a somewhat hefty marketing budget for the release of the game, YOU have to pay that back before you make money. All the up-front costs of development (that were put up by the publisher) is recouped before you get ANY royalties.
This is why so many game companies go under after a single game. they get a publisher to put up alot of money, and never manage to recoup royalties enough to even pay the publisher back the upfront money, voila bankruptcy.
There are some good articles on the business of game development on gamasutra. You should look them up there and research the business that you are getting into. There is alot more involved than gross sales figures and generic percentages.
#24
05/31/2001 (8:28 pm)
Taking all of the above into consideration, can I assume that should a team make the next "big thing" that they have the option of going with the "full" license (that $25,000 deal I've seen in various other threads) and taking you out of the picture (so to speak)? 
#25
Plain English has been used throughout the site. Here's some more. Bottom line... your product probably won't go in a box.
However, for the sake of clarification, it would go like this. Say your game is sells well on GG, and Sierra (or another publishing partner) decides to pick it up. Then we would do a different contract with you that is totally up to negotiation. The only thing set up so far is the distribution of money that comes in from the publisher, of which, 80% goes to you, the developer.
Now, we add on more hypotheticals. Say the game retails at $40. That means it has a wholesale prices of around $23. Now the publisher takes out COGS (Cost of Goods, duplication, box, etc.), which usually runs around $4-5. Then they take out another 10-15% for returns, so round off at $3 (this can balance out and be paid back later or go even higher if the game does not sell). That leaves a net of $15. Now we get to calculate royalties.
Most publishers pay between 10-15% royalties. For sake of argument, well peg it at 12%. So the gross amount that comes from the publisher to GG/developer is $15 * 12%, or $1.80. Now GarageGames takes it's 20%, so you get 80% * 1.80, or $1.44 per unit. That may sound crappy, and it is, but this is the reality of the business.
The good part is that the publisher will probably pay an advance against the above unit royalty of $100-250,000. There is also the upside of possibly making a hit that sells many hundreds of thousands of units, but I wouldn't be my kids on it.
Jeff Tunnell GG
05/31/2001 (9:31 pm)
There is no $25,000 deal for outright purchase of the V12. I don't know where that rumor started. If there were an option like that, it would be more in the $250,000 plus 4% royalty range. Plain English has been used throughout the site. Here's some more. Bottom line... your product probably won't go in a box.
However, for the sake of clarification, it would go like this. Say your game is sells well on GG, and Sierra (or another publishing partner) decides to pick it up. Then we would do a different contract with you that is totally up to negotiation. The only thing set up so far is the distribution of money that comes in from the publisher, of which, 80% goes to you, the developer.
Now, we add on more hypotheticals. Say the game retails at $40. That means it has a wholesale prices of around $23. Now the publisher takes out COGS (Cost of Goods, duplication, box, etc.), which usually runs around $4-5. Then they take out another 10-15% for returns, so round off at $3 (this can balance out and be paid back later or go even higher if the game does not sell). That leaves a net of $15. Now we get to calculate royalties.
Most publishers pay between 10-15% royalties. For sake of argument, well peg it at 12%. So the gross amount that comes from the publisher to GG/developer is $15 * 12%, or $1.80. Now GarageGames takes it's 20%, so you get 80% * 1.80, or $1.44 per unit. That may sound crappy, and it is, but this is the reality of the business.
The good part is that the publisher will probably pay an advance against the above unit royalty of $100-250,000. There is also the upside of possibly making a hit that sells many hundreds of thousands of units, but I wouldn't be my kids on it.
Jeff Tunnell GG
#26
Jeff: the deal you describe is obviously not optimal or particularlly cost effect for developers. Have you guys thought about the option of allowing developers to forego boxed and shelved retail games for the option of getting with the times and trying to sell direct from a website? You mentioned burned on demand CDs which seems a bit rough around the edges as a plan.
What about paying for 1000 pressed CDs with liners and letting us pedal our stuff directly from the GG website (e-commerce style) and/or getting shacked up with one (or more) of the computer software retail sites that live through this gut-check period in the economy? Getting short runs of CDs pressed can't possibly be that expensive (compared to the alternatives) and has to be more profitable for everyone involved. Of course this won't have the sort of exposure as a nice front and center spot on an Electronics Boutique, but it may be possible to make up for quantity with higher margins (or at leat lower costs).
Oh and a quick clarification questiona bout your announcement that the EULA will be changed to reflect the now First Right of Refusal that's going to be given to us developers on sequels and spin-offs (which I think is already a nice deal mind you, I'm not about to flame that)....
Will GG still control when and what spin-offs/sequels are released? You've used the old "if the developer drops off the face of the earth and we can't find them to update their title" line a few times and I pose to you this situation. My game is a relatively decent sized cult hit with a good brand and franchise setup with the first game. I'm around, and I've got money in my pocket and the confidence to keep running the race. Am I going to have to wait for GG to approve or think of a sequel and all the various details or can I be the good developer who stuck around and continued to build the franchise in the first place with another title? What about also allowing us developers the ability to off YOU the first right of refusal on another title?
Quite simply, I think a lot of people want to keep building their game's franchise after the first release, and I just want to know if we have to wait for GG to decree that it will happen before it will.
06/01/2001 (12:02 am)
I think Jeff's latest break down is going to cast the harsh light of reality on more than a few people with dreams of raking in the dough. Hell I've read how slim the profits are for developers in the past but every time I see it it's rather shocking all over again.Jeff: the deal you describe is obviously not optimal or particularlly cost effect for developers. Have you guys thought about the option of allowing developers to forego boxed and shelved retail games for the option of getting with the times and trying to sell direct from a website? You mentioned burned on demand CDs which seems a bit rough around the edges as a plan.
What about paying for 1000 pressed CDs with liners and letting us pedal our stuff directly from the GG website (e-commerce style) and/or getting shacked up with one (or more) of the computer software retail sites that live through this gut-check period in the economy? Getting short runs of CDs pressed can't possibly be that expensive (compared to the alternatives) and has to be more profitable for everyone involved. Of course this won't have the sort of exposure as a nice front and center spot on an Electronics Boutique, but it may be possible to make up for quantity with higher margins (or at leat lower costs).
Oh and a quick clarification questiona bout your announcement that the EULA will be changed to reflect the now First Right of Refusal that's going to be given to us developers on sequels and spin-offs (which I think is already a nice deal mind you, I'm not about to flame that)....
Will GG still control when and what spin-offs/sequels are released? You've used the old "if the developer drops off the face of the earth and we can't find them to update their title" line a few times and I pose to you this situation. My game is a relatively decent sized cult hit with a good brand and franchise setup with the first game. I'm around, and I've got money in my pocket and the confidence to keep running the race. Am I going to have to wait for GG to approve or think of a sequel and all the various details or can I be the good developer who stuck around and continued to build the franchise in the first place with another title? What about also allowing us developers the ability to off YOU the first right of refusal on another title?
Quite simply, I think a lot of people want to keep building their game's franchise after the first release, and I just want to know if we have to wait for GG to decree that it will happen before it will.
#27
We feel the combination of ESD and burn on demand CD's is the best route due to the expected demand. However, if a game is selling at a pace that would warrant replicating them in lots of 1,000, we would do so. It is a little cheaper, but has a 10 day lead time. In either case, the developer gets 50% of the revenue, so it is the best deal you can find.
I don't think selling product individually from your own website will do you any good. I have talked to many shareware/independent game companies, and the numbers are pretty low. Again, I hate to rain on the parade, but the numbers are low.
One developer sold five units in this manner. Another was selling at a clip of 7,500 per year. And, finally, there are some success stories as well. For example, DXBall is selling at a rate of $25,000 per month.
It is our hope that banding together and getting decent technology into hands of developers such as yourself, will result in a bunch of creative and fun products that are available nowhere else on the Web. GG will be a destination site for all players, and the numbers can go up.
As to sequels. You can make a sequel or spin off of your product any time you like. We do not control that.
Jeff Tunnell GG
06/01/2001 (12:03 pm)
Angus,We feel the combination of ESD and burn on demand CD's is the best route due to the expected demand. However, if a game is selling at a pace that would warrant replicating them in lots of 1,000, we would do so. It is a little cheaper, but has a 10 day lead time. In either case, the developer gets 50% of the revenue, so it is the best deal you can find.
I don't think selling product individually from your own website will do you any good. I have talked to many shareware/independent game companies, and the numbers are pretty low. Again, I hate to rain on the parade, but the numbers are low.
One developer sold five units in this manner. Another was selling at a clip of 7,500 per year. And, finally, there are some success stories as well. For example, DXBall is selling at a rate of $25,000 per month.
It is our hope that banding together and getting decent technology into hands of developers such as yourself, will result in a bunch of creative and fun products that are available nowhere else on the Web. GG will be a destination site for all players, and the numbers can go up.
As to sequels. You can make a sequel or spin off of your product any time you like. We do not control that.
Jeff Tunnell GG
#28
Well what I was actually thinking was more of something along the lines of calling up the dudes at someplace like Outpost.com who doesn't have any actual storefronts but seem to do quite nicely with their online sales. Selling on the developer's own site wouldn't be particularly smart as you noted. I bet a few online joints would be receptive to something like "we'll ship you a bunch of CDs and you sell them off of your established Amazon.com website but it'll only be an online thing, nothing to put in your stores" given enough critical mass of people wanting the game.
In short, I'm always thinking about more protentially profitable ways to sell something without having to resort to the age old game publish method wherein I make about the price of a small Starbucks coffee per unit sold. ;) It seems like GG wants to venture down the uncommon path to profits, so perhaps when the time comes you guys will be receptive to some well thought out new routes to the $$$. ;)
Sweet. Here I thought you guys took total control of the sequel approval stuff forcing us to abandon our franchise. Happy to see that my assumption was incorrect. =)
06/02/2001 (3:35 pm)
Sounds good on the CD pressing front. So long as the only way to get the game online isn't via a 100+ megabyte download it's all good. Quote:I don't think selling product individually from your own website will do you any good. I have talked to many shareware/independent game companies, and the numbers are pretty low. Again, I hate to rain on the parade, but the numbers are low.
Well what I was actually thinking was more of something along the lines of calling up the dudes at someplace like Outpost.com who doesn't have any actual storefronts but seem to do quite nicely with their online sales. Selling on the developer's own site wouldn't be particularly smart as you noted. I bet a few online joints would be receptive to something like "we'll ship you a bunch of CDs and you sell them off of your established Amazon.com website but it'll only be an online thing, nothing to put in your stores" given enough critical mass of people wanting the game.
In short, I'm always thinking about more protentially profitable ways to sell something without having to resort to the age old game publish method wherein I make about the price of a small Starbucks coffee per unit sold. ;) It seems like GG wants to venture down the uncommon path to profits, so perhaps when the time comes you guys will be receptive to some well thought out new routes to the $$$. ;)
Quote:As to sequels. You can make a sequel or spin off of your product any time you like. We do not control that.
Sweet. Here I thought you guys took total control of the sequel approval stuff forcing us to abandon our franchise. Happy to see that my assumption was incorrect. =)
#29
Per selling a game through your own website, I think that it wouldn't be as good an idea as going through GG for the actual sales-end of it all. The reason being, a would-be buyer would show up at Garage Games' website to shop around, since it's going to be like a clearing-house for games. Now, if you're going to have a really great web page to promote your product, I figure it would be a good idea for GG to have the option of linking to a developer's page for further info on the individual games (unless GG wanted to host those pages). Then, as far as purchasing the game, just direct the "Buy This Game" link on the developer-website back to the appropriate page at Garage Games.
Otherwise, you're going to have to exercise due-diligence in your bookkeeping when GG wants to know how much you've made. It's more hassle than it's worth. No matter how the people find your web page, it's better off being a marketing-device than to have the actual sales go through it. I don't think that there would be any advantage to selling the game through your own site, and can see several disadvantages.
06/02/2001 (10:42 pm)
This isn't really about royalties, but goes to one of the questions in the thread:Per selling a game through your own website, I think that it wouldn't be as good an idea as going through GG for the actual sales-end of it all. The reason being, a would-be buyer would show up at Garage Games' website to shop around, since it's going to be like a clearing-house for games. Now, if you're going to have a really great web page to promote your product, I figure it would be a good idea for GG to have the option of linking to a developer's page for further info on the individual games (unless GG wanted to host those pages). Then, as far as purchasing the game, just direct the "Buy This Game" link on the developer-website back to the appropriate page at Garage Games.
Otherwise, you're going to have to exercise due-diligence in your bookkeeping when GG wants to know how much you've made. It's more hassle than it's worth. No matter how the people find your web page, it's better off being a marketing-device than to have the actual sales go through it. I don't think that there would be any advantage to selling the game through your own site, and can see several disadvantages.
#30
Jeff, I have ANOTHER question. Someone asked this above about outpost.com and would like that clarified. Say you have a site like that sell the game for 10 bucks just say. Outpost takes 4 dollars from that and then could GG and the developer split the 6 bucks remaining 50/50??
This is another one of those hypothetical questions since all bases should be covered ...
06/03/2001 (4:05 am)
Yes Thomas good idea.Jeff, I have ANOTHER question. Someone asked this above about outpost.com and would like that clarified. Say you have a site like that sell the game for 10 bucks just say. Outpost takes 4 dollars from that and then could GG and the developer split the 6 bucks remaining 50/50??
This is another one of those hypothetical questions since all bases should be covered ...
#31
Remy de Vries
06/03/2001 (5:22 am)
By giving other companies the chance (like outpost) , to sell our games, GG looses the exclusivity that it's got now. I don't thing GG is going to do this, pure for the name, and for the money.Remy de Vries
#32
Again, to restate our position, you cannot sell anywhere but the GG site.
Jeff Tunnell GG
06/03/2001 (7:32 am)
You cannot sell to Outpost. Besides, Outpost is no different than any other retailer, mostly selling standarad box product. They do have some downloads through Digital River, but it is not a huge part of their business.Again, to restate our position, you cannot sell anywhere but the GG site.
Jeff Tunnell GG
#34
Jeff Tunnell GG
06/03/2001 (4:25 pm)
You can hype your product all you want on your own site. However, when it comes time to "Click Here To Buy", it has to go to the GG site to collect the money, etc. In other words, it has to be sold from the GG site.Jeff Tunnell GG
#35
As somone earlier said, the initial money that comes flowing from your game goes to the publisher untill they have made thier money back and decide to start sending you some of it..
Im hoping it will be a different case with the downloading from the GG website scheme.
personally this idea is alot more appealing to me, our team will be releasing our game for free during testing and will release the game as a free download playable for 1 month and then there will be ongoing charges.
Alot of companies dont factor in the return time and start to go downhill after the game release.
Something I would also like to ask, will the games only be downloadable from the GG website? If our game is a free download, hopefully we can also mirror it on other sites seeing as though the gg website may get flooded.
06/03/2001 (6:37 pm)
Just to let some people know, if you make a game and have a royalty agreement with your publisher, dont expect to start seeing any cheques for at least 6 months or so after the game is released.As somone earlier said, the initial money that comes flowing from your game goes to the publisher untill they have made thier money back and decide to start sending you some of it..
Im hoping it will be a different case with the downloading from the GG website scheme.
personally this idea is alot more appealing to me, our team will be releasing our game for free during testing and will release the game as a free download playable for 1 month and then there will be ongoing charges.
Alot of companies dont factor in the return time and start to go downhill after the game release.
Something I would also like to ask, will the games only be downloadable from the GG website? If our game is a free download, hopefully we can also mirror it on other sites seeing as though the gg website may get flooded.
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