How It Works

Publishers, those in the business of selling games, have no interest in ideas. They want teams that have what it takes to turn those ideas into reality. Once a publisher has sufficient confidence in the developer's ability to deliver a profitable game, the publisher will fund the development process and share the fruits of the commercial release, after their investment is recovered in accordance with the contract.

The method used to accomplish this is a combination of advances and royalties. The development budget and royalty rate are essential parts of every developer contract.

Payment Schedule

The total advances under the contract are divided into a series of payments. The publisher advances money to the developer throughout the development period based on a series of production milestones. This system of milestones is established to allow a publisher to protect their interest by requiring the developer to deliver ongoing builds of the game for evaluation and approval during the course of development, while the advance payments allow the developer to work in relative financial security. The failure of a developer to satisfactorily meet their milestones can result in a termination of the contract and the end of any further payments by the publisher to the developer.

Royalties

Royalty rates are calculated from the net proceeds of game sales, after the publisher's costs related to the production, manufacture, and distribution of the game have been deducted. The developer's portion of royalties is first applied to "recoup" the advances the publisher made to the developer. After all advances have been repaid from the developer portion of the net receipts as defined in the contract, royalties begin to flow through to the developer.