Tips for Reading and Negotiatinga Contract

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Tips for Reading and Negotiating a Contract

• Hire an experienced lawyer.

• Know the basics of contract structure.

• Read the contract. All of it.

• Itemize every point that needs discussion before you begin negotiations.

• Size up the publisher.

• Talk about the project's needs, not your needs.

• Maintain parity.

Hire an Experienced Lawyer

The lawyer you hire to negotiate your contract should be someone with game industry experience negotiating this kind of contract on behalf of developers. These are highly specific, complex contracts, and having your general business lawyer, or your cousin-who's-a-lawyer, read and negotiate your contract can be like asking a heart surgeon to operate on your brain. Aside from knowing the ins and outs of the contracts, an experienced attorney will have relationships with the counterparties (see definition in the next paragraph) and an idea of what you can and can't ask for from a given publisher(royalty rates, term , net sales definitions, etc.).

Know the Basics of Contract Structure

Contracts, as a genre , have a couple of stylistic peculiarities worth knowing about.

Parties. A party is any entity that will be bound by the contract, usually just the entities signing the agreement. A counterparty is usually the entity with whom you are negotiating ("the other side") on a given agreement and can refer to either party, depending on context. Generally, the counterparty to the developer is the publisher, and the publisher's counterparty is the developer.

Defined Terms. If you see a word capitalized in the middle of a sentence , understand that it is a defined term , meaning that it has been given a very specific definition earlier in the document. By referring to the defined termwhich is always capitalizedlike Game or Net Sales, the contract can be shortened by establishing the meaning of the word as the parties understand it and referencing that specific meaning. Some contracts will have a long section in the front, like a glossary, that sets out all defined terms. Other contracts have the definitions interspersed throughout.

NOTE

NOTE

Understanding defined terms is crucial to reading and negotiating contracts, and mis understanding them is the cause of much legal woe. Do not assume that the mean ing you normally ascribe to a term is the meaning contained in the capitalized expression.When reading a contract clause, if you come across a defined term, don't rely on your memory. Go back to the definition and read it through, then finish reading the paragraph.You may find that the defined term is not specific enough or that the definition needs to be modified.

Exhibits/Appendices. These terms are roughly synonymous and refer to any documents or agreements that are also a part of the main contract, but which are separated out and added on for convenience. Often a publisher's NDA will be attached as an appendix for you to sign. Another common use of the exhibit is to add specificity to a standard contract. If a company does a lot of the same transaction, with minimal variation, it may create a standard boilerplate contract and add an exhibit that states all of the specific terms (like royalty rate, intellectual property, platforms, and so forth). This is not likely to be the format of a AAA contract, but it is good to be familiar with the structure.

Read the Contract. All of It

Read it cover to cover. There is no substitute for knowing every last inch of your contract. It is valuable learning for your next negotiation, and I believe you cannot be a confident businessperson without a solid understanding of your main contracts. Contracts make the eyes glaze over this is naturalbut an ounce of diligence is worth a pound of cure. If you are relatively new to the experience, don't try to read it all in one sitting the first time. Read it slowly and carefully , especially the long paragraphs with lots and lots of commasthe lists are where landmines can be buried. Eventually, you and your partners will need to read it all through at the same time to look for consistencies and inconsistencies.

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TIP

Attorneys are not compilers: even the best, most experienced attorney occa sionally misses a point, and our favorite clients are the ones who pipe up with a "Hey, what about ."

Itemize and Prioritize

Itemize every point that you want to address before beginning negotiations. Then, prioritize that list so that you can adjust your negotiating strategy if needed.

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CAUTION

Seek legal help before you get back to the publisher. Nothing is more irritat ing to a counterparty than negotiating a set of issues, thinking you've come up with a balanced solution, and then hearing, "oh, waitwe also need you to change x, y, and z." Even when done out of genuine ignorance, it feels like a bad-faith effort to squeeze out a few more concessions and you will find more resistance than had you brought the topics up earlier.

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TIP

Sometimes, the gains that you might make from addressing every last little point are cancelled out by the bad taste a drawn-out negotiation can leave in a publisher's mouth. Prioritize carefully, and use judgment in knowing when it's time to forego a couple of points for the greater good of the relationship.

Size Up the Publisher

If you're about to dedicate a chunk of your company (and, let's be seriousyour life) to a project for the next couple of years , ask a few questions to see if the fit is a good one. If you are a new developer or have a team coming to the end of a project, the temptation can be great to hop into bed with the first six-figure advance that comes along. Where possibleand practical cash management means that it is not always possibletake the time to kick your publisher's tires. A few topics to consider:

• What is the financial condition of the publisher? You can research this by buying credit reports and/or contacting developers with whom it is currently working to see what the publisher's payment pattern is like.

• Does the publisher have a track record in the genre and platform?

• With whom will you be working during production? Marketing? What kind of experience do the production and marketing personnel have with this kind of release? How many other projects are they working on? How close is your release date to the release date of their other projects? One developer had this to say: "I'd sooner take an experienced producer with three other games than have a newbie's undivided attention."

• To how many platforms will the publisher commit for release? ( Commit means rights revert on a platform by platform basis if minimums aren't met.) All at initial? Or will they be staggered ? What will be the development budget for each platform? Will there be a common engine? If so, who will develop it?

• Who does the publisher see as the target audience for your game? What are their plans for reaching that consumer? What kind of marketing commitment is the publisher looking to make? This can be stated as a fixed number or as a percentage of sales, with a fixed minimum.

• What is the distribution strategy, by platform? How much time will you have in the retail channel before getting moved to budget? This window can be brutally short.

• What is the publisher's international release strategy? How many countries and localizations ? Do they have distribution in those territories , or will they be sub-licensing to a local publisher or engage a third party distributor?

• What are their projected sales for your title? Price point for each platform?

Maintain Parity

To maintain parity, the discussion should be between two decision- makers or two intermediaries, not an intermediary on one side and a decision-maker on the other. The latter scenario often results in the present decision-maker giving a lot more concessions than he'd like.

A contract is a lot like a massive soundboard, with every provision represented by a sliding toggle. The toggle runs from one extreme (most favorable to the publisher) to the other (most favorable to the developer). Slide every toggle to the top, and the sound is horribly distorted ; slide them all to the bottom, and no one can hear the music. The goal is a permutation of toggle positions that produces a smooth, equalized sound. In the next section, I will explain the different provisions of a typical publishing contract and give an idea of the toggle positions for each.

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