Let’s assume that you have managed to negotiate a deal where the publisher doesn’t recoup advances (as mentioned here) or maybe you have self-funded development and will be earning a royalty from unit one. It might seem that all is looking rosy is the cash-flow garden. Sadly there is a weed in the flower bed which may spoil things just a little. It’s the clause which defines when exactly you receive your money.
“The publisher shall, within 30 days of the end of each Accounting Period, deliver to the developer a statement showing in reasonable detail the calculation of and the total of the Net Receipts earned during the preceding Accounting Period and on receipt of an invoice shall pay to the Developer its accrued Royalties in respect of such Net Receipts.”
1. Publishers don’t pay royalties on a continuous basis. Instead they pay at set points throughout the year (the Accounting Periods mentioned in the clause). While many will define their accounting periods to be Quarterly (end of March, June, September and December) I have seen some contracts which define them as half yearly.If your game launches on 5th January the end of the accounting period will be March 31st.
2. The publisher has 30 days from the end of the accounting period to produce a royalty statement (I have seen some try for 45 or even 60 days). Unfortunately, even when the statement does arrive 4 months after the launch of your game there won’t be a cheque in the envelop.
3. “on receipt of an invoice…” - You will need to submit an invoice before the publisher will pay you. Most companies require 30, 60 or (if you let them) even 90 day payment terms.
From launch to payment in……
So if we ignore the week it takes for you to post the invoice, and go with 30 days payment terms and Quarterly accounting periods you will finally get your royalties five months after your game launched. With longer payment terms and six monthly accounting periods its even longer.
Conclusion
Following on from Raelifin’s comment I wanted to make clear that the above clause isn’t unreasonable, provided that you negotiate the exact terms. I certainly wouldn’t accept accounting periods longer than 3 months (Quarterly) or payment terms longer than 30 days. – the key point is to be aware of the impact it will have on your cash-flow.
Wow, you make it sound like publishers are nosferatu out to eat your firstborn.
In addition to royalties, don’t developers get paid when they hand over the game?
Actually the problem isn’t that publisher are evil (though I always have a clove of garlic with me when I have a contract meeting) but rather that developers don’t pay enough attention to their own business. Publishers are in business to make as much money as possible for themselves and the contracts they offer are designed to do just that. Developers focus too much on the creative side (which is great) but neglect the business aspects. They don’t understand the deal they are being offered and/or don’t understand that they can, and should, negotiate a better contract.
The clause mentioned above is fair if you negotiate the various times down as much as possible – it isn’t reasonable to expect publishers to be cutting royalty cheques every week. The key point of my post is that developers need to be aware of the cash-flow implications. They need to make sure they have another paying contract that starts as soon as their current one finishes. They can’t rely on royalties to support the company as soon as a project finishes.
Alright, thanks. The edit, I feel, adds a lot to the general message.
Just as a general question, you said that developers “can, and should, negotiate a better contract.” What about the percentage of royalties (15%)? Should a developer try to haggle for a larger slice of the pie, or is that a generally fixed number in the industry?